Doing Business in Luxembourg

Transcription

1 Doing Business in Luxembourg

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3 Contents 1 Fact Sheet 2 2 Business Entities and Accounting Companies Partnerships Co-operative Societies Branches Other Business Forms Audit and Accounting Requirements Filing Requirements 7 3 Finance and Investment Exchange Control Banking and Sources of Finance Investment Incentives Research and Development (R&D) Tariffs 9 4 Employment Regulations General Employment Matters Visas and Permits 12 5 Taxation Corporate Income Taxes Personal Taxes Employment Related Costs and Taxes Withholding Taxes Value Added Tax (VAT) Other Taxes Tax Incentives for Businesses 17

4 2 1 Fact Sheet Geography Location: Western Europe Area: 2,586km² Land boundaries: Belgium, France and Germany Coastline: None (landlocked) Climate: Temperate Terrain: Hilly in the Oesling region to the North; flat in the Gutland region to the South Time zone: GMT +1 People Population: Ethnic groups: Religion: Language: 537,039 (January 2013), concentrated in Luxembourg City and with other large populations in Esch-sur-Aizette, Dudelange and Differdange Predominantly northern European (Luxembourger, German, French, Belgian), Portuguese, Italian Roman Catholic (majority), Protestant, Jewish and Muslim Luxembourgish, French and German Government Country name: Government type: Capital: Administrative divisions: Grand Duchy of Luxembourg Constitutional monarchy Luxembourg City There are three districts: Diekirch Grevenmacher Luxembourg

5 Doing Business in Luxembourg 3 Political situation Luxembourg is a constitutional monarchy with a unicameral parliament consisting of a Chamber of Deputies (60 seats) advised by the Council of State (21 members recommended by the Prime Minister and appointed by the Grand Duke). The government consists of the Council of Ministers. The head of government is the Prime Minister; the head of state is the Grand Duke. Court judges are appointed for life by the Grand Duke. Economy GDP per capita: US$107,476 (2012) GDP real growth rate: 0.3% (2012) Unemployment: 7.0% (Sep 2013) Currency (code): Euro ( )

6 4 2 Business Entities and Accounting 2.1 Companies The two main company types are: The public limited company (société anonyme SA) The private limited company (société à responsabilité limitée Sàrl) Public limited company (SA) An SA can be formed by one or more persons and have a sole shareholder; there is no maximum limit. Resident and non-resident individuals and companies can be shareholders. The minimum share capital requirement is 30,986.69, at least 25% of which must be paid up. The shares can be in registered or bearer form. An SA must have at least three directors; however, if when the company is formed by, or at an annual general meeting (AGM) there is found to be, just one shareholder, the board can comprise a single director. The directors may appoint one or more managers to be responsible for the dayto-day management of the business Private limited company (Sàrl) An Sàrl has between one and 40 shareholders, although the maximum number of shareholders may be exceeded in the case of transfer of shares on the death of a shareholder or during liquidation. The minimum share capital requirement is 12, divided into units of equal value, with or without par value, and which must be fully paid up. Only registered shares are allowed. The shareholders must appoint one or more managers. Sàrls with 25 shareholders or less are not required to hold annual general meetings.

7 Doing Business in Luxembourg Partnerships Partnership limited by shares A partnership limited by shares (société en commandite par actions SCA) comprises one or more general partners with unlimited joint and several liability, and at least two limited partners whose liability is limited to their individual contribution. Limited partners cannot take part in managing the partnership, which should be left to the general partners. The minimum share capital is 30,986.69, of which 25% must be paid up General partnership There are two types of general partnership: the société en commandite simple (SCS) and the société en nom collectif (SNC). No minimum or maximum share capital is required. The SCS comprises two or more general partners, and can include limited partners who cannot be involved in managing the partnership. General partners have unlimited liability; limited partners are liable to the extent of their individual contribution. The SCS is managed by one or more of the general partners. The SNC comprises two or more partners with unlimited liability. A manager may be appointed; otherwise, the partners are equally responsible for management Association momentanée (AM) An AM is a temporary partnership formed for the purpose of carrying out one or more specific commercial transactions. It is used by individuals who wish to work together for a limited time and/or for a specific project. Its members are jointly and severally liable to third parties with whom the AM does business.

