The Société à Responsabilité Limitée Simplifiée in Luxembourg

A Comprehensive Analysis of Corporate Structure and Fiscal Treatment

I. Introduction

The Société à responsabilité limitée simplifiée (hereinafter “SARL-S” or “simplified limited liability company”) represents a significant legislative innovation in Luxembourg corporate law, designed to address longstanding barriers to entrepreneurial market entry. Enacted pursuant to the Law of 23 July 2016 and operative since 16 January 2017, this corporate form constitutes a streamlined variant of the traditional private limited liability company (société à responsabilité limitée, or “SARL”), requiring a mere EUR 1 in minimum share capital—a striking departure from the EUR 12,000 threshold applicable to its conventional counterpart.

The SARL-S occupies a distinctive position within Luxembourg’s corporate taxonomy. It functions simultaneously as an incubator for nascent enterprises and as a vehicle affording the fundamental protections of limited liability to natural persons engaged in specified commercial activities. This Article provides a comprehensive examination of the SARL-S’s structural characteristics, formation requirements, governance mechanisms, and fiscal treatment, with particular attention to the practical implications for prospective incorporators and their advisors.

II. Foundational Characteristics and Structural Parameters

A. Share Capital Requirements and Equity Architecture

The defining feature of the SARL-S lies in its capital structure. The entity permits share capital ranging from EUR 1 to EUR 12,000, with the entirety subscribed and paid up at incorporation. This represents a reduction of approximately 99.99% from the standard SARL minimum, directly addressing capital constraints that have historically impeded first-time entrepreneurs and small-scale operators from accessing the benefits of the corporate form.

Contributions may take the form of cash (apports en numéraire) or contributions in kind (apports en nature). Notably, contributions of services or expertise (apports en industrie), while recognized in certain civil law jurisdictions, remain excluded from capital calculations under this regime.

A distinctive creditor protection mechanism mandates annual allocation of five percent of net profit to a legal reserve until the aggregate of share capital and reserves attains EUR 12,000. This forced capitalization requirement operates as a gradual enhancement of the entity’s financial stability, even where initial capital deployment is minimal.

All shares must be issued in registered (nominative) form; bearer shares are categorically prohibited. Furthermore, the entity may not effect public issuance of shares or beneficiary interests, reinforcing its classification as a closely held structure unsuitable for capital market participation.

B. Eligibility Requirements and Participation Constraints

The SARL-S imposes stringent eligibility criteria that distinguish it from conventional corporate forms. Shareholding is restricted exclusively to natural persons; legal entities are precluded from participation. This limitation prevents corporate groups from deploying the simplified structure for subsidiary formations or holding arrangements, thereby confining its application to individual entrepreneurship.

The structure accommodates between one and one hundred shareholders, enabling configurations ranging from sole proprietorship equivalents to multi-member partnerships. A particularly notable anti-proliferation provision prevents any natural person from holding shares in more than one SARL-S simultaneously, with exceptions only for shares acquired through intestate or testamentary succession. This constraint ensures the structure serves genuine first-time business formation rather than portfolio diversification strategies. It bears emphasis, however, that this restriction does not preclude simultaneous shareholding in a SARL-S and other corporate forms, such as standard SARLs or public limited companies (sociétés anonymes).

C. Permissible Corporate Purposes

The SARL-S is available only for entities whose corporate purposes fall within the scope of the Law of 2 October 2011 governing access to the professions of craftsman, merchant, manufacturer, and certain independent professions. This sectoral limitation ensures the structure serves its intended function as an entrepreneurial vehicle for specific economic activities rather than general commercial deployment. Consequently, enterprises in financial services, real estate development, and various other sectors must resort to alternative corporate forms irrespective of their capital position.

III. Formation and Incorporation

A. Procedural Framework and Documentation

The SARL-S’s principal procedural advantage lies in permitting incorporation through private deed without notarial authentication—a significant deviation from standard SARL requirements, which mandate notarial execution. This dispensation eliminates both the associated professional fees (typically ranging from EUR 1,000 to EUR 3,000) and temporal delays inherent in notarial scheduling, enabling entrepreneurs to draft incorporation documents independently or with legal assistance and file directly with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés, or “RCS”).

