Avoiding delays when incorporating in Luxembourg
Article 3 minute read

Avoiding delays when incorporating in Luxembourg

12 January 2022

In TMF Group’s Global Business Complexity Index, which ranks countries for the complexity of their business environments, Luxembourg shifted from 50th place in 2020 to 65th in 2021, representing a reduction in complexity. We take a closer look at how incorporation procedures in the Grand Duchy have contributed to this.

Luxembourg’s government is highly supportive of business and in recent years has enacted a series of reforms to facilitate a more business-friendly environment. The Grand Duchy is committed to creating an environment of transparency and has rejected any reports portraying the country as an international tax haven.

While Luxembourg’s business practices have become less complex, challenges for companies wishing to incorporate in Luxembourg still exist and delays often occur, particularly involving the process of opening of a bank account.

Incorporating in Luxembourg

Incorporating a company in Luxembourg can usually be completed within a week. That being said, we recommend that advanced preparatory work and consultation with legal and tax advisers is undertaken to ensure that the proposed activities of the company are well defined.

While various business entities can be incorporated or established depending on business requirements, the types of entity most commonly used for Luxembourg companies are:

  • Public limited liability company (Société Anonyme, SA)
  • Private limited liability company (Société à Responsabilité Limitée, SARL).

The first step to incorporation is checking the availability of the desired company name within the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés, RCS). Once a company name is confirmed, the next step is drafting the incorporation documents, including a deed of incorporation, power of attorney and beneficial owner declaration. The entity must also have a registered office in Luxembourg.

It is best practice is to ensure that at least 50% of a company’s directors are Luxembourg residents. Directors must exercise their own due diligence and must demonstrate that they closely monitor the activity of the entities they are managing.

Opening a bank account

Opening a bank account can represent a significant challenge when setting up an entity in Luxembourg.

Not all banks in the country follow the same commercial strategy or procedures, and a number of banks are more restrictive, resulting in longer delays for account approval. The Covid pandemic has also exacerbated the situation, with the approval process for securing a bank account potentially being delayed by up to six months.

Typically, banks require a company presence in Luxembourg, including an address or a physical office. Applicants must also outline the legitimate reasons for choosing Luxembourg as a place to do business, in order to gain approval.

Having an existing banking relationship may help to speed up the process, although this is most likely to be the case for companies or shareholders that already have existing entities in Luxembourg. Alternative solutions to standard banks, such as electronic payment institutions, are also a viable option for speeding up the process.

While acquiring a shelf company may be considered as a workaround to speed up the process of incorporation and to allow the company to conduct transactions, new companies may find that the bank account associated with the company is inoperative or has been frozen until the Know Your Customer (KYC) and Anti-Money Laundering (AML) records of the bank are fully completed.

Know Your Customer requirements

KYC and AML requirements are a primary cause of delays. Careful planning is therefore necessary, especially if the company needs to be established by a certain deadline. Providing airtight KYC documentation from the start of the process – especially for directors – is critical to achieving this.

The government is fully aware of the banking issue and has asked several professional associations, capital markets and private equity trust providers to identify solutions to fix the issue, or at least facilitate the process to reduce frustration experienced on both sides – that of the financial providers and of the investors seeking to incorporate and do business in the country.

Talk to us

TMF Luxembourg has the local knowledge to help you identify and face any challenge or opportunity for your business.

Whether you want to set up in Luxembourg, or need help to streamline your existing operations, get in touch with us.

Written by

Gwenaëlle Cousin

Director Client Services

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