Despite its strong economic credentials, doing business in Luxembourg can be a difficult task without prior knowledge of the corporate landscape. Here are some of the areas that can trip up a commercial business new to the Grand Duchy.
It might be small, but tiny Luxembourg packs a punch on the international business stage. Nestled in the heart of Europe, Luxembourg's size means it has necessarily taken on outside influences to stay relevant, and its diverse activities help make it competitive, strong and stable. It's also the easiest place in the world to trade across borders, according to World Bank rankings.
The country is a founder member of the European Union, NATO and the UN, and the city of Luxembourg is the seat of several institutions and agencies of the EU. It is a political centre as well as a financial hub for the region. With strong economic credentials, doing business in Luxembourg can be a difficult task without prior knowledge of the corporate landscape. Here are some of the areas that can trip up a commercial business that is new to the Grand Duchy.
1. Getting set up
Luxembourg is ranked 66th in the world for ease of doing business by the World Bank in 2018. Lawyers, doctors, statutory auditors, banking and certain financial services and insurance are covered by different laws to the majority of businesses, so your area of commercial activity will govern how easy it is to set up and start trading. Income tax, VAT and social security registration is also required. If you're registering a holding company in Luxembourg, you'll need to meet the necessary requirements for authorised capital, shareholders, accounting and auditing among other items.
2. Proving your professionalism
To apply for a business permit from the Ministry of Small and Medium Sized Businesses, you will need, among other things, to provide evidence of your professional qualifications and your professional integrity. The way you do this will depend on your profession and background - but the good news is you can provide documents in German, French or English.
3. Organised labour
Companies and individuals carrying out commercial activities must become members of the Luxembourg Chamber of Commerce, while skilled craftsmen must become members of the Chamber of Trades. This will be done automatically; the tax authorities will notify the relevant chamber on your behalf.
Luxembourg also has a strong history of workforce representation, with works councils found in most businesses. These are a "shop-floor" organisations representing workers as a local complement to trade unions, and must be kept informed and included in major business decisions. This can be a challenge for businesses used to employment-at-will labour laws.
There is a minimum statutory wage (salaire social minimum) - among the highest in the world - which applies to all employees and assures fair payment. The exact rate is determined by the employee's age and qualifications.
It takes an average of 11 procedures and 157 days to receive construction permits in Luxembourg, and several inter-governmental departments must be consulted during the process, such as the Cadastre Administration, the Environment Department, the Urban Department (service de l'urbanisme) of the Commune and the Ministry of Works. Getting an electrical connection is somewhat quicker, taking five procedures and 56 days. Planning, as always, is essential if building or connecting new premises.
5. Physical establishment and substance
To apply for a business permit in Luxembourg, you'll need to have a fixed physical establishment in the country. There are various rules about size and what constitutes "substance" for different regulations, and there are many regulators keeping a keen eye on this aspect of international business. Having a substantial office is one way to stay on the right side of the tax authorities. Local partners such as TMF Luxembourg can help to make sure your business meets the necessary requirements.
6. Tax obligations and investment funds
There are 23 tax payments to be made each year by businesses operating in Luxembourg, taking around 55 hours a year to process. Corporate tax rates are very competitive, although certain levies - such as property tax and net wealth tax - can take a bite out of personal and company earnings. There have been a number of changes to the Luxembourg tax environment to align the country to global standards. You can read about them here.
Individuals are taxed on worldwide income. You are considered a resident if you are fiscally domiciled in Luxembourg, or if you reside in the country for more than six months in one year. Expats are granted special tax exemptions in an effort to attract skilled foreign workers to the country.
Luxembourg is the go-to destination in EMEA in the investment funds space due to the flexibility of vehicles with their different legal forms. But when it comes to choosing the right investment fund, there are some key factors that must be considered. These include the fund size, nationality and tax residency of investors and the nature and complexity of the investment strategy.
Working with a service provider that has experience with structures across the full investment spectrum is recommended.
Business is conducted in a very formal manner in Luxembourg, and there is typically a distinct separation of personal and corporate life. Small talk is important in building rapport, but be sure not to ask personal questions. Luxembourgish is the national language, although French, German and English are widely spoken.
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TMF Group has a strong presence in Luxembourg, and the necessary fund administration, accounting, tax, HR and payroll, corporate secretarial and capital markets knowledge to help you navigate the country's key business challenges.
Whether you want to set up in Luxembourg or streamline your existing operations, Contact us today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.