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Setting up a SARL in Luxembourg: Private Limited Company Incorporation

Ashish M. Shaji

| Updated: Oct 28, 2022 | Category: Global Registration

Setting up a SARL in Luxembourg: Private Limited Company Incorporation

Private limited company incorporation is one of the most common forms of companies incorporated around the world. Considering the various benefits attached to such incorporation, entrepreneurs prefer to set up a private limited company. The simple incorporation process encourages people to set up this form of a company in a foreign land. This article will discuss the incorporation of a private limited company in Luxembourg. Officially, such a company is called Société à Responsabilité Limitée or SARL in Luxembourg.

SARL in Luxembourg- Introduction

A private limited company in Luxembourg called SARL is a kind of corporate entity, one of Luxembourg’s common yet popular business structures. As per certain records, more than 60% of the companies registered in Luxembourg are SARLs.

There are different reasons why it tops the chart in Luxembourg. We will discuss that in detail later in this article. However, one of the key features of SARL is that it combines the characteristics of a corporation and a private partnership. In this form of business structure, the liability of the shareholders is limited to the amount of capital that the shareholders contribute. SARLs possess some of the crucial features of a partnership, like increased flexibility and control and non-transferability of shares, among others.

Why register a SARL in Luxembourg?

There are a number of benefits to setting up a SARL in Luxembourg. These benefits make it a noteworthy corporate vehicle for not only local entrepreneurs but also foreign entrepreneurs. 

The benefits of SARL are discussed below-

  • Limited Liability

The liability of the shareholders in the case of SARL[1] is limited to the amount of capital they contribute. This means that their assets are not at stake in times of crisis.

  • Single owner

 SARL can be incorporated with just one shareholder having full rights and control over the company. This makes setting up the company quite easy.

  • Simplicity and great flexibility

SARL has a great level of simplicity. It has comparatively fewer administrative compliance requirements as compared to a corporation. SARL provides flexibility and decent control over the manner in which it is structured. It allows alteration to suit the needs of the shareholders.

  • Privacy

SARLs don’t compromise the privacy of the shareholders. Although auditing is part and parcel of the SARL, privacy is still maintained. The shares are not listed publicly, and the names of the shareholders are not made publicly available.

  • Capital Requirements

SARL has very low minimum capital requirements as compared to other business structures. The minimum authorized share capital for SARL is EUR 12,000.

  • Access to trading opportunities

Luxembourg has a very strategic location. It shares its boundaries with countries such as France, Germany, and Belgium. It has a very cordial relationship with all of them. Therefore, business owners can have access to a fair share of trading opportunities.

  • Quick Incorporation

The incorporation process of SARL in Luxembourg is simple and straightforward. Therefore, it allows business owners to kick-start their company and business in a reasonable time. The incorporation process of the company can be completed in less duration.

  • Tax system and off-shore banking

Only the income obtained in Luxembourg is subjected to corporate tax for foreign-owned businesses. Moreover, Luxembourg is a popular destination for off-shore banking, providing great financial security and privacy.

What do you need to know before incorporating a SARL in Luxembourg?

As an entrepreneur, you need to be aware of the following things before going ahead with the idea of the private limited company in Luxembourg-

  • Prepare the Articles of Association

One of the most crucial documents for incorporating a private limited company in Luxembourg is the Articles of Association. The document can be prepared in different languages, such as English, German or French. It should contain the company’s name, the legal form and structure, and the total issued share capital. It must also provide the company’s shareholders’ personal information and the number of shares they hold.

  • Confidentiality

As stated at the start of this article, SARLs don’t compromise the shareholders’ privacy. Even though they undergo an auditing process and are required to provide financial reports, privacy is never compromised.

  • Shares of the Company

Shares are part of the authorized share capital. They are issued as registered shares. It can be either with a nominal value or without a nominal value. SARLs may issue profit shares; however, it is not included in the company’s share capital. The articles of association should mention the rights attached to these shares. Further, the company’s shareholders cannot transfer their shares freely without obtaining approval.

  • Company name

The company’s name should be unique and not have been used by any other company in Luxembourg. The company’s name should end with the words forming the full form of SARL or GmbH. The name should not include terms indicating the business activities reserved for banks, insurance, or investment brokers.

  • Minimum capital requirement

The minimum authorized share capital required in the case of SARL is EUR 12,000. This requirement should be met to operate the company.

  • Shareholders

A SARL in Luxembourg comprises two to 100 shareholders. Though, a single shareholder can also incorporate and function in such a company in Luxembourg. The upper limit for shareholders is 100. If the company exceeds this upper limit, then the company has to convert its corporate form. Shareholders can also act as managers required to run and represent such a company. Nationality is not a bar for the appointment of managers and shareholders. The liability of the shareholders is limited to the investment made by them in the company.