8 6 2.3 Co-operative Societies A co-operative society must have at least seven members. Each member s liability is limited to a stated maximum amount. The co-operative society is managed by one or more managers, who do not have to be members. 2.4 Branches A foreign company can set up a branch in Luxembourg. The branch must be registered with the Luxembourg Trade and Companies Register and specified information must be published in the Official Journal (Memorial C). Branches pay the same taxes as Luxembourg companies. The parent company remains liable for the branch s liabilities. 2.5 Other Business Forms Société civile (SC) The SC is a non-commercial company formed of two or more associates with unlimited liability. It is particularly used in the liberal professions and for property management Non-profit consortiums The groupement d intérêt économique (GIE) and groupement européen d intérêt économique (GEIE) are non-profit consortium structures designed to pool the efforts of several firms in a specific field, such as technical research. Members each have unlimited joint and several liability European company (SE) The SE can be formed between at least two public companies governed by the laws of two different EU member states. It must have share capital of at least 120,000. Each shareholder s liability is limited to their contribution.

9 Doing Business in Luxembourg Audit and Accounting Requirements The majority of companies, including limited partnerships, are required to prepare consolidated financial statements. SAs are required by law to have their financial statements audited. For large SAs, the audit must be conducted by registered statutory auditors. For small SAs, the audit can be conducted by an individual or corporate entity. General partnerships and co-operatives are exempt from such requirements, regardless of their size. For these purposes, a small SA is one that does not exceed the limits of two of the following three criteria on its balance sheet dates: Balance sheet total of 4.4m Net turnover of 8.8m, and An average of 50 full-time staff employed during the financial year. Sàrls are not required to have their financial statements audited unless there are more than 25 shareholders. However, an external auditor must be appointed if the Sàrl exceeds two of the criteria for a small SA (above), regardless of the number of shareholders. Financial statements produced in Luxembourg can follow Luxembourg generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. Listed companies must generally follow IFRS for their annual financial statements, and must follow them for their consolidated financial statements. 2.7 Filing Requirements As a general rule, financial statements must be filed with the Register of Commerce and Companies ( annually, within seven months of the company s financial year end. Accounts are registered in the Official Journal (Memorial C).

10 8 3 Finance and Investment 3.1 Exchange Control There are no restrictions on foreign currency exchange or the import or export of capital. Both residents and non-residents may hold bank accounts in any currency. 3.2 Banking and Sources of Finance The central bank is the Banque Centrale de Luxembourg. Most major banks in Europe and worldwide are present in Luxembourg. Banks offer short-, medium- and long-term loans with negotiable repayment terms and conditions, and either fixed or variable interest rates. Most banks and other financial institutions also have departments that specialise in leasing, factoring, mezzanine financing and investments, among other financial services. The SNCI (Société Nationale de Crédit et d Investissement) is a public banking institution that specialises in the medium- and long-term financing of investments made by Luxembourg businesses. The Office du Ducroire is a public institution linked to the Ministry of Finance and provides state guarantees for exporters. 3.3 Investment Incentives The government offers support to businesses in the form of grants and tax incentives (see 5.7 for details on the latter). Grants are generally handled by the Ministry of Middle Classes ( Financial aid in the form of cash grants may be offered for Small and medium-sized enterprise (SME) investment in tangible and intangible fixed assets for starting a new business, expanding or modernising an existing one, takeover of a failing business, or acquiring patents, licensing rights or technical knowledge: grants range from 7.5% to 15% of the investment Services provided to SMEs by outsiders: grants for the lesser of 30% of costs or 100,000 Costs incurred by SMEs for participating in a trade fair: grants for the lesser of 50% of costs or 100,000 Investments in energy saving measures: grants range from 30% to 60% of eligible costs Cleaning up polluted sites: grants up to 100% of eligible costs.

11 Doing Business in Luxembourg Research and Development (R&D) Grants ranging from 25% to 100% of the costs are available for R&D projects. 3.5 Tariffs Luxembourg is an EU member state. Consequently, through the EU s membership with the World Trade Organization (WTO), it has undertaken not to raise tariffs above levels agreed to in trade discussions. Additionally, the EU has developed an extensive network of bilateral free trade agreements.

