Start a business in Luxembourg

With more and more newcomers to Luxembourg poised to create their own businesses in the country, we decided to make the information of our infosessions available to a wider audience by presenting it in an online format.

This article is meant to give you an overview on how to prepare your project and the administrative steps involved.

How to start a business in Luxembourg

 

To be clear, we are not lawyers and the following information should not be considered legal advice. You should seek appropriate counsel for your own situation. This material is directed toward refugees and other newcomers in Luxembourg. If you are conducting business outside Luxembourg, we encourage you to find sources relevant for conducting business there.

It’s not about ideas. It’s about making ideas happen.

 

{ Scott Belsky, co-founder of Behance }

Preparation and initial steps before launching your own business

 

 


This material primarily targets asylum seekers and beneficiaries of international protection. It is also intended for any newcomer to Luxembourg looking to set up a business.

If you are an asylum seeker, you will not be able to obtain a business authorization until you receive your residency. However, we encourage you to begin with 4 initial steps, so that you will be able to set up a business sooner once you receive residency. And if you don’t get residency, you’ll have gained valuable skills – such as language proficiency, computer literacy, writing and presentation skills that can help you find a job anywhere in the world.

These four initial steps are:

 

  1. Obtaining proficiency in one commonly spoken language of Luxembourg (French, Luxembourgish, German or English).

  2. Getting your high school diploma, if you have one, recognized by the Service de la Reconnaissance des Diplômes.

  3. Participating in at least one training program relevant to your project.

  4. Creating a basic business plan.

NOTE: These steps are useful for all entrepreneurs, and do not require residential papers to complete.

 

1. Language proficiency

 

 

Languages are important for doing business in any country, but in Luxembourg, the lack of strong non-European ethnic communities makes it even more important. In Luxembourg, speaking primarily French, but in some cases also German, Luxembourgish or English is crucial to communicate with clients, suppliers and government officials.



 

2. Diploma recognition

 


Getting your high school or university diploma recognized is important for eventually obtaining a business permit. Even if you don’t start a business, a recognized diploma could prove useful for finding a job or bargaining for a higher salary.

 

If you would like to get your high school diploma recognized, you can do this before obtaining residency by contacting the Service de la reconnaissance des diplômes and following the necessary procedures. If you would like to get your university diploma, training certificate, or other non-high school qualification recognized, you must wait until you receive residential papers. Then, contact the Ministry of Higher Education to complete the necessary procedures.

If you do not have a high school or university diploma, you may substitute this requirement for a business license by taking a 50-hour Business Management course in French or English at the House of Training and pass an exam. Here is the link.

 

You may also be able to substitute this requirement by obtaining a few years of work experience in your chosen activity, but you should check specific requirements for your profession under the following link: http://www.guichet.public.lu/[...]/autorisation-etablissement/


The requirements differ by country and type of diplomas. For up to date information on how to get your diploma recognized, please visit: http://www.luxembourg.public.lu/[...]reconnaissance-diplomes/

You may also contact the Ministry of Higher Education and Research by phone (+352 247 86619) or email (registre@mesr.etat.lu) to inquire about your particular case.

3. Training

Touchpoints' project Sleeves Up, House of Training, Nyuko, Fit4Entrepreneurship, and Chambre des Métiers offer training on "how to become an entrepreneur" or improve related skills. This is a good way to improve your business qualifications while simultaneously improving your language skills. For up to date information on the latest courses and the topics, please visit the links above.


For any project that involves preparation or consumption of food or beverages on-site, successful completion of the 13-hour HORECA course, and passage of the test at the end is also required. The course is in French with the possibility to take the exams in English. Some exceptions may be made for cases in which people have over a year's worth of HORECA experience within the EU.


For those wishing to pursue what are considered craft activities (such as baking, hairdressing, cleaning, or machinery-related work) it is generally required to present official government-issued proof of professional qualifications and experience. This could involve something as simple as an official business registration slip or tax notice from your home country. Please contact the House of Entrepreneurship and/or Chambre des Métiers to receive information about requirements for your specific craft.

