Incorporating IBCs in Luxembourg

As in other offshore tax havens, International Business Companies (IBCs) in Luxembourg enjoy the combined benefits of tax exemption, anonymity, privacy protection and limited liability sans any paid up capital requirement. Also they can trade with other establishments worldwide.

Luxembourg has low social charges and tax treaties with scores of nations, when compared with its neighbours.

In Luxembourg, there are 2 main types of commercial limited liability companies, the SARL ( Société à Responsabilité limitée) and the SA (Société Anonyme). Two specific holding company structures are provided for by law, the 1929 holding company and the SOPARFI.

The company formation procedure in Luxembourg typically takes 10-14 days. The company will be incorporated using your desired name. Please note that companies incorporated in Luxembourg are subject to taxation, accounting and auditing. Most other offshore jurisdictions are exempted from that.

The SARL companies could be incorporated with a minimum capital of  EURO 12.400. They are devoid of bearer shares and should have at least one shareholder and one managing director. No statutory external auditor is required and if the company has shareholders fewer than 25, the annual shareholders’ assembly could be done away with altogether. SA companies could be floated with a minimum capital of EURO 31.000 with a choice of registered or bearer shares. They should have at least two shareholders and three managing directors in addition to an independent auditor. Also an annual assembly of shareholders is mandatory.

1929 Holding Company

The 1929 holding company is exempt from all forms of Luxembourg taxation but its activities are restricted to the holding of shares and certain other financial instruments. The company may not invest in commodities or futures, or carry out any sort of commercial or industrial activities. Under legislation implemented in 2004, the tax status of 1929 holding companies was modified.

SOPARFI

Contrary to the 1929 holding company the SOPARFI may carry out normal industrial and commercial activities. It benefits from an exemption of taxation on dividends and capital gains on share transfers, provided certain requirements are met.

In 2004 the Luxembourg Parliament passed the final text of legislation on SICARs (Sociétés d’Investissement en Capital à Risque) that defines venture capital as direct or indirect investment in an entity to finance the launch, further development or flotation of the entity. This definition covers a wide variety of investment forms in addition to straight equity, such as corporate bonds, mezzanine finance, and convertible bonds. As SICARs are high-risk investments, the law restricts access to professional, institutional and 'knowledgeable' investors.

Taxes

Corporate Income Tax (IRC) for Luxembourg trading companies is charged at on worldwide income, subject to foreign tax relief in accordance with applicable double tax treaties. A Municipal Business Tax (ICC) on profits is charged on taxable income. The maximum effective rate is 30.38%. Losses may be carried forward indefinitely. Fiscal integration is also possible if the parent company owns at least 75% of the subsidiary. Capital gains for corporation are treated as ordinary income and taxed accordingly. Wealth Tax is charged on the net asset value of a company as at 1st January of each year. There is a Withholding Tax of 20% on dividends (zero on dividends paid to an EC parent), one of 10% on royalties, but none on interest. Tax treaties may reduce withholding taxes. The Capital Registration Duty of 1% (Droit d'Apport) is charged on incorporation and substantial capital increases. Trading companies can benefit from Investment Tax Credit. These companies are subject to Value Added Tax and must register for VAT when their turnover exceeds the threshold.

Company incorporation in Luxembourg

In order to incorporate a company fully under Luxembourg law the following have to be catered for:

• Deposit of funds representing the company’s capital with a Luxembourg bank

• Bank must block the funds and issue a certificate

• The bylaws must be approved by the shareholders and notarized.

• The bylaws must be filed with the clerk of the commercial registry and the taxes paid to the public treasury.

• Notice of the incorporation must be given in the official journal of Luxembourg (Mémorial). A registration certificate must be issued by the clerk.

Once all the necessary documents including a certified copy of passports of the shareholders and officers, and information are ready and the costs of the incorporation fully paid, the company can be set up in a few days, or even in 24 hours in cases of emergency. The documents should show the name, date and place of birth and address of the bearer.

Capital

Technically the initial capital cannot be regarded as a cost as it is available for the use of the company, but it should be included in the shareholder’s budget. A minimum capital of EURO 12.400 is required for the SARL and at least ¼ of 31.000 euros for the SA, i.e. 7.777euros. A 1% tax on the amount of the company’s capital is payable to the public treasury and the legal fees usually comes to EURO 1.600.

Other expenses include EURO 1.200 for stamp duties, notarization of documents, fee for the Commercial Registry and finally for publication in the Official Journal. The financial services sector in Luxembourg is regulated by the Commission de Surveillance du Secteur Financier (CSSF).

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