12 10 4 Employment Regulations For employment tax considerations, see General Employment Matters Employment law Employment relationships in Luxembourg are regulated by the Labour Code (Code de Travail) and by national labour agreements (conventions collectives). Each national labour agreement is specific to a branch of industry. The Labour Code combines in one single document the main rules given by the laws and decrees governing employment relationships. A national labour agreement gives additional provisions to the Labour Code (eg probation period, minimum wage, annual leave and working conditions). Employers are required by law to notify the Luxembourg Employment Administration (Administration de l Emploi ADEM ( index.html)) of any vacant posts prior to filling them Employment contract Although labour law does recognise oral contracts as valid, the general rules state that a contract must be drawn up, signed, and one copy given to the employee. Employment contracts must include minimum information, including: Place of work Nature of work The employment start date Rate or calculation method of pay Hours of work Details of paid leave Notice period to quit by employer or employee. The contract can include a probationary period. Where required, the employment contract must comply with a relevant national labour agreement.

13 Doing Business in Luxembourg 11 Any variation to the contract must be to the employee s advantage. Generally, the working day is limited to 8 hours and the working week to 40 hours; if overtime is worked, the maximum hours cannot exceed 10 hours per day, or 48 hours per week (taken as an average). Overtime can be paid or taken as time off in lieu; if paid, it is exempt from tax. The annual paid leave period is 25 working days, plus public holidays. A specified number of paid days are allowed for compassionate leave and family events such as the employee s marriage. National labour agreements may provide for enhanced paid leave allowances. A social minimum wage applies; this may vary according to profession and qualifications. Termination of an employment contract can be at the initiative of the employee (resignation) or the employer (dismissal). Dismissal must always be justified by the employer and the law provides specific procedures in this case Employee representation Staff representation depends on the size of the company. In companies of at least 15 employees, staff delegates are elected by employees. Their role consists of protecting the employees interests and advising the employer of any workers complaints about working conditions. In companies of at least 150 employees, a mixed committee (comité mixte) composed of employer and employee representatives must be created. The managing director must consult the committee about any changes in the business or in the working conditions. Employees have the right to be represented on the management board of SAs with more than 1,000 employees.

14 Visas and Permits Individuals from the EU (but excluding Bulgaria and Romania until 1 January 2014), the European Economic Area (EEA) and Switzerland are normally free to live and work in Luxembourg without a residence permit or authorisation to work. Individuals from outside the EU, the EEA and Switzerland and from Bulgaria and Romania (until 1 January 2014) who intend to remain in Luxembourg for more than three months must apply to the Luxembourg Ministry for Foreign Affairs for a residence permit with authorisation to work. A short-stay visa is required for visits up to 90 days for a number of countries; for others, including the USA, visits can be made for up to three months with a passport only. The Luxembourg employer is responsible for applying for work permits. The employer must first check the list at the ADEM for whether anyone resident in Luxembourg can fill the position; if not, only then can the employer seek a foreign employee outside of the EU/EEA and Switzerland, or from Bulgaria or Romania. Work permits can be valid for between one year and indefinitely. It is the employer s responsibility to renew a work permit before it expires.

15 13 5 Taxation 5.1 Corporate Income Taxes Resident companies, which are defined as having their registered office or central administration in the territory of the Grand Duchy of Luxembourg, are liable to corporate income tax, a solidarity surtax and a municipal business tax on their worldwide income. Non-resident companies are taxed on their income from sources in Luxembourg, subject to the terms of any relevant double tax treaty. The general corporate income tax rate is 21%. A lower rate of 20% applies if taxable income is not more than 15,000. The solidarity surtax applies to income and gains exceeding 15,000 at a rate of 7% of the corporate income tax liability, giving an effective general rate of 22.47%. The municipal business tax is computed along similar lines to corporate income tax, but with some exceptions. The rate varies according to the municipality in which the company is located. In Luxembourg City, the rate is 6.75% which, when added to the general effective rate, results in a total effective tax rate of 29.22%. A minimum tax applies to holding and financial companies with financial assets exceeding 90% of their total assets. The minimum tax is 3,000 per annum (plus the 7% surtax, hence 3,210). Other companies are subject to a progressive minimum tax ranging from 500 to 20,000, plus the 7% surtax. Capital gains are in general taxed in the same way as income. Under the participation exemption regime, capital gains arising from the sale of shares by a qualifying entity are exempt from tax provided they meet the required conditions. In general, capital losses can be carried forward indefinitely for relief against future profits. There is no provision for losses to be carried back. Relief for losses brought forward may be restricted if there is a change in the company s ownership. Group companies, defined generally as a resident parent company and its 95% or more owned resident subsidiary companies, can apply to file a consolidated tax return, which provides the means for a pooling of profits and losses. The Luxembourg PE of a non-resident company may qualify as a parent company for this purpose in some circumstances. Companies are required to file their tax returns by 31 May following the end of their financial year. Quarterly advance payments of corporate income tax and municipal business tax must be made, based on the previous year s liabilities, with any balance due being payable within one month of the issue of an assessment. Any excess payments on account are refunded.

