Buying a company in Luxembourg: a really good idea?

Every year I publish several opportunities to take over operational companies established in the Grand Duchy of Luxembourg.

Real good idea? Or very bad idea?

Between the good questions from potential buyers and preconceived ideas, I had to take stock of the issue.

We are talking about operational companies, i.e. companies with real economic activity. The asset structures known generically as "holdings" and in fact called SOPARFI are therefore irrelevant (beware: this is a fiscal and not a corporate qualification).

Preconceived idea n°1: a Luxembourg structure can be created in 5 minutes.

Wrong: A capital company is created by an authentic deed, after blocking contributions representing the paid-up share capital in a bank account. However, in order to accept these funds, the bank must fully identify the economic beneficiaries in the broad sense of the term, i.e. shareholders but also corporate officers. Then the file must go before a commission to ensure that the file is in order. It is therefore necessary to provide 30 to 60 days for these only steps. For comparison, a company can be set up in France via a CFE in only 48 hours, including the allocation of an intra-community VAT number.

Preconceived idea n°2: in a Luxembourg structure, all operations are permitted

False: To be operational (i.e. to have the right to contract with customers and invoice them), a Luxembourg structure must be in possession of an establishment permit issued in the name of the Manager (Plc) or the Managing Director (equivalent to the Plc President) by the Ministry of the Economy before any commercial operation. The obtaining procedure takes from 2 weeks... to 6 months. Impossible to have if, for example, the corporate officer cannot demonstrate that he is able to carry out his duties on a daily basis (and discussions are particularly lengthy as soon as the officer resides more than 150 km from the company's future registered office). Same concerns with the tax records for obtaining an intra-community VAT number. In case of doubt about the operational reality of a company, the tax records' Anti-Fraud Department will send its agents to check whether an equipped office exists.

Preconceived idea n°3: all accountants and lawyers (...) do domiciliation.

True (in theory only). Although legal domiciliation does exist in Luxembourg, it is strictly reserved for non-operational companies (holding companies). All operating companies are required to have a valid establishment permit (see received idea n°2). And one of the conditions for obtaining the precious sesame is the effective provision of a private room adapted to the nature of the economic activity, therefore at least an equipped office. "Private" implies that a simple place in an open space is prohibited. A chartered accountant or a lawyer who resides in an operational structure incurs criminal liability and may be struck off the roll of the Order or the Bar. As a result, a Luxembourg operating structure will bear a minimum charge of EUR 5 to 600 per month. For comparison, in France, a myriad of companies will offer you a legal domiciliation as from 15 EUR per month.

Preconceived idea n°4: anonymity is total in Luxembourg

False: If bearer shares exist only for public limited companies that have paid up all their share capital (i.e. EUR 30,000), bearer shares must be deposited with a professional depositary (chartered accountant, etc.). However, all professional depositaries are subject to the Law of 12 November 2004 on the fight against money laundering and terrorist financing, which provides for the formal identification of economic beneficiaries (see received idea n°1) and the disclosure to the Public Prosecutor's Office of suspicions of offences punishable by law. Since aggravated tax fraud is a criminal offence in Luxembourg and the professional has no power to assess or qualify the alleged offence, it is likely that he will systematically declare to the Public Prosecutor's Office any unjustified intention of a client to use a structure promoting anonymity. Which professionals? The lawyer, notary, bank, chartered accountant, economic advisor, etc. In short, all the professionals who are in daily contact with the company.

Warning: the Law of the 13/01/2019 dealing about the Register of Economic Beneficiaries aims to fully transpose Article 31 of the 5th Anti-Money Laundering Directive. This provides that any resident or non-resident person, without having to prove a legitimate interest, may consult information relating to an economic beneficiary.  

You may not be aware of this, but Luxembourg is probably one of the most advanced OECD countries in this field.

Preconceived idea n°5: using a Luxembourg operational structure is ideal to derive part of my activity and thus reduce my expenses in France (or Belgium)

Wrong: The French and Belgian tax codes both contain rather dissuasive anti-abuse provisions. When the objective of an offshore structure is not economic (i.e. it responds to an attempt to lower the tax bill in your home country), it will be systematically reclassified by the tax administration. The worst idea that an entrepreneur could have would be, for example, to insert a Luxembourg operational structure between his existing suppliers and him, or between his existing customers and him.

Should one conclude that it is absolutely necessary to prohibit any use of a Luxembourg operational structure?

If you intend to develop an economic activity in Luxembourg, if you wish to develop abroad (for example, selling goods or services in Germany while you are established in France or Belgium) or if you wish to find new suppliers abroad, then yes, using a Luxembourg operational structure makes sense: availability of qualified trilingual workforce, a very business-friendly mentality in an international context, a social security contributions rate among the lowest in Europe (employer share: +- 13%).

Preconceived idea n°6: I dismiss my French employees, take them back into a Luxembourg structure and continue to make them work in France

Wrong. The French contractor is directly in Correctional.

The rules of socialization within the European Union are strictly regulated by Regulation (EC) 883/2004 (...) which specifies, among other things, that a self-employed or employed person in a third country may only work in his country of residence for a maximum of 25% of his working time (I simplify because these texts are complex for the philistine). In addition, and with regard to the interpretation of bilateral double taxation treaties, the Belgian and German tax administrations consider that a single hour worked on their national territory gives them a right to taxation (a subliminal message for all those who work in traffic jams).

In short, a frontier worker who goes to his office in the Grand Duchy every day is fine.

A French worker who is assigned to a mission in Germany or Belgium is also good (with a few subtleties all the same).

Let us conclude on the fact that using a Luxembourg operational structure within the framework of a real economic project is an undeniable advantage. And given Luxembourg's administrative and legal constraints, buying an existing structure is usually a wise choice, or even a profitable one when losses that can be reported can be activated for tax purposes.