🇱🇺 Annual Compliance — Luxembourg

Setting up a Luxembourg entity without adequate substance

Fix: Luxembourg tax authorities and foreign jurisdictions increasingly scrutinise substance. Ensure your entity has at least one qualified local director (or a professional director service), a physical office address (not just a mailbox), and that key management decisions are documented as being taken in Luxembourg. Budget for local director fees (€5,000–€15,000/year) and office costs from the start.

Underestimating compliance and ongoing costs

Fix: Luxembourg entities face mandatory statutory audits (for Sàrls exceeding certain size thresholds), annual filings with the RCS, and detailed tax returns. Professional fees for accounting, audit, tax compliance, and domiciliation can easily reach €15,000–€20,000/year for a standard holding company. Factor these costs into your structure from day one — they are significantly higher than in jurisdictions like Estonia or Portugal.

Assuming the participation exemption applies automatically

Fix: The participation exemption requires specific conditions: a minimum 10% holding or €1.2 million acquisition cost, a 12-month minimum holding period, and the subsidiary must be subject to a comparable tax (generally at least 8.5% effective rate). Failing any condition means dividends and capital gains are fully taxable at the combined rate. Verify all conditions with your tax advisor before relying on the exemption.

Using Luxembourg when a simpler jurisdiction would suffice

Fix: Luxembourg's strengths are in complex cross-border structuring, fund administration, and holding company regimes. If you are a single founder running a SaaS business with no subsidiaries, Luxembourg's costs and complexity are overkill. Consider Ireland, Estonia, or the Netherlands for simpler operating company needs. Use Luxembourg when the structure genuinely benefits from its participation exemption, IP box, or fund framework.