Establishing a Presence from Abroad
What are the most common options for foreign companies establishing a business presence in your jurisdiction?
Overseas companies may establish a presence in Luxembourg by appointing a local agent, a distributor or a franchisee. Depending on the type and size of commercial activity they wish to establish on the territory, foreign companies may prefer to set up a subsidiary or a local branch.
For financial activities (investment, holding of participating interest, real estate acquisition in other countries), foreign investors would generally establish a Luxembourg special purpose vehicle (“SPV”) under the form of a limited liability company (SA, SCA or S.à r.l.,) or a partnership (SCS or SCSp).
The choice for either form of limited liability companies over a partnership structure will generally depend on the expected tax treatment of the structure on the contemplated investment and its internal governance rules. Partnership are generally tax transparent while limited companies are opaque structure from a tax standpoint. Whilst a partnership is mainly governed by the partners’ contractual arrangements, limited liability companies must follow certain imperative governance rules imposed by the Company Law.
How can an overseas company trade directly in your jurisdiction?
The carrying out of commercial, craft and industrial activities, as well as certain liberal professions (e.g. economic advisors, chartered accountants, architects, etc) are subject to the prior obtaining of a business license (autorisation d'établissement or autorisation de commerce). These rules are fixed by the Law dated 2 September 2011 on the access to commercial, craft and industrial activities and apply to any company willing to trade in Luxembourg, whether established in Luxembourg or abroad.
This business license is granted to businesses (i.e. in fact to the individual professional operating under his own name or the trading company) within a 3 month-deadline, if:
the person responsible for the operation or management of the business satisfies the required legal conditions of qualification and professional integrity for the concerned activity; and
the business has a fixed and substantial place of establishment in Luxembourg (no so-called 'letterbox companies').
The future manager/director of the company, agent or branch applying for the business license must also provide evidence – by means of a notarized declaration - that he was not formerly involved in an insolvent business.
Applications must be submitted to the General Directorate for SMEs and Entrepreneurship (which is a division of the Ministry of Economy) by standard mail or by online application. Tacit authorisation is granted if no decision is rendered within the time allowed.
What are the formalities for setting up a partnership?
As described under Business Vehicle section, the Company Law recognises and governs three forms of partnerships: the partnership limited by shares (SCA), the common limited partnership (SCS) and the special limited partnership (SCSp).
In each form of partnership, there must be at least one unlimited partner (associé commandité) who is jointly liable for all obligations and liabilities of the partnership on an unlimited basis and one limited partner (associé commanditaire ) endorsing a liability limited to his contribution in the partnership. Since July 2013, the management of a partnership may be entrusted with one or more persons who are not partners of the partnership.
Whilst the partnership limited by shares must be incorporated in front of a notary who will enact its articles of incorporation, the SCS and SCSp are not required to pass their partnership agreement in front of a notary. The SCA articles of incorporation must be published entirely although SCS and SCSp are required to publish only limited information.
The SCSp does not have the legal personality, but must register with the Luxembourg Trade and Companies Registry.
The partners in the SCS and SCSp may freely determine the rules which will apply to the partnership (governance, partners ‘rights, investments and returns etc.) in the partnership agreement. The SCA’s partnership agreement will generally be implemented in the articles of incorporation and will have to comply with restrictions and apply rules set up for public limited liability companies with regard to governance, shareholders’ mandatory rights and distributions.
The main reasons for using the common limited partnership (SCS) or the special limited partnership (SCSp) are the relative flexibility in their legal structuring and design of partnership agreements as well as their tax transparency features.
What are the formalities for setting up a joint venture?
Luxembourg is the favoured jurisdiction in Europe for international joint ventures (JVs). JVs are generally implemented through a Luxembourg SPV under the form of a limited liability company or a partnership, depending on the tax implications on the structure and the contemplated investments and the corporate flexibility sought by investors.
The JV Partners generally enter into a JV or shareholder agreement, which is not published. Some clauses of the JV agreement are typically reproduced in the articles of incorporation of the JV company which become of public matter through their publication, and to a certain extent, made enforceable against third parties.
Are trusts available in your jurisdiction?
Luxembourg law does not have a so-called trust institution distinguishing between legal and beneficial ownership of assets. Luxembourg however recognises trusts validly created in foreign jurisdictions, in accordance with the law dated 27 July 2003 on trust and fiduciary agreements (the “2003 Law”), which ratifies the Hague Convention on the law applicable to trust and their recognition of 1st July 1985.
Under the 2006 Law, fiduciary agreements whereby ownership of assets are transferred to a fiduciary agent (equivalent to a trustee), who must be a credit institution or a professional of the financial sector, may be created. In such instance, the assets of the transferor are segregated from other assets of the fiduciary agent and protected from collective proceedings.
A draft bill was introduced in March 2013 to implement the foundation in Luxembourg (with equivalent or similar features to those of an Anglo-Saxon trust) but has not been passed yet.