Setting up a company in Luxembourg for French citizens: options, advantages and disadvantages
The Luxembourg environment is particularly advantageous for foreign investors and entrepreneurs, not only in fiscal terms but also with regard to regulations, incentives and the available assistance. As a result, more and more people, many of them French, are deciding to set up their operations in the Grand Duchy.
The formation of a Luxembourg company for French citizens presents multiple alternatives. One option for a French citizen is to move to Luxembourg, set up a company there and then operate it, although another one is to set up the company in Luxembourg while continuing to live in France. Below we will examine both possibilities and the advantages and disadvantages of each.
Moving to Luxembourg and setting up a company there
All French citizens have, as citizens of the European Union, the right to freedom of movement, establishment and provision of services within the Member States. This means that French citizens do not need a visa or work permit to live and work in Luxembourg, they have the right to start a business, open a business or work as a freelancer in Luxembourg without additional immigration formalities and they can automatically register with the Luxembourg social security system when they transfer their tax residence to the country.
However, although there are no significant migratory or bureaucratic barriers, entrepreneurs are obliged to comply with certain requirements just like Luxembourg citizens, one of the most relevant being the need to obtain a settlement permit if the company carries out commercial or craft activities or certain liberal activities. To obtain this permit, it is necessary to meet the following requirements:
- Demonstrate professional integrity: the applicant's good character is assessed based on their career and background over the last 10 years. As part of this requirement, French citizens must present an extract from the criminal record less than 6 months old issued by the State or States in which the person has resided during the last 10 years.
- Professional qualifications: it is necessary to demonstrate adequate professional qualifications for liberal and craft activities. As part of this requirement, French citizens must attach a declaration less than 6 months old made under sworn declaration before a notary public providing information on any bankruptcy in which they have been involved either personally, as an administrator or as a person in a position to significantly influence the management or administration of the company.
- Physical establishment in Luxembourg: the company must have suitable facilities for its activity to ensure genuine operation and avoid “letterbox companies”.
- Effective and permanent management: the applicant must have a real link with the company, manage daily operations and be physically present on the premises.
- Fiscal and social compliance: the director of the company must not have avoided social security contributions and taxes, either in their own name or through a company that they manage or have managed.
That said, French residents registering a company in Luxembourg can benefit from many advantages but will also have to face some disadvantages. Here are some of the most important:
- ➕ Political and economic stability: Luxembourg offers a stable, pro-business environment with clear regulations favorable to entrepreneurship.
- ➕ Similar language and culture: French citizens will not have to face language barriers as French is one of the official languages of Luxembourg.
- ➕ Speed of administrative procedures: this is one of the considerable advantages of setting up a company in Luxembourg, which is also accompanied by a high degree of adaptability of the administrative system to changes.
- ➕ Competitive corporate tax rate: in Luxembourg this rate is 23.87%, slightly lower than the 25% in France by 2025. In addition, Luxembourg offers numerous tax exemptions and deductions.
- ➕ Favorable taxation: while other countries are increasing their rates over time, Luxembourg is going in the opposite direction. At the end of 2024, the Luxembourg Parliament voted on a series of bills introducing major tax changes aimed at supporting businesses and individuals.
- ➖ High standard of living: this translates into high rental prices and high salaries for employees, which can be much higher than in France.
- ➖ Establishment permit: the need to obtain authorization to carry out commercial, craft and certain liberal activities.
- ➖ Mandatory substance requirements: it is essential to guarantee a real physical and administrative presence in Luxembourg.
Setting up a company in Luxembourg while living in France
As we have seen, French entrepreneurs in Luxembourg obtain tax benefits and many other advantages when they move to Luxembourg and set up a company there. However, that is not the only option, French citizens can also set up a company in the Grand Duchy while maintaining their residence in France.
The European Union guarantees freedom of establishment and this means that no state can prohibit its citizens from setting up a company in the territory of another member state. Furthermore, in France, the Conseil d'Etat (France's highest administrative court) ruled, in a resolution of 24/07/2019 no. 411382, that incorporating a company in Luxembourg did not constitute an abuse of law.