Notwithstanding this procedural simplification, the SARL-S maintains substantive disclosure requirements. The deed of incorporation must specify the company name (followed by the “SARL-S” designation), registered office address, corporate purpose, share capital amount, duration (whether limited or unlimited), and the identities of all shareholders together with their respective shareholdings. Full publication of the articles of association in the Electronic Compendium of Companies and Associations (Recueil Électronique des Sociétés et Associations, or “RESA”) ensures public transparency equivalent to that applicable to traditional structures.

B. Regulatory Prerequisites

A business permit (autorisation d’établissement) issued by the Ministry of Economy constitutes a non-waivable prerequisite for SARL-S formation. This permit requirement embeds regulatory oversight at the formation stage, verifying that proposed corporate activities fall within the restricted scope of eligible professions.

Non-residents may establish SARL-S entities provided they maintain a fixed establishment in Luxembourg—defined as physical premises such as offices, workshops, or commercial spaces, as distinct from mere postal addresses. This requirement ensures substantive business presence rather than letterbox formations, consistent with Luxembourg’s commitments under international transparency standards and anti-money laundering frameworks.

C. Formation Costs and Timeline

Incorporation costs for SARL-S entities remain substantially lower than those applicable to traditional structures, typically aggregating approximately EUR 200. The principal expenditures comprise a fixed EUR 75 registration fee payable to the Administration of Registration, Estates and VAT (Administration de l’Enregistrement, des Domaines et de la TVA), RCS registration fees ranging from EUR 10 to EUR 106 depending on entity characteristics, and nominal charges for trade name verification.

Formation timelines generally span one to three weeks when all prerequisites have been satisfied, including business permit acquisition, bank account establishment, and documentation preparation. The absence of notarial scheduling requirements enables more flexible timing compared to standard SARLs, where notary availability may extend formation periods by several weeks.

IV. Corporate Governance

A. Management Structure and Authority

The SARL-S is administered by one or more managers (gérants), who may or may not be shareholders. Unlike standard SARLs, which permit both natural and legal persons to serve as managers, the SARL-S requires all managers to be natural persons. Managers may be appointed for limited or unlimited terms as specified in the articles of association.

The management structure follows the standard SARL framework, with managers possessing broad authority to undertake actions necessary or useful for achieving corporate purposes. The company remains bound by managerial actions even when such actions exceed stated corporate purposes, unless third parties knew or should have known of the excess—a protection for third-party reliance that ensures commercial certainty in contractual dealings.

Where multiple managers are appointed, the company may define joint and several powers and duties, which become opposable to third parties upon publication in RESA. This flexibility accommodates governance structures ranging from fully independent managers to collective decision-making requirements.

B. Managerial Liability

Managers bear joint and several liability for specific incorporation-related obligations, including the validity of capital subscriptions, full payment of subscribed shares, and damages arising from company nullity or material omissions or inaccuracies in incorporation documents.

Beyond these incorporation-specific obligations, managers face broader accountability under general corporate law principles. Article 710-16 of the Law of 10 August 1915, as amended, establishes liability for mismanagement (faute de gestion) and violations of law or the articles of association. Manager liability is generally individual rather than collective, with joint and several liability arising only where multiple managers participated in the challenged conduct and liability apportionment proves impracticable.

Criminal liability may attach to managers whose conduct causes the company to commit offenses, including operation without proper business licenses, improper payments for shares, fraudulent accounting, or failure to file for insolvency when conditions warrant. Penalties range from fines of EUR 5,000 to EUR 250,000 to imprisonment of one month to ten years, depending on offense severity.

C. Shareholder Decision-Making

Shareholders exercise ultimate authority through general meetings, which decide upon statutory amendments, changes to company name or corporate form, capital modifications, managerial appointments and removals, and liquidation. Ordinary general meetings require decisions adopted by shareholders representing more than one-half of the share capital; extraordinary general meetings typically require a three-quarters supermajority unless the articles of association provide otherwise.

The SARL-S follows general SARL principles whereby no quorum requirements apply, but decisions must achieve specified majority thresholds on first call. Should a second meeting become necessary due to insufficient capital representation, decisions may be validly adopted by simple majority of votes cast regardless of capital represented.