16 Doing Business in Luxembourg Personal Taxes Resident individuals are liable to income tax and a solidarity surtax on their worldwide income. Non-resident individuals are taxed on their income from sources in Luxembourg, subject to the terms of any relevant double tax treaty. Income tax is charged at progressive rates ranging from 8% on income of 11,265 and above, to 40% on income of 100,000 and above. There is a solidarity surtax of either 7% or 9% on tax payable, depending on income and the applicable tax class. The addition of the solidarity surtax produces a maximum marginal tax rate of 42.8% on taxable income up to 150,000 and 43.6% on any excess. A favourable tax regime applies to highly skilled workers newly located to Luxembourg: see Individuals carrying on a business are also liable to municipal business tax on their profits at rates that vary depending on location. The rate in Luxembourg City is 6.75%. Capital gains from the disposal of immovable property owned for less than two years and other assets owned for less than six months are taxed as income. Other gains from immovable property are taxed at one-half the normal rates. A taxpayer s main residence is exempt. Gains from the disposal of shareholdings of more than 10% in companies owned for more than six months are taxed at one one-half the normal rates. Other gains from shareholdings owned for more than six months are exempt. Each taxpayer has a 50,000 capital gains allowance per period of 10 years. Assets passing on death, other than real estate located abroad, are subject to inheritance tax. The tax is charged on the beneficiaries at rates of up to 48%, depending on their relationship with the deceased and on the value of the assets. Assets passing between spouses and between individuals in direct line are exempt. Gift tax is charged on gifts made by notarial deed. The tax is charged on the recipients of gifts at rates of between 1.8% and 14.4%, depending on their relationship with the donor. There is no wealth tax for individuals.

17 Employment Related Costs and Taxes Income and social security taxes Income tax and social security contributions are deducted at source from gross employment income and pensions, including bonuses, travel and accommodation allowances and directors remuneration. Certain allowances (eg for employment-related and travelling expenses) are applied to reduce the taxable base. Directors fees are subject to withholding tax of 20%, which is used as a credit against final income tax liability. Employers and employees are required to make social security contributions, calculated by reference to employees salaries up to a monthly ceiling of 9, (from 1 October 2013; 9, previously). Contributions include: Health insurance 3.05% or 2.80% (depending on the type of remuneration) for employer and employee. Pension insurance 8% for employer and employee. Accident insurance 1.10% for employer only. Mutual insurance between 0.42% and 2.64% for employer only. Health at work 0.11% for employer only. Dependence 1.40% for employee only Fringe benefits Fringe benefits generally form part of income from employment and are subject to personal income tax. The taxable value of fringe benefits is generally the market value or the valuation made by the tax authorities. All reimbursement of business-related expenses is tax free. Unreasonable expenses are disallowed. Expenses in respect of certain activities can be reimbursed by an employer on an itemised basis without any tax consequences, provided an expense report is presented Relocation benefits A favourable tax regime applies to highly skilled workers newly located to Luxembourg: see

18 Doing Business in Luxembourg Withholding Taxes Domestic payments A 15% withholding tax applies to dividends paid by a Luxembourg company to a resident company. Dividends paid by special purpose vehicles such as SPFs, investment funds and SICARs (see 5.7.2) are not subject to withholding tax. There is no withholding tax on interest payments made to corporations. For individuals, a withholding tax rate of 10% applies to certain interest payments. There is generally no withholding tax on royalty payments Payments abroad Dividends paid by a Luxembourg company to a non-resident company are in general subject to a withholding tax of 15%. Under the terms of the legislation implementing the EU Parent-Subsidiary Directive, dividends are exempt from withholding tax if they are paid to a company in the EU which for a minimum period of one year has owned directly or indirectly 10% or more of the paying company s share capital or which has an acquisition cost of its holding of at least 1.2m. There are generally no withholding taxes on interest or royalties. Under the terms of the EU Savings Directive, Luxembourg is required to withhold 35% tax on certain types of savings income paid to individual residents of other EU countries. For payments made to recipients in countries with which Luxembourg has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty. 5.5 Value Added Tax (VAT) VAT is levied on the selling price of goods and services and on the value of goods imported into Luxembourg. Resident businesses must register for VAT if they have an annual sales turnover of 25,000 or more; non-resident businesses must register for VAT, regardless of annual turnover. The standard rate of VAT is 15%. There are reduced rates of 12%, 6% and 3% for prescribed goods and services. Exports are zero-rated. Some supplies are designated as exempt, including medical services and most financial services. Businesses, other than those making exempt supplies, can generally recover the VAT with which they themselves are charged.

