In this series, we discuss some of the complexities to consider when expanding your business across borders, or if you’re looking at multinational investment. There are many general issues, and different countries have very different legislation, regulation and tax regimes.

Here, we review some of the complexities to keep in mind when expanding or investing into Portugal.

Read ‘Complexities in New Markets: Luxembourg’ everywhere you go


Luxembourg is home to one of the most stable economies in the EU and, despite its small size, ranks as one of the wealthiest countries in the world in terms of GDP per capita. The transport infrastructure is well developed, with direct access to the rest of Europe and North Sea ports, and its technology infrastructure is renowned. Luxembourg hosts the majority of the EU’s Tier IV data centres and in 2020 the country ranked third in the EU for connectivity. And, its status as the home of the European Court of Justice makes it an important EU centre.

Widely recognised as one of the most competitive financial centres in Europe, the services sector comprises around 80% of Luxembourg’s GDP, and the success of the financial industry is thanks to its cross-border financial expertise, range of financial services offered, political stability, and its qualified multilingual workforce holds significant purchasing power.

Luxembourg is the second-largest fund domicile in the world and assets under management of Luxembourg-domiciled funds hit a record €5 trillion in January 2021. Luxembourg’s investment funds have a dominant share in Europe and are the vehicle of choice in many parts of Asia, Latin America and the Middle East– indeed, they’re distributed into over 70 countries. Luxembourg is also a major centre for alternative assets with more than €843 billion of assets managed by alternative fund managers. Luxembourg-based funds also benefit from the European passport, which means that funds (and their managers) comply with the UCITS Directive, the AIFM Directive (AIFMD), and can be marketed to investors in the European Economic Area (EEA).

Luxembourg only ranks 72/190 for Ease of Doing Business, however, so there are issues to be aware of. The incorporation process is somewhat complicated compared to other EU members, with different steps required based on specific business activities. The process of registering a company is relatively easy, though a business licence is required before operations begin, and that can take 15 days. Fund setup, approval, and formation can take many months.

Luxembourg is definitely one of the most favourable domiciles in Europe, but local knowledge is essential to navigate the lengthy processes and intensive regulations

Foreign direct investment (FDI)

According to figures from OECD, half the FDI received by Luxembourg comes from the countries of the European Union, although the main investor is Bermuda (13.5%), followed by the UK (13.1%), Ireland (12.1%) and the Netherlands (9.3%). Financial and insurance activities attract more than four-fifths of all investments (81.6%), with manufacturing accounting for only 2.8%.

The government of Luxembourg has been working to make the country even more attractive to FDI, offering fiscal benefits for equipment and construction projects, focused on key innovative industries like: logistics, ICT, health technologies (including biotech and biomedical research), clean energy, space technologies, and financial services tech.

Doing business & establishing a company/fund

As stated above, Luxembourg rates 72/190 in the 2020 World Bank Ease of Doing Business report, so there are definite hurdles to clear. Incorporation takes around 16 days and will require a Notary Public.

The most common company structure is the S.A. or Public Limited Company, though the country also allows cooperative companies and limited partnerships

Public Limited
Company (Société
Anonyme SA)
Private Limited
Company (Société à
responsabilité limitée
Limited Partnership
(Société en
commandite simple/
General Partnership
(société en nom
collectif SENC)
Company (société
coopérative SCOP)
One or more natural or
legal persons, no
Minimum 1 (single
member SARL),
maximum 100. (1
member for a sole
Minimum 2, no
At least two partners (a
legal person may be a
At least two partners. No legal limit.
€30,000 with 25%
released on creation.
€12,000 fully subscribed. No minimum. No minimum. No minimum.
The shareholders are
liable up to the level of
their contributions.
The founders are jointly
and severally liable to
third parties:
• for the capital not
validly subscribed and
for the difference
between the
minimum capital
requirements and the
subscribed amount;
• for the effective
payment of 25% of
the subscribed shares
and for the payment,
within 5 years, of
shares issued for noncash contributions;
• for the redress of
damage arising from
either the nullity of
the company or the
absence or nonconformity of
statements in the
company deed or
The founders of the
company and, in the
event of an increase in
capital, the managers,
are jointly liable in
respect of third parties
• any part of the capital
that is not validly
subscribed, and for the
difference between
the minimum capital
and the subscribed
• the full payment of the
shares and the portion
of the capital for which
they have subscribed;
• remedying any
damages arising from:
– the company’s
nullity; or
– omissions or
statements in the
company’s deed of
The shareholders are
liable to the extent of the
amount of their
General Partner liability
is joint. Limited Partner
limited to the amount
Partners’ liability is joint
and unlimited on
obligations and debts.
The managers, as
representatives of the
company, are liable for
their misconduct while
carrying out their
Partners’ liability
depends on the status.
If the articles of
association say nothing
in this regard,
the partners shall be
indefinitely and jointly
Each year, one half of
the company’s profits
and losses are to be
shared equally among
the partners, and the
other half in proportion
to their stake in the
The founding partners
are jointly liable for
certain commitments
made at the time of the
company’s formation,
and also for any
misdeeds committed at
the time of the
company’s formation.

In addition, the government has taken measures to encourage new businesses, including a 25% exemption on income and business taxes for eight years.

Luxembourg is a popular domicile for all fund asset classes including private equity, real estate, debt and infrastructure funds. There are several categories of investment vehicles to choose from, based on the target assets, the target investors, and the region and manner of marketing. These include:

  • Part II UCI (undertakings for collective investment)
  • SIF (specialised investment fund)
  • SICAR (investment company in risk capital)
  • RAIF (reserved alternative investment fund)
  • Soparfi (non-regulated ordinary commercial company)

Part II UCIs, SIFs and SICARs are so-called regulated investment vehicles, and therefore subject to direct supervision of the Commission de Surveillance du Secteur Financier (CSSF). These structures require CSSF approval before they can be set up.