This means that it is possible to freely create a company in Luxembourg, but it is necessary to comply with the rules of substance and the criteria of tax residence of companies. Otherwise, the creation of the company may be compromised or its tax residence may be reclassified.
These rules on economic substance are essential to ensure that companies have a real presence and genuine activities and are not simply “shell companies” or “letterbox companies” created to take advantage of tax benefits in an artificial way. These rules have been tightened following the implementation of international standards, such as those of the OECD (Base Erosion and Profit Shifting, BEPS) and European Union directives. These rules have multiple implications:
Actual physical presence:
Companies must demonstrate that they have an adequate physical presence in Luxembourg in accordance with the type and size of their activity, for example, an office for service companies or a workshop or warehouse for craft businesses. Companies that require a business permit cannot use domiciliation. It is therefore not possible to set up a company for commercial purposes in Luxembourg while maintaining a residence in France, without the company having physical premises in Luxembourg using domiciliation.
Effective management and key decision-making:
To comply with the substance rules, the company must ensure that strategic decisions and day-to-day management are carried out in Luxembourg. This involves holding board meetings within Luxembourg territory, documenting these meetings and ensuring that the main directors are physically present, ensuring that the directors and managers have a significant connection with Luxembourg and ensuring that operational and strategic decision-making takes place in Luxembourg and not in France.
If the company is registered in Luxembourg but important and day-to-day decisions are made in France, the French tax authorities could argue that the place of effective management is in France. This would imply that the company could be considered a tax resident in France, even if it is registered in Luxembourg.
Accounting management:
The company's accounting and administrative management must be carried out from Luxembourg, which means that the accounting books and financial records must be kept in Luxembourg and be available for tax inspections.
Although these rules of substance and tax residence may seem difficult to implement for a French person who wishes to continue living in France, there are solutions, some of which are as follows:
1️⃣ Create a locally managed company
One alternative is to create a company in Luxembourg and manage it locally, either by appointing a local director as manager or by traveling regularly to Luxembourg to manage the company. This last option may be more or less viable depending on where one lives in France, while it may be unfeasible or quite costly if one lives in the southwest, if one lives in other regions closer to Luxembourg the situation is much more affordable, Luxembourg is for example only two hours by TGV from Paris or Strasbourg.
The number of trips required will depend on the type of company chosen, certain types of companies only require a few days a year of presence in Luxembourg for their administration.
2️⃣ Being a cross-border worker and crossing the border several days a week
It is also possible to consider setting up a Luxembourg-France cross-border business by becoming an employee of the company itself, living near the border and traveling to Luxembourg a couple of times a week.
This regime offers a large number of advantages such as the taxation of the company according to Luxembourg taxation, affiliation to the Luxembourg social security regime, which is more favorable than that of France, taxation on salary income in Luxembourg and even the benefit of a PFU tax rate of 20% instead of 30% on the distribution of dividends.
3️⃣ Create a holding company in Luxembourg
A third and also very interesting alternative is to create a holding company in Luxembourg, such as a Soparfi, which holds the shares of a French company. This type of company does not generally require an establishment permit, so it is possible to use a domiciliation permit and its relatively limited management minimizes the number of trips to Luxembourg.
This structure offers multiple advantages. If the French company distributes dividends to its Luxembourg holding company, these could be exempt in Luxembourg under the EU Parent-Subsidiary Directive. It is also possible to reinvest these dividends from the holding company, using Luxembourg as an investment platform and thus benefiting from all the financial and tax advantages of Luxembourg.
Finally, when the company is sold, it is the holding company that will receive the capital gain and with a future move to Luxembourg it would be possible to claim the capital gain paying 0%, whereas in France it would have been necessary to pay 30%.
How to set up a company in Luxembourg
To finish up, we are going to look at how French residents can set up a company in Luxembourg. Although it may seem simple on the surface, there are a lot of things to take into account, so it is advisable to plan this process well in advance.
