How to Set Up an Entity in Luxembourg

Setting up a legal entity in Luxembourg can be highly appealing for companies seeking a stable and strategic European base. The Grand Duchy offers a strong central European location, a multilingual business environment, access to the EU’s single market, and an investor-friendly regulatory and tax framework.

The process of incorporating in Luxembourg is relatively structured and well-documented, though it involves multiple steps such as drafting notarial deeds (for certain entity types), meeting share-capital requirements, registering with the appropriate authorities, and ensuring compliance with local corporate and tax rules. A key challenge is navigating the formalities (notary involvement, beneficial ownership filings, business permit for commercial activities) and ensuring proper substance and KYC for foreign investors. At the same time, the benefits include the flexibility to establish local operations, hire employees directly in Luxembourg, and benefit from the country’s favorable tax regime and extensive double tax-treaty network.

Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or financial advice. Always consult official sources before acting.

What does “opening an entity” mean in Luxembourg?

In Luxembourg, opening an entity means registering a local legal company or a branch of a foreign company and obtaining the necessary approvals (including, where applicable, a business permit from the Ministry for the Economy of Luxembourg). Once registered, the entity is legally able to operate in Luxembourg: enter into contracts, hire staff, register for taxes, and open bank accounts.

Entity overview in Luxembourg

Here is an overview of key parameters for entity setup; note that actual details vary by entity type and business activity, and foreign investors commonly select the SARL (private limited company) format for commercial operations.

Step-by-step guide: How to open an entity in Luxembourg

Step 1: Choose the right structure

For Luxembourg citizens and residents, the most common business form is the SARL, which offers limited liability, straightforward governance, and flexibility for trading or service activities. It’s particularly suited to small and medium-sized local businesses that want legal separation between personal and company assets. Larger domestic firms or those seeking to raise capital may instead opt for an SA, which allows share issuance and broader investor participation but requires higher minimum capital and more formal corporate procedures.

For foreign entrepreneurs and companies, the SARL is also the preferred structure because of its simplicity and suitability for subsidiaries or regional offices. Those wishing to operate in Luxembourg without forming a separate legal entity can register a branch of a foreign company, a faster route to market entry. However, branches remain legally tied to their parent company and are subject to local taxation and registration obligations, making them best suited for short-term or exploratory operations.

Step 2: Verify business name availability

You must check the availability of your desired company name via the LBR. The name must not conflict with existing registered names and must include the legal form (e.g., “SARL”). The search can be done online. Ensure the name conforms with local rules (no misleading terms) and that a Luxembourg-registered office address is identified.

Step 3: Prepare incorporation documents

Typical required documents (depending on structure) include:

• Articles/statutes of the company (for SARL/SA) drafted and, in many cases, notarised
• Proof of deposit of the share capital into a Luxembourg bank account or contribution in-kind evidence
• A registered office agreement or domicile contract in Luxembourg
• Identification documents (passport/ID) and proof of address for shareholders/directors/managers; in some cases extract of the criminal record for persons involved

Step 4: Register with the LBR

Submit the incorporation deed and supporting documents to the LBR. The company will then be registered, issued a registration number, and entered in the electronic register of companies and associations. After registration, you receive the Lé index and certificate of formation. For commercial activities (and most companies), you must also obtain the business permit via the Ministry for the Economy (autorisation d’établissement) before commencing operations.

Step 5: Register for tax and social security

Once incorporated, the entity should register with the Administration des Contributions Directes (ACD) for corporate income tax and with the Administration de l’Enregistrement, des Domaines et de la TVA (AED) for VAT if applicable (thresholds apply). Employer registration for social security with the Joint Social Security Centre (CCSS) is required when you hire employees.

Step 6: Open a corporate bank account

You must open a corporate bank account in Luxembourg to deposit the share capital (for certain entity types) and process business transactions. The bank will conduct KYC/AML checks, require certified IDs, a shareholding structure, and a business plan. While the account can be opened remotely in many cases, some banks may require director presence. Experienced local advisors report that bank openings can take 3–4 weeks or more, depending on complexity.

Step 7: Set up payroll and employment compliance

To legally hire employees in Luxembourg, you must: register the entity as an employer with the CCSS, comply with local employment contract requirements, ensure payroll deductions for social security and tax, enroll staff in pension/social benefits, file payroll reports, and withhold appropriate deductions. Employee contracts should be in accordance with Luxembourg labor law; multilingual contracts (French/German/English) are often used. The business permit may impose additional requirements regarding the manager’s residency or substance.

Discover how Elemental Enzymes accelerated regulatory approvals and market entry with Deel.