 

In the past, the business management course (also available in English twice a year), including an exam at the end, may be required in cases where sufficient business or educational experience is lacking. This is no longer a requirement but the course still offers extensive information on how to do business in Luxembourg.

4. Business Plan

 

A Business Plan helps you think through all aspects of the project, test your idea on paper, plan details of your business, and obtain financing (if needed) for your project. It doesn't have to be complex in the beginning, but you should be able to answer basic questions about your project.

What is your product/service? Who will buy it and why? How/where/when are you going to distribute your product/service? Who are your competitors and what makes you unique?

 
 
 
 
 
There is always some form of competition.
We are either competing for time or for money or for both.
So what are people doing with their time and money when they are NOT consuming your product or service...?

In order to test the idea, the business plan includes concrete numbers, like expected expenses, revenue and profit. The business can only be successful if revenue is higher than the expenses. In order to obtain financing (credit, investments or grants), the numbers must be defendable. The business plan also contains a realistic assessment of start-up costs. When asking for a loan or investment, it’s important to approach potential investors with concrete numbers that you can explain.

There are many different models for business plans, and you should feel free to adopt one that works best for you. However, Sleeves Up proposes a simplified three-page version that you can download here:

Administrative steps to starting a business in Luxembourg

Steps in the business creation process differ depending on your personal situation and the nature of your commercial activity. Therefore, it is best to seek professional assistance. Nevertheless, this article is meant to give you a brief overview of the basic steps involved.

 

1. Ask for a business permit

To legally practice a business activity in Luxembourg, you must first apply for a business permit. To submit a successful application, you generally need 4 things:

  • residency in Luxembourg or in a neighboring country not too far from the country border ("frontalier"),

  • the necessary qualifications,

  • a clean professional reputation,

  • and a fixed and suitable place of operation.

Craft versus Trade


Professional qualifications for trade activities typically require no diploma or experience.​

 

For businesses involving the preparation or consumption of food and beverages on-site (such as cafes and restaurants), participation in a specific Horeca course is generally required. For more specific conditions relating to your particular profession, please visit this page: guichet.public.lu/[...]autorisation-etablissement/

______

Professional qualifications for business activities like cleaning, hairdressing, baking, vehicle repair, and other crafts require a recognized diploma or certificate. These business permits are usually more difficult to obtain, as the requirements are strictly regulated. Business permits for craft-related activities fall under the responsibility of the Chamber of Crafts (Chambre des Métiers). Here's a list of available crafts: http://www.cdm.lu/artisanat/les-activites-artisanales

Reputation & honorability
 

As a newcomer to Europe, Luxembourgish authorities don’t have an extensive history of your professional reputation (for example, if you have a history of bankruptcy and/or dishonest business dealings). To prove that you have a clean professional history, you will need to visit a notary and (for a small fee) sign a statement.


 

Fixed location


For the last condition, a fixed location means a place in Luxembourg where you are allowed to work and that is adapted to the business you want to conduct there. Depending on the nature of your business activity, this can be a place you rent specifically for your business (shop, office, warehouse etc.) or a dedicated space in your private apartment (with a contractual agreement from the owner). There are also a few "coworking" spaces in Luxembourg available for this purpose. Your fixed location must be suitable for the activity.

You may be able to request a “business permit” before you obtain a fixed location. This implies that while you begin your market study and search for a suitable location you can already apply for a business permit. In such situation, you may be given a conditional approval pending when you provide a fixed location/address for the business.This way, you can find out for sure whether you’ll be able to obtain the business permit before signing a costly rental contract.