1️⃣ Preparation of the project and creation of a business plan
Before starting the legal process of incorporation, it is essential to carefully prepare the business project, this involves preparing a detailed business plan containing a market analysis, a marketing strategy, the organizational structure and financial projections.
This document is essential as it serves as a roadmap to guide the company's growth and make informed decisions. It is also a key tool for attracting investors, obtaining financing, assessing the viability of the business and anticipating challenges and opportunities.
Furthermore, during this phase, it is crucial to define many of the aspects that will later be included in the articles of association, such as governance structure, the number of partners and their contribution percentages. These elements help to structure the ideas, demonstrate the feasibility of the project and prepare the necessary documentation for the next steps.
2️⃣ Domiciliation of the company
The company must have a registered office in Luxembourg, this choice must comply with local regulations and be suitable for the business activity.
3️⃣ Choice of a name for the company and verification of its availability
Before establishing a company, the entrepreneurs must choose a name for the company and check its availability. This is done by filing an application for a certificate of name availability electronically with the Luxembourg Business Registers (LBR).
4️⃣ Opening of a bank account and deposit of the share capital
Before signing the deed of incorporation, it is necessary to open a bank account in the name of the company being formed and deposit the share capital. Upon doing so the bank will issue a certificate of blocking of funds which must be presented to the notary as proof. For this step the final articles of association of the company are not required but it is necessary to present at least a draft of the articles of association.
5️⃣ Drafting and signing the Articles of Incorporation
In order to register the company, it is indispensable to first draft its bylaws, these must contain essential information such as the name of the company, the registered office, the corporate purpose, the duration of the company and the capital stock and other details. Most of the elements to be included should have been prepared beforehand in the first step which deals with the definition of the project. Once the articles of association have been drafted, they must be signed privately or before a notary, depending on the type of legal form chosen.
6️⃣ Registration with the Registry of Commerce and Companies (RCS)
Once the articles of association have been signed, it is necessary to register the company in the Luxembourg Trade and Companies Register (RCS). This registration is usually carried out by the same notary, however, as of November 12, 2024, it is necessary that as part of the process, any person associated with the company to be registered (partner, director, manager, authorized representative, auditor, etc.) provide a Luxembourg national identification number (LNIN).
Individuals who do not yet have a LNIN must submit an application to the RCS to obtain one as part of the company registration procedure. This application requires the presentation of an identity document showing the full name, date, place and country of birth, sex, nationality and postal address. Furthermore, if the postal address does not appear on the identity document, it is necessary to present proof of address dated less than 6 months ago, which can be:
- A certificate of residence issued by the municipality in which you live.
- A sworn statement by the interested party, stamped or countersigned by the regional authority responsible for confirming residential addresses, by an embassy, by a notary, or by a police station.
- A water, electricity, gas or Internet bill if none of the above documents can be presented.
Registration in the RCS is compulsory and confers legal personality on the company, officially recognizing it as a legal entity in Luxembourg.
7️⃣ Publication in the RESA
Once registered with the RCS, the incorporation of the company must be published in the Recueil Electronique des Sociétés et Associations (RESA), which is the official gazette of Luxembourg where all acts related to companies are published. This publication is a necessary step to make the existence of the company known to the public and to ensure transparency about its incorporation, domicile, share capital and administration. In Luxembourg, the notary is generally responsible for coordinating this publication.
8️⃣ Application for an establishment authorization if this is necessary
In certain cases, depending on the type of activity of the company it is necessary to apply for an establishment authorization. This authorization is mandatory for commercial, industrial, and artisanal activities and some self-employed activities. It is possible to enter an establishment authorization request in two ways, either by submitting your establishment authorization request online via MyGuichet.lu, from your professional space, or by sending a request for establishment authorization by postal mail to the General Directorate PME, craft and commerce.
9️⃣ Social Security registration
If the company is going to hire employees, it must register with the National Health Fund (CNS) to comply with social security and pension contribution obligations.
🔟 Registration for TVA purposes (if applicable)
If the company expects to invoice more than 35,000 euros per year, it must register with the TVA administration to obtain a TVA number.
