A Practical Guide to Legal Forms and Taxation
Luxembourg maintains its position as Europe’s preeminent centre for holding company activities and cross-border investment, supported by a legal framework shaped through more than a century of legislative evolution. The Grand Duchy’s corporate landscape encompasses approximately 147,000 registered entities, with the private limited liability company (Société à Responsabilité Limitée, or “SARL”) dominating market composition at roughly 66% of incorporations.
The tax system underwent meaningful modernization in 2025, reducing the effective corporate income tax rate to 23.87% in Luxembourg City. An extensive double taxation treaty network spans more than 80 jurisdictions, while the participation exemption regime enables tax-neutral repatriation of subsidiary profits.
This Article provides an analysis of Luxembourg’s corporate forms, their characteristics, and strategic applications.
I. Legal Framework
Luxembourg company law rests upon the Law of 10 August 1915 on Commercial Companies. Unlike jurisdictions that periodically undertake wholesale legislative replacement, Luxembourg has adopted a pattern of surgical amendments, preserving legal continuity while responding to contemporary requirements.
The 2016 modernization represented the most substantial reform in the law’s history, introducing the simplified joint stock company (Société par Actions Simplifiée, or “SAS”) and the simplified limited liability company (SARL-S). The 2023–2024 amendment cycle focused on digitalization, encompassing provisions for notarial electronic registration and automatic data synchronization between governmental registers.
The law’s resilience derives from its contractual flexibility paradigm: rather than prescribing rigid governance structures, it establishes minimum legal requirements while permitting substantial freedom in articles of association.
II. Capital Companies
A. Private Limited Liability Company (SARL)
The SARL constitutes the dominant corporate form for small and medium-sized enterprises, holding companies, and family business structures. It requires minimum share capital of EUR 12,000, fully paid up at incorporation. The company may have between one and one hundred shareholders, whether natural or legal persons.
Transfer of shares to third parties requires approval from shareholders representing at least 75% of share capital. This restriction paradoxically enhances the SARL’s appeal for family enterprises and holding structures by maintaining control stability.
Management is conducted by one or more managers (gérants) with flexible internal organization. The company benefits from audit exemption where two of three criteria are satisfied: workforce not exceeding 50 employees, balance sheet total not exceeding EUR 4.4 million, and turnover not exceeding EUR 8.8 million.
The SARL is subject to full corporate income tax and municipal business tax. It qualifies for participation exemption on dividends and capital gains where minimum shareholding conditions are met (10% participation or EUR 1.2 million acquisition cost). This form is preferred for SMEs, holding companies, real estate ventures, family offices, and subsidiary structures within multinational groups.
B. Public Limited Company (SA)
The SA serves larger corporations, listed entities, and structures requiring unlimited shareholders or capital markets access. Minimum share capital is EUR 30,000, with 25% paid up at incorporation. Shares may be registered or bearer and are freely transferable.
The board of directors comprises a minimum of three members (unless the company has a single shareholder). An optional two-tier system with supervisory board and management board in the German style is permissible. Annual general meetings are mandatory.
The SA represents 15–20% of registered entities and is preferred for financial institutions, multinational corporations, investment funds, and public offerings.
C. Simplified Limited Liability Company (SARL-S)
The SARL-S was introduced as a “one-euro company” targeting micro-enterprises and startups. Share capital may range from EUR 1 to EUR 12,000. Incorporation proceeds by private deed without notarial involvement, substantially reducing costs and formation time.
Shareholders must be natural persons exclusively, and each individual may hold shares in only one SARL-S simultaneously. Permissible activities are limited to commercial, craft, and industrial undertakings—financial services and other sectors are excluded.
Where capital exceeds EUR 12,000 (whether through retained earnings or additional contributions) or a legal person acquires shareholder status, mandatory conversion to a standard SARL is triggered. Market share of the SARL-S approximates 3–5%.
D. Partnership Limited by Shares (SCA)
The SCA combines partnership characteristics with capital company features. It requires at least one general partner bearing unlimited liability and limited partners whose liability is confined to their contributions. Minimum share capital is EUR 30,000, and shares are generally freely transferable.
This structure is commonly deployed in private equity arrangements where managing partners maintain operational control while capital partners receive economic returns.