 

 
Example of Business Permit for trade activity

2. Choose a legal form

When filling out the business permit application, you have to chose under which legal form to start and run your business on. There are multiple options for legal forms in Luxembourg, but we focus here on the most common ones:

  • sole proprietorship

  • limited liability company (SARL)

  • simplified limited liability company (SARL-S)

  • Public Limited Company (SA)

  • Not-for-profit association (ASBL)

  • social enterprise (SIS)

Sole Proprietorship (self-employed)

Establishing a sole proprietorship means setting up your business as a private person instead of establishing a separate legal entity. It is different from other business forms in that it involves the most flexibility as well as the least administrative procedures and fees for setting up, but it is also the riskiest. A separate legal entity protects you from bankruptcy by allowing you to divide your private property from your commercial/business property.

 
personal property = business property
appartment                                truck                        
appartment furniture              oven                         
personal bank savings             office furniture      
...                                                  ...                              

Establishing a separate legal entity

In this situation, there is a strict separation between the property belonging to you and the property belonging to the company. This means that in the case of business failure, you lose the property belonging to the company (for example, the company car, refrigerator, desks, etc), not your personal property (your personal car, apartment, clothes, etc). In exchange for these protections, however, you must follow certain rules, such as a not using company property for personal use without fair compensation.

 

Some entrepreneurs with low capital investment requirements start as sole proprietors and switch over to a company structure once the business grows.

personal property ≠ business property
appartment                                truck                        
appartment furniture              oven                         
personal bank savings             office furniture      
...                                                  ...                              
A simplified SARL

 

Until recently, the SARL, which required over a thousand euros in initial administrative costs as well as a minimum of 12,500 euros in capital investment, was the primary alternative to the sole proprietorship. However, in a bid to make entrepreneurship accessible to more people, Luxembourg created a new form in January 2017 called SARL-S. The SARL-S is mostly similar to the classic SARL, except that it only requires 1 euro in capital investment and a few hundred euros in initial set-up costs.

 

Specificities:

  • Partners/shareholders in a SARL-S must be natural persons. A company can never be a partner in a SARL-S.

  • A natural person may only be a shareholder in one SARL-S at a time.

  • Five per cent of your profit is blocked as capital annually until you reach 12,500 euros. At this point, you’d need to switch to a SARL or other legal form in order to unblock these funds and make them available for use.

Find additional details about the SARL-S here : SARL-S on guichet.lu

Non-profit and social impact

 

If you intend to create a project that aims at a social objective, consider creating a non-profit organization (Association Sans But Lucrative or ASBL) or a social enterprise (Société d’Impact Societal, SIS).

 

Although ASBLs are not allowed to produce any profit, they can employ people and pay them salaries under certain conditions (!). ASBLs require at least three co-founders and typically receive most of their funding from donations and foundations. For more information on establishing an ASBL, please consult this link from CLAE (Comité de Liaison des Associations d'Étrangers).

 

Simply put, an SIS is a mix of the SARL and ASBL and has been created to better protect and regulate commercial activities performed by non-profits. SISs are allowed to make a profit, though with substantial restrictions. To obtain SIS status, you will first need to create a company (like SARL) following the normal SARL procedure. To find out more about creating an SIS, please visit this link.

_______________

 

Ultimately, selecting the legal form depends on your personal situation and type of commercial activity
  • For help in establishing a company, obtain assistance from the House of Entrepreneurship.

  • For help in establishing an ASBL, obtain assistance from CLAE.

  • For help in creating an SIS, obtain assistance from 6zero1.

3. Register with the Trade and Companies Register

You must register your company, sole proprietorship or non-profit with the Trade and Companies Register. First, check availability of company name. Then register using a Luxtrust Certificate (connexion guide PDF) or in person at their office in Luxembourg or Diekirch. If you’re creating a company or a non-profit, you must include the constitutional document along with your application.
 

 
Extract of the Trade Register for sole propriertorship (example)

4. Register for Social Security

 

 

The fourth step is to visit the Centre Commun de la Securité Sociale (CCSS) to register for social security. Social security benefits include unemployment insurance, a pension for retirement, disability insurance, parental leave, health insurance, and other benefits. If you plan to directly live off your business without a fixed salary, you will likely be required to pay 25% of your taxable income in social security. As a result, CCSS will ask you to estimate how much you expect to make in the first year, and you will need to pay 25% of this amount spread through the 12 months starting the moment you register for social security (Ex.: if annual taxable income = 24,000€, then 24,000€ X 25% divide by 12 months)

 

It is important to estimate your income as accurately as possible. If you estimate it too little, CCSS will ask you to repay the discrepancy a year later. If unanticipated, CCSS repayments can create a short-term cash shortage for your business.