19 Other Taxes Property taxes Municipalities levy an annual immovable property tax on all domestic real property. The base for this tax is normally equivalent to 0.7% 1% of the property s tax value multiplied by coefficients fixed by each municipality; in Luxembourg City, the coefficient for residential houses and apartments is 250%. A tax applies to transfers of property. The rate is generally 6%, increasing to 9% for commercial property in Luxembourg City. The tax is payable by the purchaser. A transcription tax of 1% is also payable Net worth tax Resident companies and PEs of non-resident companies are liable to an annual net worth tax of 0.5% of their net assets. The value of shareholding investments qualifying for the participation exemption (see 5.1) is generally excluded Annual subscription tax Undertakings for collective investment in transferable securities (UCITS) are subject to an annual subscription tax on their net asset value. The rate is generally 0.05%, reducing to 0.01% for UCITS investing in specially designated assets Excise taxes There are generally excise duties on products such as alcohol, tobacco and mineral oils. 5.7 Tax Incentives for Businesses Investment tax credits Investment tax credits are granted for eligible investments in Luxembourg companies for purchases of specified categories of depreciable assets that are used in Luxembourg or within an EU or EEA member state. These comprise two types of tax credit: A 7% tax credit applicable to the first 150,000 invested and 2% for any excess above 150,000, and

20 Doing Business in Luxembourg 18 A 12% tax credit applicable to additional qualifying investments made during the financial year. Tax credits are also available for investments in the film industry and in new technologies through a system of audiovisual and venture capital investment certificates Specialised investment funds (SIFs) SIFS such as sociétés d investissement à capital variable (SICAVs) and sociétés d investissement à capital fixe (SICAFs) are generally exempt from taxes on income and capital gains. Sociétés de gestion de patrimoine familial (SPFs) are exempt from taxes on income and from net worth tax Intellectual property Companies that develop or acquire prescribed categories of intellectual property, subsequent to 2007, are exempt from tax on 80% of their net income therefrom, subject to conditions New ventures Companies setting up new activities that are considered important for the economy and which do not compete with existing businesses may apply for partial tax exemption for a limited period Expatriates regime A favourable tax regime applies to highly skilled workers newly relocated to Luxembourg. It applies to individuals who, in the previous five years, have not been resident taxpayers in Luxembourg or lived within 150km of the Luxembourg border, or paid Luxembourg personal income tax. Reasonable expenses and allowances paid to, or on behalf of, qualifying incoming workers are exempt from Luxembourg personal income tax but remain deductible by employers for corporate tax purposes. An individual who is seconded to Luxembourg from a company within the same international group must have five years relevant professional experience or five years experience within the group and must be allowed to return to work for the seconding company at the end of the assignment. An individual who is recruited directly from abroad by a Luxembourg company must have specialist skills in a business area or profession for which it is difficult to recruit suitable employees within Luxembourg. The employee must not replace an existing employee outside the scheme. The employee s annual salary must be a minimum of 50,000.

21 19 The employer must undertake to employ at least 20 full-time salaried workers, of whom only 30% may benefit from the expatriates regime. The 30% restriction does not apply to companies which have been established in Luxembourg for less than 10 years. Deductible expenses for employers include items such as: relocation costs, family travel expenses, cost of living allowances, school fees and housing costs, subject to certain conditions. These items cannot exceed either 30% of remuneration or 50,000 ( 80,000 if the employee lives with a spouse or partner). The regime applies until the end of the fifth tax year following the year in which the employee started work in Luxembourg Other employment incentives Companies hiring older and long-term unemployed individuals are eligible for repayment of social security contributions and tax rebates based on a percentage of the jobseeker s salary. Tax credits are also available for vocational training costs.

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