  • Legislative framework

The Companies Act governs companies in Luxembourg. Luxembourg follows a civil law setup based on the French civil code.

  • Powers of the Company

SARL is a separate legal entity from its shareholders. It contains powers and rights as of a natural person. It can enter into legal contracts, hold properties and assets and enter into lawsuits. AGMs are needed only if there are more than 60 shareholders.

  • Corporate Documents

Corporate documents are available in Luxembourg in English, German, and French. English is not an official language, but corporate documents can also be availed in the English language.

  • Financial reporting and auditing

SARLs must maintain financial statements, which must be filed with the trade and company register. The timeline of filing the statements is within 7 months of the end of the financial year. SARLs having 60 and above shareholders are required to be supervised by internal auditors. A statutory audit has to be carried out for SARLs having a net annual turnover of EUR 8.8 million for two consecutive years and SARLs having a balance sheet of EUR 4.4. million.

  • Double Tax Treaties

Luxembourg has double tax avoidance treaties with several countries in Europe and other parts of the world.

Procedure of Incorporation

The following procedure needs to be followed-

  • Verify the uniqueness of the company name

Shareholders are free to choose a unique name for the company. Such a name has to be reserved with the Trade and Companies Register. The name can be verified with the Trade and Companies Register. One can check if any other company has used the proposed name of the company or not.

  • Preparation of Documents

Important documents such as articles of association should be prepared and kept ready. The Luxembourg notary draws the deed of incorporation, which also includes the AOA of the company. Incorporators need to complete the model of documents. The notary provides a detailed information on costs related to the incorporation of the company, which includes notary fees, company register fees, charges for publication in the official gazette, etc.

  • Obtain business license

Business license is essential to carry out various business activities in and around Luxembourg. It is issued by the Ministry of Economy for Industrial Activities. To obtain a business license, promoters are required to submit various documents such as an application form for an establishment permit, a tax stamp, a recent notarized certificate of non-bankruptcy, articles of association, school certificates, applicants’ identity card, applicants’ police record or affidavit.

Usually, the business license application and notary deed process commences at the same time and are verified simultaneously.

  • Bank account

The promoters are required to open a bank account in the proposed company’s name. The amount of share capital has to be transferred to this bank account. The bank will remit one escrow certificate, which certifies that the funds relating to the share capital are blocked in the escrow account. The funds will be unblocked automatically once the certified copy of the notarial deed of incorporation is dispatched and the notary issues the release certificate.

  • Company Registration

After the verification and scrutiny by the concerned authority, the decision with respect to the registration of the company shall be taken. The company shall be registered if the authority is satisfied with the applicant’s submissions.

The notary public shall levy an initial payment. The notary shall register the articles of association with the tax administration and the company with the trade and companies register within a few weeks of the company incorporation. The Trade and Companies Register publishes the incorporation deed in the official gazette a few months after the registration of the company. Once the company is incorporated, a certificate is issued certifying that the company has come into existence. The certificate is sent to the bank along with a copy of the deed of incorporation, following which funds are released corresponding to the share capital.

After the company registration process is completed, the company shall be functional. The company should be registered with the tax authorities in Luxembourg after its incorporation.

Opening a bank account in Luxembourg

Opening a bank account can be challenging at the time of setting up an entity in Luxembourg. All banks in Luxembourg don’t follow similar commercial strategies or procedures. Some banks are restrictive, which causes delays in account approval. The Covid-19 pandemic has made it even worse. The approval process for setting up a bank account can get delayed due to it.

In Luxembourg, banks mandate the presence of the company, including an address. Further, in order to get approval, applicants must provide legitimate reasons for opting for Luxembourg as a country to do business.

If one has a banking relationship, then the process can get faster. However, this may not be the case with many, as this is only possible in the case where you have entities already functional in Luxembourg.

It may be noted that due diligence and a KYC process will be required to set up a bank account.

Conclusion

Setting up a SARL in Luxembourg has become a common strategy for entrepreneurs looking to invest in that part of the world. It is one of the most sought-after locations and business structures because of the notable profits the already existing companies made. Tax incentives have also drawn people to invest in Luxembourg. A SARL in Luxembourg is a type of business structure that has limited risks; therefore, it is commonly chosen. Several companies have chosen SARL as their business structure. It has the characteristic features of a corporation and a partnership. Therefore, while contemplating an overseas investment, don’t forget to consider Luxembourg.

Read Our Article: How to set-up a company in Luxembourg?

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

Business Plan Consultant


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