 

CCSS assumes that you expect to make at least the social minimum salary (which is 2,141.99 euros per month as of Jan 2020). That means that you’ll be asked to pay a minimum of about 500 euros in social security each month - even if your business is not yet generating any profit. However, there are exceptions to this procedure for persons who earn less than the minimum salary on a yearly basis or exercise their independent activity in addition to a job as an employee in the private sector.

 

If your total income as an entrepreneur is less than 666.20 euros per month, you can ask not to pay social security at all (see exceptions above). In this case, however, you may receive reduced social security benefits and lose your health insurance. This option only makes sense, when other incomes already cover your social security.

 

Like many institutions in Luxembourg, the CCSS operates largely on a case-by-case basis. Contact them before and after launching your business to see how best they can help, either by going to their offices or writing an email.

 

For more detailed information about social security, follow this link.

 

 

5. Register for VAT

 

 

To register for VAT, you must submit an initial declaration to the Land Registration and Estates Department (Administration de l’enregistrement et des domaines - AED).

 

VAT, or Value Added Tax (known as TVA “Taxe sur la Valeur Ajoutée” in French), is paid by the final consumer on all purchased goods. Usually, the rate is 17%. However, from January 1st, 2021, the exemption threshold which allows some businesses to pay less or not pay at all, is raised from an annual turnover of €30,000 to €35,000. More about this and the criteria for benefiting can be found here. It is your responsibility to collect this tax from your clients and transfer it to the government. To reward you for this service to the government, as a company, you are allowed to subtract the VAT you pay on goods and services you need for your business. This means that, in the end, a company doesn't pay VAT on goods or services that it buys.

 

Example:

 

  • You have to invoice 1,000.00€ of services. To your customer, you make an invoice with 1,000.00€ + 170.00€ VAT (17%).

  • At the same time, you buy a cell phone for your business for 200.00€ + 34.00€ VAT (17%).

  • The VAT you will have to pay to the government is 170.00€ - 34.00€ = 136.00€

  • So, a private person would have paid 234.00€ for the cell phone. The company only pays 200.00€.

 

Of course, calculating VAT on a monthly, quarterly or annual base (depending on your revenue) is much more complex, especially when you are selling goods and services to other European Countries. In any case, you should seek professional help from a tax adviser to prepare VAT declarations for submission to the Land Registration and Estates Department (Administration de l'enregistrement et des domaines) every month, quarter or year (depending on your revenue).

 

 

Regime de franchise - Invoices without VAT

 

If your total annual income is strictly less than 35.000,00€, you can ask the AED for what's called the "Regime de franchise" when you register for VAT. This means that you don't have to add VAT on your invoices and your customers don't have to pay it. This option reduces paperwork considerably and could be useful for starting small or as a sole proprietorship.

 

Please note that either way, you must register at the Administration de l'Enregistrement et des Domaines. 

 

 

Other taxes: Income Tax

 

The Luxembourg Administration des contributions directes, ACD, which is responsible for income tax, will contact you by post. If it fails to do so, you must contact the ACD and provide an initial declaration including details of your business and how much you expect to earn in the first two years of activity. For more information about how to register for income tax, click here. Note that there are minimum amounts of taxes to pay for capital companies, even if they haven't been profitable.

 

 
 
Financing.PNG

Financing

The first question entrepreneurs tend to ask after developing an idea is: Where do I get the money?

The answer is: How much do you need and what for?

 

Whatever the way with which you will fund your project, most of the resources will require you to
present a proper business plan and have strong knowledge about what you need to succeed.

