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Establish a Holding Company in Luxembourg

Establish a Holding Company in Luxembourg

The holding companya legal entity created for the purpose of owning shares or other assets, is a very popular business form in Luxembourg as it offers many advantages to its owners. Foreign investors who want to establish holding companies in Luxembourg must follow the same procedures as for setting up other types of companies. Below, our lawyers in Luxembourg explain how to open a holding company in the Grand Duchy.

 Quick Facts  
Legal entities used 

– private limited liability company,

– public limited liability company,

– tax exempt holding company (SOPARFI),

– limited partnership,

– co-operative

Incorporation method 

Usual registration with the Luxembourg Companies Register 

Incorporation time 

 Approx. 3 weeks

Types of assets owned by the holding 

– shares,

– real estate,

– intellectual property etc. 

 Requirment for local bank account (Yes/No)

 Yes

Residency requirements for the founder(s) 

 No

 Advantages

– tax exemptions,

– easy to register,

– good reputation of Luxembourg,

– access to double tax treaties 

 Precautions

Special conditions under the EU Parent-Subsidiary Directive 

Shareholding structure 

At least one shareholder

Minimum capital 

– EUR12,500 for private companies,

– EUR30,000 for public companies 

Taxation 

– 15% on income below EUR175,000,

– EUR26,000 for the first EUR 175,000 plus 31% on income ranging from EUR 175,001 and EUR200,000,

– 17% on income above EUR200,000

Control 

 Full foreign control of the parent company

 Registered agent requirements

No local agent is required, however, such services are available 

 Accounting and reporting

Audited financial statements must be filed no later than 6 months from the end of the financial year 

 Number of double taxation treaties Approx. 80 
 Applicable legislation  Commercial Companies Law

Availability of various types of holding companies (YES/NO) 

Yes 

 Types of Luxembourg holding companies

– financial,

– operational,

– management,

– organizational

Documents required for registration 

– Articles of Association,

– details of the shareholders,

– details of the director(s),

– proof of registered address,

– bank statement regarding the issuance of the share capital 

 Local director required (YES/NO)

 No, there is no need to appoint a resident director.

 Management status (natural person/corporate director)

 Both natural persons and corporations are accepted.

 Uses of a holding company

– share ownership,

– intellectual property ownership,

– acquisition of various assets,

– controlling other companies

 Access to the EU Parent-Subsidiary Regime (YES/NO)

 Yes, as Luxembourg is a member of the European Union.

 Types of shares it can issue

 Registered and bearer shares can be issued.

 Requirement to appoint an auditor (YES/NO)  Yes, a holding company must appoint a statutory auditor.
 Special authorization requirement (YES/NO)

 Yes, in the case of financial holdings, approval from the Financial Supervisory Commission is required.

 Access to specialized local workforce (YES/NO)

 Yes, Luxembourg offers access to financial professionals.

 Possibility to operate in other countries (YES/NO)

Yes 

 Requirement to travel to open a holding company (YES/NO)

No, there is no need to travel to Luxembourg to create a holding. 

 Holding company registration support (YES/NO)  Yes, our lawyers in Luxembourg offer such a service.

Forms of the Luxembourg holding company

Luxembourg holding company can be registered under one of the following entities:

  1. A private limited liability company, shortly known as SARL, which is the most popular business form in Luxembourg;
  2. A public limited liability company, also known as SA, which is suitable for large businesses;
  3. A partnership limited by shares, also known as SCA, which can be set up by at least two members;
  4. A co-operative, shortly known as SC, which falls under the prospect of the Luxembourg Civil Code.

Most of the times, Luxembourg holdings are registered as SARLs or SAs which imply minimum share capital requirements of EUR12,500 in the case of the SARL, respectively EUR30,000 in the case of the SA.

We also invite you to read more about the holding company in the infographic below:

Holding_Company_in_Luxembourg.png

Types of holding companies in Luxembourg

Luxembourg is known as a reputed financial center not only in Europe, but in the entire world. Holding companies are very popular here, which is why they can take various forms depending on their activities.