III. Partnerships
A. Limited Partnership (SCS) and Special Limited Partnership (SCSp)
Limited partnerships have gained significant traction in Luxembourg’s alternative investment ecosystem owing to their tax-transparent treatment and contractual flexibility. Both structures feature at least one general partner (unlimited liability) and limited partners (liability limited to contribution).
The SCSp variant, lacking separate legal personality, offers operational simplicity and avoids entity-level taxation—partners are taxed individually on allocable income. Complete contractual freedom extends to governance, distribution, and carried interest structures. The absence of annual meeting requirements further simplifies administration.
The SCSp has become the de facto standard for private equity and venture capital funds. SCS/SCSp structures account for approximately 10–12% of total registrations in Luxembourg.
IV. Taxation of Companies
A. Corporate Income Tax
Luxembourg implemented corporate income tax rate reductions effective 1 January 2025. Income up to EUR 175,000 is subject to a rate of 14% (reduced from 15%), while income exceeding EUR 200,000 bears a rate of 16% (reduced from 17%). Income between EUR 175,001 and EUR 200,000 is subject to progressive taxation.
A 7% solidarity surtax applies to the computed corporate income tax amount, funding the national employment fund. Municipal business tax varies by municipality—in Luxembourg City, the rate is 6.75%.
The aggregate effective tax rate for companies with registered offices in Luxembourg City and taxable income exceeding EUR 200,000 amounts to 23.87%, comprising corporate income tax (16%), solidarity surtax (1.12%), and municipal business tax (6.75%).
B. Participation Exemption
Dividends and capital gains from qualifying shareholdings in capital companies subject to comparable taxation qualify for full exemption. Conditions include minimum participation of 10% of share capital or acquisition cost of at least EUR 1.2 million, together with an uninterrupted holding period of 12 months.
The exemption enables tax-neutral repatriation of subsidiary profits and constitutes the foundation of tax efficiency for Luxembourg holding structures (SOPARFI).
C. Net Wealth Tax
Net wealth tax is assessed annually at a rate of 0.5% for net assets up to EUR 500 million. Minimum tax applies based on balance sheet total: EUR 535 for totals up to EUR 350,000, EUR 1,605 for totals between EUR 350,001 and EUR 2,000,000, and EUR 4,815 for totals exceeding EUR 2,000,000.
Exemptions apply to assets generating exempt income, including qualifying participations meeting the EUR 1.2 million threshold.
D. Intellectual Property Box Regime
Luxembourg offers an 80% exemption on net income from qualifying intellectual property assets, including patents and copyrights. This creates an effective tax rate of 4.77% on IP income. The regime aligns with OECD BEPS Action 5 guidelines using the nexus approach.
V. Registration Requirements and Compliance
A. Luxembourg National Identification Number (LNIN)
Effective 12 November 2024, a reform mandates registration of the Luxembourg National Identification Number (LNIN) for all natural persons associated with registered entities, including directors, managers, shareholders exceeding threshold holdings, and auditors.
Entities incorporated after this date must provide LNIN at registration. Existing entities operate under transitional rules until 30 September 2025. Non-residents must obtain LNIN through RCS processes, requiring additional documentation including passport copies and address verification.
B. Register of Beneficial Owners
The Register of Beneficial Owners (RBO), operational since 2019, requires disclosure of persons holding more than 25% ownership or exercising control through other mechanisms. The 2024–2025 enhancement cycle implements automatic cross-referencing with national identity databases.
VI. Selection of Legal Form—Practical Guidance
For small and medium-sized enterprises, family ventures, and holding structures, the SARL remains optimal, offering equilibrium between liability protection, capital flexibility, and governance simplicity.
Multinational corporations, entities contemplating capital markets access, and financial institutions should consider the SA given its unlimited shareholders and freely transferable shares.
Investment funds and private equity structures favour the SCSp for its tax transparency, contractual flexibility, and absence of entity-level taxation.
Startups and micro-enterprises testing business concepts may benefit from the SARL-S, bearing in mind activity restrictions and mandatory conversion upon capital growth.
This Article is intended for informational purposes only and does not constitute legal advice. Readers are encouraged to consult qualified counsel for guidance on specific matters.