 

 

 

 

1. Preparation

 

Traditional banks, investors and business angels advise strong preparation, a complete and updated file, and an understanding of key numbers, including anticipated costs, revenues, and profits. Be realistic about those numbers and be able to justify them. Research well your area of activity, and be prepared to answer in detail any questions about your project or the sector in which you’ll be involved.

 

When meeting with potential investors also bring an updated CV, as they assess your abilities as a project owner and your personal capacities to realize the project (or the capabilities of your team). The CV (written, online or spoken) should include civil status, address, training and diplomas, professional experiences & skills, soft skills, and network. Your skills, abilities, and viability of your plan are critical.

 

2. Opening a Bank Account

The importance of banking services to small businesses and independent professionals are numerous. Although the focus of this article is on business/professional bank accounts, it is important that budding entrepreneurs open private bank accounts in Luxembourg as soon as they possibly can upon arriving in Luxembourg. The financial history that will ensue from it will be useful in the process of opening a business account.

 

Steps and requirements

 

Generally speaking, the requirements and procedures for opening a professional bank account in the various banks in Luxembourg are similar. Among other things, upon approaching the bank of their choice, an entrepreneur is expected to submit a dossier consisting of the following:

 

  • Personal identification documents (e.g, title de séjour, social security no., c.v/portfolio)

  • Business certifications and licence

  • Statement of accounts (for an existing business)

  • Business plan (with details of financial projections)

  • Application letter (stating the reason and intended purpose of the bank account, the origin of business capital, projected annual turn-over and expected sources of income for the business)

  • Evidence of professional address (contract of lease/rent)

 

It is important to prepare your dossier with as many details and documents as possible before getting in touch with the bank, as incomplete information or numerous back and forth contacts can lead to very long processing delays.

 

There are no guarantees that a bank will surely offer you a professional account even if all the obvious checklists are correctly ticked. They reserve the right to refuse with or without a stated reason. That said, we must add that some banks are more receptive to these categories of clients than others.

 

2. Funding Small Businesses

 

Traditional banks and investors in Luxembourg usually require you to have a long-time residence in Europe, some credit history in Europe, own some property and have a regular salary. As a newcomer to Luxembourg, you will probably not be able to fulfil these kinds of requirements.

Nevertheless, there are other options to finance small businesses with a good idea, a strong business plan, and a motivated project owner, among which:

 

  • Microlux: Provides microcredits up to 15.000 euros for the creation and up to 25.000 € for the development of existing micro or social companies in Luxembourg. They also offer free personalized coaching to help prepare and later set up the project. Follow the link for more.

  • FUSE: Provides a small interest-free loan from up to 5.000 euros typically to guarantee a rental deposit or cover start-up costs. Their idea is to provide you with just the little boost you need to start out on your own. Find more information here.

  • MCAC: The Mutualité de Cautionnement et d’Aide aux Commerçants facilitates access to traditional bank loans by vouching for your company. They also provide helpful information on the various public aids for SMEs (financial helps that usually require pre-financing). More information on their website.

  • Crowdfunding: These are collective websites or platforms where anyone can donate money to fund your project, often in exchange for some sort of reward. Different crowdfunding sites have different approaches and models. Find some of the most well-known platforms and useful advice on this link.

 

If you are setting up a business that doesn’t necessarily need investments to start (i.e. selling only services or various online businesses), you should consider starting out without any foreign money such as investments and loans. You can build on your own private resources and an organic (natural and slow) growth of your activities. With the Sàrl-S company model (see above) and the various possibilities to combine salary work or certain social benefits with an independent income, Luxembourg strongly encourages micro-entrepreneurs to start out.

 

3. Funding a non-profit

 

A non-profit organization in Luxembourg (either ASBL or NGO – see above) shouldn’t sell products or services to generate revenue. ASBLs in Luxembourg typically receive most of their funding from private donations, public institutions or foundations. If your project is entirely non-profit and in relation with culture, sports, environment or in the social field, you can submit your project idea and financial plan to the concerned ministry as well as to the following institutions (among others):

 

  • Oeuvre: The Oeuvre Nationale de Secours Grande-Duchesse Charlotte supports social, cultural and environmental projects that meet the needs of society in Luxembourg in their start-up phase. Check out the recurring calls for projects on their website.