The following types of holding companies can be created in Luxembourg:

  • operative,
  • financial,
  • management,
  • organizational.

Out of all of these, the financial holding company is the most popular. If you want to create a holding company in Luxembourg, you can request the help of our law firm.

Requirements for setting up a holding company in Luxembourg

As seen above, the holding company in Luxembourg can take the legal forms imposed by the Company Law. However, these have different requirements. Out of all entities, the private limited liability company is the most employed business form for a holding.

When choosing to open a holding company in Luxembourg, the following requirements must be complied with:

  • the company must have a trading name which must be reserved with the Trade Register,
  • various documents must be prepared, among which the Articles of Association are essential,
  • the company must also have a share capital which must be demonstrated through a bank statement,
  • the company must have at least one director, however, specific provisions apply,
  • the holding must also have a legal address in Luxembourg prior to incorporation.

All the documents for the creation of a holding company must be filed with the Trade Register. These can be drafted and submitted by our lawyers in Luxembourg.

There is no need to move/ travel here in order to open a holding company, however, we can also answer any questions related to immigration to Luxembourg if you choose to relocate here. 

Trading name reservation for a holding company

There are several aspects that need to be considered when it comes to the trading name of a holding company in Luxembourg, apart from the usual requisite of being unique (verifications can be made in this sense). Also, the Luxembourg Company Law specifically requires that the name of a holding does not contain or resemble the name of any of the shareholders.

Registered address requirements for a holding

Just like all domestic businesses, a Luxembourg holding company must have a legal address in the Grand Duchy. This can be an office space or any other address, as long as it can receive official letters, documents and other notifications.

It should be noted that foreign holding companies can also operate in Luxembourg through local offices, but they must also appoint local agents who can provide various services. From this point of view, our law firm can act as a registered agent on behalf of holding companies.

Holding company management in Luxembourg

There are two management structures that can be employed when creating a holding company in Luxembourg. These usually depend on the size of the company.

The members on the Board of Directors may also be stockholders. If a corporation has a single board, the shareholders elect the directors at the annual general meeting. If the company has two boards, the supervisory board elects the directors. The Board of Directors may be removed at any moment by the shareholders.

It is also possible for the holding to have foreign directors who can immigrate to Luxembourg with the help of our lawyers.

The company can use one director if the business’ share capital is below 500,000 euros or if it has one shareholder. Large companies can use a management board and a supervisory board that must be stated in their Articles of Association. In this case, the board must be made of minimum three members who can also be shareholders.

All the requirements associated with the appointment of company directors can be explained by our Luxembourg lawyers.

If you are interested in immigration to Luxembourg for the purpose of managing a holding company, we can answer your questions.

Share capital requirements for a holding company in Luxembourg

The minimum amount of money required for the creation of a holding company is EUR30,000, however at least 25% of it must be deposited upon the incorporation of the business with the Companies House.

The uses of a holding company in Luxembourg

Luxembourg holding companies can be used for various purposes, among which the most common are:

  • for owning shares in one or more companies;
  • for owning intellectual property rights;
  • for acquiring an inheritance;
  • for e-commerce purposes.

Our law firm in Luxembourg can help investors who want to register a holding company here.

The financial holding company in Luxembourg

One of the most employed types of holding companies in Luxembourg is the financial one. Also known as SOPARFI, which is short from Sociéte de Participations Financières, its main use is related to owning and managing shares in other companies known as subsidiaries.

Taxation of the holding company in Luxembourg

The levies a Luxembourg holding company is subject to are:

  • the corporate tax of 15% on income below EUR175,000;
  • a corporate tax of EUR26,000 for the first EUR 175,000 plus 31% on income ranging from EUR 175,001 and EUR200,000;
  • a corporate income tax rate of 17% on income above EUR200,000;
  • the contribution to the unemployment fund – 4%,
  • the share transcription tax – 0.5%,
  • the share registration duty – 0.6%.

Despite the taxes imposed, the holding company can benefit from Luxembourg’s double tax treaties which will significantly reduce the tax burden.

