Substance Luxembourg

Operational substance in Luxembourg

Operational substance is becoming more and more at the core of the political, regulatory, and also public interest.

While substance used to be for a long time considered for tax purposes only, the operational substance is a much broader concept targeting real business activities to be operated in and from Luxembourg, with strategical and financial decisions taken here, also marketing and research activities.

It can be seen as a real opportunity to develop activities in Luxembourg and to take profit from its unique international, business-friendly and service-oriented environment.

We help our clients to set-up and operate truly substance-driven activities in Luxembourg.

The operational substance requirements tend to grow. Some fundamental questions are.

  • Does the company have its actual management in Luxembourg?
  • Does the company rent a real office space and have recurrent office related operational expenses?
  • Are the company’s key decisions held in Luxembourg?
  • Do the directors and managers have the professional knowledge to perform their functions?
  • Does the company have qualified employees?
  • Does the company have a local accountant and tax advisor?
  • Is the company’s principal bank account kept in Luxembourg?
  • Does the company have sufficient equity that corresponds to the functions performed?
  • Are the company’s operating expenses recorded in the local P&L statement?
  • Does the company satisfy local compliance formalities?
  • Are meetings physically held locally?

It has become mandatory to fulfil numerous substance requirements for implementing a company structure so that it can successfully pass any tax audit in the parent company’s (or UBO’s) home country.

  • Luxembourg offers a widely internationally-oriented and cosmopolitan environment.
  • In addition, its political environment is business-oriented and very stable
  • Luxembourg offers many soft skills such as its unique quality of life, the professional and linguistic skills of its manpower, easy access by air, train and car, etc.
  • Finally, Luxembourg’s fiscal climate remains among the most favourable in Europe with the lowest applicable VAT rates, moderate corporate income tax rates and an attractive personal income tax.

By implementing your activities in Luxembourg, your company will take advantage of :

  • A special tax regime for dividends, capital gains, interest income and
    income from Intellectual property
  • One of the most attractive frameworks for R&D and Intellectual Property in
    Europe -jurisdiction for managing/ holding IP
  • An efficient and accessible rulings process
  • The absence of any controlled foreign corporation (CFC) regime
  • An extended double tax treaty network
  • Flexible evaluation rules for small and medium-sized enterprises
  • No exit tax constraints
  • An advantageous tax treatment of the R&D expenses, availability of
    incentives (capital subsidies, interest subsidies, promotion aids, tax relief,
    state guarantees…)
  • An infrastructure support in IP management, seed funding, logistics and
    industry collaborations
  • A long established competitive holding location
  • A stable and least risky location
  • A business-driven environment

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