V. Taxation

A. Preliminary Observations

The SARL-S is subject to taxation identical to that applicable to standard SARLs. It bears emphasis that no preferential tax treatment attaches to the simplified form; the designation “simplified” refers exclusively to formation procedures and capitalization requirements, not to fiscal obligations. Accordingly, the taxation analysis applicable to conventional SARLs applies mutatis mutandis to the SARL-S.

B. Corporate Income Tax

Luxembourg imposes corporate income tax (Impôt sur le revenu des collectivités, or “IRC”) on a progressive basis. For tax year 2026, the applicable rates are as follows:

• Taxable income from EUR 0 to EUR 175,000: 14%
• Taxable income from EUR 175,001 to EUR 200,000: EUR 24,500 plus 30% of the excess over EUR 175,000
• Taxable income exceeding EUR 200,000: 16%

A solidarity surtax (contribution au fonds pour l’emploi) of seven percent applies to the corporate income tax amount across all income levels.

C. Municipal Business Tax

Municipal business tax (Impôt commercial communal, or “ICC”) is levied at rates varying by municipality. Luxembourg City applies a rate of 6.75%.

D. Aggregate Effective Rate

For entities with taxable income exceeding EUR 200,000 and registered offices in Luxembourg City, the aggregate effective tax rate amounts to 23.87%, calculated as follows:

• Corporate income tax: 16.00%
• Solidarity surtax (7% of corporate income tax): 1.12%
• Municipal business tax: 6.75%
• Aggregate effective rate: 23.87%

For smaller enterprises with taxable income below EUR 175,000, the effective rate is reduced to approximately 14.98% in Luxembourg City.

E. Net Wealth Tax

SARL-S entities are subject to annual net wealth tax (Impôt sur la fortune) assessed as of 1 January based on net asset valuations. The standard rate is 0.5% for net assets not exceeding EUR 500 million.

Minimum net wealth tax applies irrespective of actual asset levels, graduated by balance sheet total:

F. Value Added Tax

Value added tax registration obligations depend upon annual turnover thresholds. Effective 1 January 2025, mandatory registration applies where annual turnover exceeds EUR 50,000. The standard VAT rate in Luxembourg is 17%, with reduced rates of 14%, 8%, and 3% applicable to specified categories.

G. Double Taxation Treaty Network

SARL-S entities benefit from Luxembourg’s extensive double taxation treaty network, encompassing more than seventy jurisdictions. These treaties provide mechanisms to prevent income from being taxed in both Luxembourg and contracting states, offering reduced withholding tax rates on dividends, interest, and royalties.

VI. Accounting and Reporting Obligations

A. Financial Reporting Requirements

Notwithstanding simplified incorporation procedures, SARL-S entities maintain comprehensive accounting and reporting obligations identical to those applicable to standard SARLs. Required financial statements include a balance sheet, profit and loss statement with detailed annexes, management report (unless below applicable size thresholds), and notes to financial statements.

Annual accounts must be filed electronically with the RCS within seven months following fiscal year-end—comprising six months for shareholder approval plus one month for RCS filing. Financial statements must be prepared in accordance with Luxembourg Generally Accepted Accounting Principles following the Luxembourg Standard Chart of Accounts (Plan Comptable Normalisé).

B. Statutory Audit Requirements

Statutory audit requirements for SARL-S entities depend upon exceeding specified size criteria for two consecutive fiscal years. A company requires statutory audit when surpassing at least two of three thresholds:

• Total assets: EUR 4.4 million (increasing to EUR 6 million pursuant to 2024 amendments)
• Net turnover: EUR 8.8 million (increasing to EUR 12 million)
• Average number of employees: 50 persons

Given the EUR 12,000 maximum capital constraint and entrepreneurial focus of SARL-S entities, the substantial majority will not approach these thresholds during their existence as simplified structures.

VII. Share Transfer Restrictions

Share transfers in SARL-S entities follow general SARL principles with statutory restrictions protecting existing shareholders. Transfers among current shareholders are generally unrestricted, though the articles of association may impose additional conditions.

Third-party transfers require approval from shareholders representing at least three-quarters of share capital, though the articles of association may reduce this threshold to one-half. Should shareholders refuse approval and the transferring shareholder decline to abandon the contemplated transfer, the shares must be acquired by non-transferring shareholders or repurchased by the company within three months.

For single-shareholder SARL-S entities, the statutory approval procedure does not apply—a clarification introduced through the Rectification Law of July 2023 to eliminate the logical impossibility of requiring consent where only one shareholder exists.