Post-registration obligations

After incorporation, companies in Luxembourg must stay compliant with local governance, tax, and employment laws. Typical requirements include:

• Tax and financial reporting: File annual corporate income tax returns with the ACD, VAT returns via AED (monthly/quarterly/annual as applicable), and file annual accounts with the LBR under Luxembourg accounting standards (either Luxembourg GAAP or IFRS as permitted, depending on size).
• Corporate registers: Maintain up-to-date records of directors, shareholders, and beneficial owners, and report any changes to the LBR or via the beneficial owners register (Registre des Bénéficiaires Effectifs).
• Compliance tracking: Monitor all tax, licensing, and corporate filing deadlines through a compliance calendar or engage a local provider to avoid late-filing penalties.
• Licenses and renewals: For businesses subject to the business permit regime (autorisation d’établissement), you must renew or update any changes in the director’s residency, address, or nature of activity with the Ministry for the Economy.
• Recordkeeping: Retain accounting, payroll, HR, and transaction records for at least 10 years (as required under Luxembourg law) and ensure they are accessible for audits.
• Employment law compliance: Adhere to labor law, benefits, social security, data-protection regulations (GDPR), including compliant employment contracts, payroll reporting, and insurance coverage as required by the CCSS and labor inspectorate.

Taxes and financial considerations

To summarise key tax obligations in Luxembourg:

• Corporate income tax (CIT): For taxable income up to €175,000, the statutory rate is 14% (plus a 7% contribution to the employment fund). For income above €200,000, the rate rises to 16%, including the same contribution. A municipal business tax of 6.75% also applies in Luxembourg City, and dividends are taxed separately.
• VAT: Standard VAT rate is 17%; reduced rates are 14%, 8% and 3% depending on goods/services. VAT registration is mandatory once a threshold (€50,000) is exceeded, and filing frequency depends on turnover.
• Payroll/social contributions: Employers must contribute to the CCSS (covering pension, health, accident insurance, and employer social security), and employees have withholdings. Contribution rates vary depending on salary brackets and categories.
• Accounting standards: Entities must prepare annual financial statements under Luxembourg GAAP or IFRS (depending on size) and file them with the LBR; audit obligations may apply for larger companies.

Discover how Climate-KIC navigated complex restructuring with Deel.

Expand internationally with Deel

Whether you’re hiring through an EOR or establishing your own local entity, Deel’s all-in-one platform gives you everything you need to expand into Luxembourg—quickly, compliantly, and with confidence. From market entry to ongoing operations, Deel helps you hire, onboard, and manage teams seamlessly from day one.

With Deel, you can:

• Test new regions using Deel’s local entities through our Employer of Record service—hire employees compliantly, delegate payroll and taxes, and access localized employment contracts.
• Open entities with Deel Entity Setup, where our team manages everything—from incorporation and tax registration to coordination with local experts.
• Centralize your compliance and records with Deel Entity Management, including automated filings, calendar reminders, and visibility across all entities.
• Integrate with Deel Payroll and Deel HR for compliant payments, benefits, and workforce oversight—all in one platform.

For companies transitioning from the EOR model to owned entities, Deel ensures a smooth handover and consistent compliance every step of the way. Enter new markets, onboard talent, and manage your global workforce—all through one unified platform.

FAQs

How long does it take to open an entity in Luxembourg?
Typically 2–4 weeks, though preparation of documentation and bank account opening may extend the timeline. Find out how long setup takes with our Entity Setup Calculator.

What is the minimum capital required?
For a SARL: €12,000 (≈ USD 13,000). For an SA: €30,000 (≈ USD 32,500). No minimum for branch registration.

Can foreign companies own 100% of an entity in Luxembourg?
Yes—non-residents and foreign entities can hold 100% ownership, and there is no local shareholder requirement.

Do I need a local director or representative?
You must appoint at least one manager/director (natural person), but there is no strict requirement for local residency. The company must have a registered office in Luxembourg.

How much does it cost to register an entity?
Costs depend on legal and notarial fees, bank deposit, business permit, and registration fees, typically a few thousand euros for a simple SARL. Check our Entity Setup Calculator.

Can I hire employees before the entity is fully registered?
Typically, no—you should wait until entity registration and employer registration with CCSS are in place. However, you can engage talent via Deel’s Employer of Record (EOR) while your entity setup is in progress.

Can Deel help me open an entity in Luxembourg?
Yes. Deel Entity Setup manages the end-to-end process—from registration to payroll compliance—in Luxembourg and over 100 countries.

Does Deel offer ongoing compliance and payroll support?
Yes. Deel offers both managed services and self-service tools to help you stay compliant.

If you’re using Deel Entity Management, Maintenance, EOR, or Payroll, our team handles payroll, benefits, filings, and compliance obligations on your behalf.

For teams managing their own entities, Deel Compliance Hub makes staying compliant simple by providing real-time regulatory updates, risk alerts, and workforce insights across 150+ countries. Proactively manage compliance with our Compliance Monitor, Workforce Insights, and an AI-powered Worker Classifier, staying ahead of changing employment laws.

Can I switch from Deel EOR to my own entity later?
Yes. Deel supports seamless transitions when you’re ready.