RAIFs and Soparfis are unregulated investment funds, so not subject to direct supervision of the CSSF and not needing CSSF approval. These structures can be formed as soon as the constitutive documents have been finalised and arrangements with service providers are complete.

The CSSF approval process can take many months, and the information required is extensive. Drafts of the constitutive documents, offering documents, key service providers agreements (agreements for depositary, central administration, management, advisory, audit, global distributor, etc,), and key policies (risk management, conflicts of interest, anti-money laundering policies, etc,). The CSSF also needs information on the members of the governing body and the manager and/or adviser. Upon completion of the regulatory review, regulated investment vehicles receive the authorisation to establish. Once formed, vehicles are registered on an official list maintained by the CSSF.

Part II UCIs, SIFs, SICARs and Soparfis which qualify as Alternative Investment Funds (AIFs) under the AIFM Law (12 July 2013) must be managed by an alternative investment fund manager (AIFM) authorised or registered under the AIFM Directive (AIFMD). Authorised AIFMs can opt for any form of commercial company under Luxembourg law, but usually take the form of an S.A. or a SarL.

Another fund area popular in Luxembourg is distressed debt and NPLs.

Gaining CSSF approval can be harrowing and it’s always best to have an experienced advisor guide you through the process.

Tax & Accounting and Regulation

Luxembourg has been working towards harmonising its financial standards, both within the EU and at the international level, including the 2019 implementation of EU BEPS legislation (“Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” -aimed at combating tax avoidance by multinational companies).

Although Luxembourg has favourable tax treaties with a number of countries and relatively low corporate tax rates, its business tax requirements can be difficult. Companies must face many different taxes each year, which collectively involve c. 55-60 hours annual admin time.

Luxembourg has a 17% VAT rate, though there are reduced rates and excluded items. Excise duties are levied in accordance with EU legislation.

Lux-resident entities are taxed on their worldwide income, though non-resident entities are only taxed on their Luxembourg-sourced income. Resident companies and subsidiaries of foreign companies are also subject to wealth tax of 0.5% up to €500 million. Entities with a taxable base over €500 million are to pay a lump-sum fee of €2.5 million, along with 0.05% of the tax base in excess of €500 million,without any limit.

A subscription tax is levied on transferable securities at a rate of 0.05% for mutual funds, based on net assets at the end of the quarter. This rate is reduced to 0.01% for specialised investment funds and reserved alternative investment funds. Graduated rate reductions also apply for funds that invest in “sustainable” investments.

The rate of municipal business tax levied on income depends on the municipality. The municipal tax for Luxembourg City is 6.75%.

As of 2021, a new Real Estate Levy of 20% (Article 4 – “prélèvement immobilier”) applies to certain investment fund vehicles.

The Luxembourg fiscal year is 1 January to 31 December, and financial statements must be structured using IFRS and be submitted in one of the country’s three administrative languages (French, German, Luxembourger).

Labour and Payroll matters

The 2021 monthly minimum wage is €2,202, though the median monthly salary is €4,070, based on a 40-hour working week. Overtime is only permitted in special circumstances as outlined in the labour laws and subject to ministerial authorisation.

Indefinite period contracts are by far the most common, though around half of employees have their pay and conditions set by collective agreements, so employers are obliged to deal with trade unions on request. Trade unions are active in several sectors, mainly defending union interests in collective negotiations during meetings with employers, public and social authorities, and providing judicial aid.

Around 50% of Luxembourg’s workers live outside the country’s borders and commute in to work – an entirely feasible option given the excellent transport links, high costs of living, and small geographic size of Luxembourg. Known as frontier workers, these country-commuters benefit from the best of both worlds for taxes and costs of living, but they can provide payroll headaches for employers.

Frontier workers can come and go with no restriction if they’re EU/EFTA nationals; they’re under no obligation to register in Luxembourg. However, third- country nationals must hold a valid work permit for Luxembourg, Germany, France or Belgium, as well as a valid employment contract clearly stating that they may need to work some days of the month in Luxembourg.

Frontier workers pay taxes in Luxembourg for the income from the country; theym don’t pay taxes in Luxembourg for their worldwide income as they are non-residents. They pay Luxembourg social security just like residents, but they are not entitled to the same benefits as residents


The Luxembourg banking sector is highly competitive and strongly niched; different banks prefer different types of activity. However, with 128 banks to choose from, you should be able to choose from multiple options – but the focus is on asset management and private banking, not business banking.

Most banks offer remote openings, though expect minimum balance requirements and charges for different business services. Some will only consider EU-based companies and structures or require EU substance or ties, while others will service not only non-EU companies, but offshore, and even trading companies.

Prospective account holders are generally screened and approval is based on the bank’s internal policy, what type of account you want to open, your business operations, and so on – which essentially boils down to how profitable the bank expects you to be (and subsequently, how profitable you’ll be for the bank).

Thorough research is required to understand a bank’s requirements, preferences, and sensitivities before approaching them to open an account, but these can also be difficult to find. Local knowledge and introductions can be invaluable.


Luxembourg is a tiny country with a big reputation. It’s a massive financial hub, a first choice for many sectors and a popular jurisdiction for structuring alternative investment funds, but there are quite a few challenges to navigate – it’s definitely not as easy as it seems. Knowledge is key.

Local experts can provide you with the inner-working knowledge of Luxembourg’s regulations, legislation, and specific peculiarities that you’ll need to successfully navigate this EU hub.

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.