Startup 101

Substance requirements

04 Sept 2023
5 min read

Luxembourg, known for its favorable business environment and strategic location in the heart of Europe, has become a preferred destination for entrepreneurs and companies looking to expand their operations internationally. However, when establishing a business in Luxembourg, it's crucial to understand and comply with the legal substance requirements.

Legal substance, in the context of opening a company, refers to the presence of genuine business activities and physical operations in Luxembourg. This is not only a regulatory necessity but also a key factor in benefiting from Luxembourg's advantageous tax treaties and maintaining a positive reputation in the business world.

Legal substance requirements in Luxembourg

Luxembourg has implemented strict legal substance requirements to ensure that companies registered in the country are not mere "shell companies" established solely for tax avoidance purposes. These requirements are in line with international standards and aim to prevent abusive practices.

Key legal substance requirements in Luxembourg include:

  1. Physical office: Your company must have a physical office space in Luxembourg, where its business activities are conducted. This office should be equipped to handle the day-to-day operations of the business.
  2. Qualified personnel: Employing qualified staff who are residents or commuters to Luxembourg is essential. These individuals should actively contribute to the management and decision-making processes of the company.
  3. Bank account: Open and maintain a corporate bank account in Luxembourg. All financial transactions related to the company's business activities should flow through this account.
  4. Business activities: Your company should engage in genuine business activities in Luxembourg, such as providing services, manufacturing, trading, or holding and managing assets. These activities must generate real economic value.
  5. Local manager: Appointing a local manager who is knowledgeable about Luxembourg's business environment is another crucial requirement. The manager will oversee day-to-day operations, ensure compliance with local regulations, and play a vital role in demonstrating substance.

Now, let's delve into why registering a trademark is essential for professionals operating in the EU.

Options for demonstrating substance

To meet legal substance requirements in Luxembourg, there are several options:

  1. Residing in Luxembourg: If you, as the owner or a key decision-maker of the company, reside in Luxembourg, it demonstrates a significant level of substance. This option allows you to be actively involved in the business and make decisions locally.
  2. Hiring a local manager: Appointing a local manager who is knowledgeable about Luxembourg's business environment can also fulfill substance requirements. The manager will oversee day-to-day operations, ensuring compliance with local regulations.
  3. Outsourcing services: Companies can outsource certain functions to local service providers, such as accounting, legal, and administrative services. While this doesn't replace the need for other substance elements, it can be a part of the overall strategy.
  4. Physical presence: Having a well-equipped office space in Luxembourg is vital. It not only satisfies legal requirements but also provides a professional image for your business.

Understanding and complying with legal substance requirements when opening a company in Luxembourg is crucial for long-term success and to harness the numerous benefits that Luxembourg offers. Whether you choose to reside in Luxembourg, hire a local manager, or utilize local service providers, it's essential to ensure that your company maintains a genuine presence and conducts real business activities in this prosperous European business hub. Meeting these requirements will not only enhance your company's reputation but also contribute to your overall success in Luxembourg's thriving business landscape.