Audit requirements for holding companies in Luxembourg

Small holding companies in Luxembourg are required to undergo statutory audits, whereas medium-sized and larger corporations must undergo audits conducted by independent auditors who are registered with the Companies Register in the Grand Duchy.

A statutory auditor for a small holding company may be one or more individuals or organizations, and they may or may not be stockholders. Additionally, these auditors are subject to dismissal at any time and are chosen at the public meeting.

If a medium-sized to large enterprise fits two of the following three requirements, it is legally compelled to hire an independent auditor:

  • the net turnover is more than 6.25 million euros;
  • the balance sheet exceeds 3.125 million euros;
  • it has over 50 workers.

Luxembourg holding companies have to submit annual tax returns. These need to comprise:

  • a balance statement showing profits and losses;
  • a report on of audit;
  • a list of the company’s auditors and directors;
  • a list of shareholders that includes information about those who have not paid for their shares in full.

Annual general meetings of Luxembourg holding companies are required in order to review the annual accounts. The meeting needs to take place no later than 6 months following the end of the fiscal year.

Feel free to get in touch with our lawyers in Luxembourg for detailed information on the legal requirements related to the appointment of auditors.

We invite you to watch our video below about holding companies in Luxembourg:

Why open a holding company in Luxembourg

There are many reasons for which local and foreign investors can choose Luxembourg for the creation of a holding company. Apart from having very well-established regulations which will increase businesspersons’ confidence, the Grand Duchy also offers other advantages, among which:

  • tax advantages if the holding company qualifies for the participation exemption regime,
  • access to a large network of double taxation agreements,
  • easy incorporation and corporate bank account opening procedures compared to other European jurisdictions,
  • professional workforce in the financial field which is the country’s most important economic sector.

When adding that Luxembourg is an European Union member state and operating from here in other member countries is quite simple, it becomes even more appealing to create a holding company here. Our immigration lawyers in Luxembourg can help you if you want to move to the country for business purposes.

The EU Parent-Subsidiary Directive

The Parent-Subsidiary Directive, which established a single taxation system for parent companies and subsidiaries of various Member States, was adopted by the EU in 2003 and it also applies in Luxembourg.

The purpose of the Directive was to improve tax efficiency, particularly with regard to profit sharing within EU company groupings, such as holding companies by:

  • eliminating dividend withholding taxes between connected businesses in various EU member states;
  • avoiding parent corporations from paying double taxation on the earnings of their subsidiaries.

This is a particular advantage for Luxembourg, as it cannot be considered a tax haven from this point of view.

Two conditions must be satisfied for a Luxembourg holding company to be eligible for the participation exemption for capital gains realized on shares and dividends received:

  • the first requirement relates to the subsidiary’s shareholding; specifically, the Luxembourg parent company’s interest must be significant (it cannot be a portfolio investment);
  • the subsidiary is subject to a tax test.

Either a participation of 10% in the subsidiary’s share capital or a participation with an acquisition value of at least EUR 1.2 million must be owned by the Luxembourg holding company. This qualifying involvement must be maintained for a full year.

For the second requirement, the tax test implies for the holding company:

  • to be an EU entity covered by article 2 of the Parent-Subsidiary Directive;
  • to be a qualifying Luxembourg resident entity fully subject to the Luxembourg income tax;
  • or to be a capital company subject to an income tax in its country of residence that is comparable to the Luxembourg corporate income tax (i.e., a tax rate of at least 10.5% and a comparable tax base).

Our immigration lawyers in Luxembourg can also give you details about the relocation process if you consider moving to this country after opening a holding company. For immigration to Luxembourg with the purpose of obtaining citizenship, you must be at least 18 years old, have resided in Luxembourg for minimum 10 years and speak all three national languages with ease (French, German and Luxembourgish). You can get in touch with our law firm for detailed information on all conditions.

If you are interested in setting up a holding company in Luxembourg, you can contact our local lawyers for assistance through the registration process. You can also rely on our Luxembourg lawyers if you want to establish other types of companies here.