  • Fondation de Luxembourg: The Foundation regroups multiple foundations from private donors with different philanthropic objectives. Organizations can submit projects related to a certain cause and the Foundation submits it to members who want to support that topic. Submit your project proposal here.

  • European Funds: Numerous European funds support social or business initiatives for a certain period. I.e. the European Social Fund is Europe’s main instrument for supporting jobs, whereas the AMIF concentrates on topics related to asylum and integration. These financial aids require a heavy load of administrative work, fund only part of the expenses and often require pre-financing. Nonetheless, it can be interesting for project owners to see if their project fits the objectives of a fund and get in touch with the competent authority.

 

As an ASBL you can also rely on your personal network, including friends and family members, as well as some crowdfunding platforms to raise money for a cause.

 
 
 
 
 

Other Resources

We have listed and explained the various steps, resources and requirements leading to the creation of a business. Most of these steps involve tangible and countable resources. But often ignored, are the intangible yet very important resources required to be successful. 

 

1. Social capital

 

Social capital by nature is about connections and ties. In a nutshell, it is about the people you know, share common interests with. Without a doubt, the social network of newcomers to Luxembourg will be somewhat limited. Nonetheless, entrepreneurs can cultivate social skills such as being friendly, agreeable, hospitable and generally happy to meet new people. The entrepreneur can find out about events and activities that match his/her interests and :

  • Observe

  • Listen

  • Participate in discussions

  • Reach out to people

 

As a small and less populated country, information spreads easier and quicker in Luxembourg, than it would in bigger countries. It is very common to meet mutual friends or have overlapping encounters. It is also common to meet the same people over and over again. These help to enhance the level of knowledge and trust between locals and newcomers. Examples of such events can be formal or informal. They may include sports, hobbies, educational or religious activities. They can even be dates or spontaneous meetings in unplanned places such as in a supermarket or in the train. The underlining phrase is to know more people

The acquisition of certain resources you require to start a business may depend on other factors beyond your control. However, you can acquire a lot of social capital that can possibly make you many steps closer to achieving your entrepreneurial goals.

A few organisations that frequently host useful events are listed below. We encourage further internet search for specific Facebook and LinkedIn groups where most organisations list their events.

  • Touchpoints ASBL - True to its goal in creating meeting points for collaborations between locals and migrants/newcomers, Touchpoints organises several periodic events including the Business MeetUps and the Infosessions. These events offer newcomers, entrepreneurs (established and budding), local business owners and experts to meet and discuss topics relating to doing business in Luxembourg.

  • Nyuko - The organisation is a startup support/incubator for entrepreneurs of all backgrounds and offers workshops and networking events. It is currently located at the House of Entrepreneurship making it an interesting point for seeking contacts within the Luxembourg entrepreneurship circle. Find out more about them on their website.

  • House of StartUps - HoSt offers various services including business incubation, acceleration, space share and more. It is an innovation hub, especially for tech-based businesses and startups. They frequently offer workshops, get-togethers and networking events. Find more about them here.

  • House of Entrepreneurship - The HoE is powered by the Luxembourg Chamber of Commerce. It offers numerous topic-based workshops (many of them for free and in digital), networking events and a range of other useful services for entrepreneurs.

  • Technoport - This business incubator and business support company offer programs to assist entrepreneurs to get started and through their journey to success and expansion. It is located in Belval near the University of Luxembourg campus. It periodically offers workshops and events that offer participants opportunities to learn and also to network. It also offers space sharing for teams and small businesses. Find out more about them here.

  • Event websites and platformsThere are quite a lot of websites and digital platforms in Luxembourg for advertising and displaying events. Because most of them are free to event organisers, they are popular for looking up upcoming events around you in Luxembourg. They include :

This article is work in progress and will be continuously updated and completed with additional information.

Stay tuned!