Establish a subsidiary in Luxembourg

A subsidiary is a form of business established by a foreign company to operate in Luxembourg. Foreign shareholders own the majority of the capital.

Unlike a company branch, a subsidiary is considered a legal entity in Luxembourg. In the case of a branch, the foreign company supervises all business actions.

How to incorporate a subsidiary in Luxembourg

The subsidiary is incorporated as a company with legal entity. The most common forms of business suitable for a subsidiary in Luxembourg are the SARL – private limited liability company and the SA – public limited liability company.

The SARL is suitable for small or medium – sized companies. The subsidiary must have at least two members and a maximum number of 40 shareholders. This form of legal entity is suited for many business activities, has lower incorporation costs and limited liability. The minimum share capital of 12,400 euros must be fully subscribed at the time of incorporation.

The SA is a legal entity preferred by large corporations. The shareholders also have limited liability, to the extent of their contribution to the share capital. The minimum required share capital is higher, 31,000 euros, however the contributions can be made in cash or in kind and they can be increased after the incorporation. This type of subsidiary also requires at least two founding members.

In order to register a subsidiary in Luxembourg, the company founders must submit for registration the foundation deeds that include the name and the address of the subsidiary, the names of the shareholders, the details on the shareholders’ contribution to the share capital. Asides from the company deeds, it is required to submit the Articles of Association, which contain provisions regarding the good function of the company for registration. After the incorporation process is complete, a certificate of registration is issued for the new company.

The process of incorporating a company in Luxembourg takes approximately 19 days. In order to start the procedure, a bank account is also necessary to deposit the initial capital.

If a company operates in certain business fields, certain permits and licenses may be required. In order to obtain a VAT number, the company must also register with the relevant tax authorities.

The advantages of a subsidiary in Luxembourg

The subsidiary has certain advantages as opposite to a company branch. Although it has larger incorporation costs, the subsidiary is a better choice because it offers lees liability and a higher degree of maneuverability.

The most important advantages of a subsidiary in Luxembourg are limited liability for the parent company and legal independence from the foreign company, in order to take its own actions.

The administrative processes to run a subsidiary in Luxembourg are more complex than in the case of a branch, however, the foreign company does not have to take any liability for the subsidiary’s actions or debts in Luxembourg.

Therefore, considering the advantages and the disadvantages of incorporating a subsidiary in Luxembourg, the advantages are certainly greater. The new company is independent from the parent company and, in exchange, the foreign company must not take liability for the business actions of its subsidiary.