Luxembourg imposes no transfer taxes (droits d’enregistrement) on share transfers, rendering ownership changes tax-neutral from a transaction perspective.

VIII. Mandatory Conversion

The SARL-S incorporates automatic conversion triggers requiring transformation to a standard SARL or other corporate form when operational scale exceeds the simplified structure’s parameters. Mandatory conversion arises when:

• The shareholder count exceeds one hundred—the SARL-S has one year to convert following breach of this threshold; or
• Capital exceeds EUR 12,000—whether through retained earnings, additional contributions, or reserves—triggering mandatory conversion within one year.

The conversion decision requires shareholder approval through extraordinary general meeting, typically requiring a three-quarters supermajority unless the articles specify otherwise. This mechanism ensures the SARL-S serves its intended function as an entrepreneurial incubator rather than a permanent structure for larger operations.

IX. Dissolution and Liquidation

SARL-S dissolution follows general SARL procedures, with shareholder-initiated voluntary liquidation constituting the most common exit mechanism. The standard three-stage process comprises: first, a dissolution decision adopted by extraordinary general meeting before a Luxembourg notary with appointment of a liquidator; second, a liquidation phase during which the liquidator settles all company debts and realizes assets; and third, closure and deregistration from the RCS following final shareholder approval.

Single-shareholder SARL-S entities may utilize simplified dissolution procedures requiring only one notarial meeting, provided the sole shareholder assumes all remaining obligations. This mechanism proves particularly valuable for micro-enterprises where the individual entrepreneur and company are functionally identical.

X. Comparative Analysis: SARL-S and Standard SARL

The following comparative framework synthesizes the principal distinctions between the two forms:

XI. Strategic Considerations

A. Optimal Deployment Contexts

The SARL-S proves particularly well-suited for first-time entrepreneurs with limited capital launching service-based businesses in eligible sectors; micro-enterprises anticipating gradual growth over multiple years before approaching the EUR 12,000 capital threshold; sole operators seeking limited liability protection without the complexity of multi-member governance; and ventures testing business concepts where minimal formation costs justify incorporation despite uncertain viability.

B. Suboptimal Applications

Conversely, the SARL-S proves less suitable for capital-intensive businesses requiring equipment, inventory, or working capital exceeding EUR 12,000; high-growth ventures likely to breach capital or shareholder thresholds triggering mandatory conversion within a compressed timeframe; corporate structures requiring legal entity shareholders or subsidiary formations; financial services and other excluded professional sectors; and serial entrepreneurs already holding SARL-S interests who cannot establish additional simplified entities.

XII. Pending Legislative Developments

Draft Bill 8669, introduced in December 2025, proposes permitting deferred payment of minimum share capital for up to twelve months following incorporation. The reform aims to address practical challenges in opening bank accounts prior to incorporation, arising from anti-money laundering and customer due diligence requirements that may extend several weeks. For SARL-S entities selecting capital above the EUR 1 minimum, this provision would enable immediate incorporation while financing arrangements are finalized. The bill remains under parliamentary review.

XIII. Conclusion

The SARL-S represents a strategically targeted intervention addressing specific friction points in entrepreneurial formation—capital availability and notarial costs—while preserving Luxembourg’s comprehensive corporate governance and fiscal frameworks. The structure succeeds in its core mission of enabling immediate market entry for undercapitalized entrepreneurs in eligible professions, reducing formation costs by approximately eighty to ninety percent compared to standard SARLs.

Yet the “simplified” designation proves somewhat misleading with respect to ongoing operations. Following incorporation, SARL-S entities face taxation, accounting requirements, and regulatory compliance obligations identical to those applicable to traditional structures. Practitioners advising on Luxembourg entity selection must therefore weigh the SARL-S’s formation cost savings against the probability of mandatory conversion for successful ventures experiencing growth, together with the administrative burden such conversion entails during critical scaling phases.

The SARL-S ultimately constitutes a legitimate and valuable instrument within Luxembourg’s corporate law architecture, albeit one with a relatively narrow optimal use case. For Luxembourg to further reduce barriers to entrepreneurship, reforms addressing ongoing compliance costs—which typically exceed formation expenses over multi-year horizons—would arguably prove more impactful than additional incorporation simplifications.

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.