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The Grand Duchy of Luxembourg is a small country in western Europe that is landlocked by Belgium, France, and Germany. Despite being a small landlocked nation, Luxembourg enjoys a certain level of economic stability and prosperity that closely resembles that of its neighbor Germany.
Known primarily for its highly developed banking, industry, and steel sectors, upon which the economy of this country largely rests, Luxembourg is striving hard to encourage a start-up culture. This means that there is a lot of scope for development in Luxembourg, and new businesses will have a lot of opportunities to flourish here. Luxembourg is also working to enable a business-friendly environment well-suited to both domestic as well as foreign investors.
Business owners and investors starting a business in Luxembourg would find it quite easy to set up their company. Since there are limited career fields that are properly developed, one of the major positives in Luxembourg is the availability of new career prospects. There are a lot of sectors like Technology, Healthcare, Media, etc., which can still open a lot of doors for entrepreneurs. Conducting some research about the region would reveal which areas need the most amount of development and can help you find your niche.

Quick Overview

An active economy working in Luxembourg is one of the most attractive features luring entrepreneurs and investors to seize business opportunities in this country. Political and social stability are some other factors that play an important role in this. For those wondering how to start a business in Luxembourg, it is important to know that there are various advantages to opting for this country for their business ventures. Luxembourg has one of the lowest social security liabilities among all European nations, which is quite an appealing factor to all investors and entrepreneurs. The process for starting a business in Luxembourg is as follows.

Process of setting up a business in Luxembourg

The process of setting up a business in Luxembourg is quite straightforward. As such, domestic, as well as foreign nationals starting a business in Luxembourg, find this country quite appealing. The processes can be broken down into six basic steps. Upon successfully completing all of these steps, anyone can start their company and have it function fully and legally. However, while there are six basic steps, there are a few extra steps that can be considered preparatory work before you start all the statutory and legal processes. Here is how to start a business in Luxembourg:

  • Research and Idea: The first step or preparatory work that you need to do in order to start a business in Luxembourg is to do some research about the region as well as the market. Before you create a business plan, you should know whether your product or service is even needed, is there a big enough market, would you have any competition, and how far you can expect to grow in the small geographical space of Luxembourg. Some of the fields which are expanding rapidly in Luxembourg include finance, media, tourism, IT, ICT, and many more.
  • Business plan: A business plan would be the next step to starting a business in Luxembourg. A business plan would help you set goals for your company based on research of the market. It would help you define points of achievement and even help you envision the correct way to achieve these goals.
  • Business Permit: Now, to start with the statutory processes, the first step would be to get a business permit. All types of commercial activities require a government-issued business permit. This needs to be attained by all new businesses, whether being started by locals or by foreign investors. There is a list of activities that need to get this permit before proceeding further.
  • Legal Structure: The legal structure of the company would help determine the role of all the members or partners and would also help in assigning liability. Commonly recognized forms of business in Luxembourg are Sole Proprietorship, Limited Liability Company, Joint Stock Company, and Company limited by Shares.
  • Visa: Following the above step, foreign investors and entrepreneurs need to handle all of the visa-related processes. This step, however, does not apply to citizens from any of the EU or EEA nations. All individuals who wish to stay within Luxembourg for a duration longer than 90 days need to receive a residence permit before stepping into the country.
  • Finance Issues: The next step would be to understand the need for financial support. All companies need financial support at some point which makes it necessary for all companies to assess their needs and find appropriate departments and agencies that can help them in resolving any financial issues. Those companies which have a standing reputation find it easier to deal with these issues.
  • Taxes: The taxation system in Luxembourg is quite comprehensive as there are a lot of types of taxes that need to be paid annually. Apart from personal income tax, which for every individual is calculated based on their conditions, companies are also exposed to company tax or commercial tax as well as VAT or Value Added Tax for all their products and services.
  • Social Security: The final step in starting a business in Luxembourg is to register with the Joint Social Security Centre. This department handles all the social contributions to various employee benefit insurance funds. Companies need to register as an employer by sending in a declaration at the beginning of employment. This fund is where pensions, health insurance, and contributions for other benefits are made.

Hiring Employees in Luxembourg 

Hiring Employees in any country is directly controlled by the labor laws of the country. These laws have been designed to allow the minimum standards of how an employee should be treated. To avoid abuse of power by an employer, certain strict rules have been laid down in these laws to protect the interests of the employees as well as save the employers from irrational employees or from those that show gross misconduct. Each country has its own unique set of labor laws. Similarly, Luxembourg also has its own provisions, and experts at Zimyo will help you take care of all the legal requirements of starting and operating a business in Luxembourg.
Some very important labor laws that all new investors starting a business in Luxembourg should be aware of include:

  • Trial Period/Probation Period: The probation period in Luxembourg can extend between 2 weeks to six months. It is upon the mutual consent of the employer and employee and must be clearly mentioned in the contract of employment.
  • Leave and Holidays: Leave and holidays are available in various formats in Luxembourg. Firstly, there are 11 public holidays in Luxembourg. Secondly, all employees are entitled to 25 days of paid vacation leave. Employees with disabilities are allowed 6 extra days of paid vacation leave. There is no set limit of sick leaves here, but employees must furnish a medical certificate in order to receive pay for sick leave. Next, all employees are entitled to 44 consecutive hours of a rest day, and if an employee has worked for 8 hours or more in overtime, they get an additional day off. Apart from this, in certain situations, employees can also get special leave. The duration varies for each. For example, 6 weeks of holiday for marriage, 3 days of the holiday upon the death of a close relative or spouse, and so on. Parents with children younger than 5 years of age are also entitled to receive 6 months of paid leave per child from taking care of them.
  • Maternity Leave: Female employees are entitled to receive 20 weeks of paid maternity leave, 8 weeks prior to the birth of the child and 12 weeks after it. Their spouses are entitled to receive 10 days of leave, but these 10 days must be taken within the first two months of the child being born.
  • Termination of Services: Termination of Services can either be by giving a one-month notice or with immediate effect. If the employer is dismissing an employee with immediate effect, they need to hold a pre-dismissal interview where they inform the employee about the reason for dismissal and give them an opportunity to defend themselves. If a notice period is given, the employer does not have to provide a reason unless the employee asks within that one month.
  • Pension: Employees who have reached the age of 65 are entitled to receive pensions in Luxembourg. Pensions come in three forms here. Public State Pension, Personal Pension, and Company pension are the three pensions systems working here. Public pensions are those for which contributions are taken from the social security fund. In a company tax pension, the contributions are made by the employer and employee, and they are tax-free. A personal pension is essentially saving money into an account from which you cannot withdraw any amount until you retire.
  • Work Hour Norms: As per the working hour norms of Luxembourg, a normal workweek can only extend up to 40 hours per week, which divides into 8 hours per day. In certain cases, the working hours could extend to 10 hours per day. In very specific businesses, only a workweek can extend to 60 hours, which equals 12 hours of work every day.

Overtime criteria are different in Luxembourg, and certain conditions need to be met in order for a situation to be qualified as overtime work. An employee can only be asked to work a maximum of two hours in overtime and only 10 hours per week. If the employee is asked to do so, they are entitled to a hiked pay of 40% extra than the regular hourly wage for every hour that they have worked overtime.

How easy is it to conduct business in Luxembourg?

To know whether a country has a business-enabling environment or a start-up-friendly infrastructure, it needs to be assessed on various factors which directly pertain to starting a new business as well as running a business smoothly. The Ease of Doing Business Index does just that. It compares various countries across multiple parameters, each of which determines how suitable a country is for new businesses and investments. As per the latest report of this index, the Grand Duchy of Luxembourg ranked 72 overall among 190 nations. It has been assessed on a lot of factors and compared on a uniform scale to determine its rank in various areas. Some of the most important aspects measured in this report are:

  • Starting a Business: In the aspect of starting a new business, Luxembourg ranked 76 with an overall score of 88.8 out of 100. The rank for this parameter is calculated on the basis of certain aspects which play a key role in the establishment of a Limited Liability Company. There are 5 procedures to complete, and it takes roughly 16.5 days to complete all of them and incorporate a company in Luxembourg. This is why the country ranked 76 on this parameter.
  • Managing Permits: When starting a business in Luxembourg, there are a number of permits required. For example, a construction permit is one of the most vital parts of any business. It helps in the erection of warehouses. In this parameter, Luxembourg ranked 14 with a score of 83.9. This is because there are 11 procedures to get a construction permit, and it can take 155 days or more to clear all formalities and receive the permits.
  • Getting Electricity: In terms of getting electricity, Luxembourg ranked 45 with a score of 84.3. There are 5 procedures to conduct, and it can take about 56 days to complete these and get a connection ready to function. Considering how important electricity is to run a business, Luxembourg is working to improve this process further.
  • Getting Credit: Getting credit is equally important, if not more, for any business. However, this process is not as simple in Luxembourg, and because of this, the country only ranked 176. While this is not a good rank, it is possible due to the many screenings and long processes it takes to get credit in Luxembourg.
  • Managing Payroll: As your company grows, managing payroll becomes more and more tricky. Fortunately, Luxembourg has a lot of agencies and systems in place that can help employers efficiently manage their payroll records. But without a doubt, Zimyo is the preferred option for entrepreneurs looking to start a business in Luxembourg.
  • Paying Taxes: In terms of paying taxes, Luxembourg has secured the 23rd rank. This is quite a good position and has been possible because while there are 23 types of taxes to be paid annually, it only takes 55 hours to complete filing for them. This has been possible because of streamlined procedures.
  • Enforcing Contracts: As far as enforcing contracts go, Luxembourg has quite a stable hold of its procedures. As such, it has been able to secure the 18th rank on this parameter. It can take about 321 days to complete all processes and get a verdict about the same.
  • Resolving Insolvency: Resolving insolvency is an important part of the business culture in any country. In this aspect, Luxembourg secured a rank of 93. This is because of the relatively low recovery rate of 43.9% and the long duration of 2 years that is required to complete this.

Considering all of the factors mentioned above, it is quite clear that the Grand Duchy of Luxembourg offers a lot of opportunities to new business owners and investors. As with every country, a certain level of research about the region would be vital for all investors. It is extremely important to know the region and assess whether your business idea would be fruitful there or not. As such, when starting a business in Luxembourg, one needs to not only comply with the local commercial and labor laws but must be sure of the viability of their business in this country.
Zimyo is a leading HR and Payroll management services provider in Luxembourg with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.