Tempted to set up in business? For a few years now, Luxembourg has brought in a simplified company statute called the SARL S. While this new statute means a company can now be set up with capital of only €1, all the other legal obligations nevertheless remain. The details.
The post-pandemic has changed our relationship to work. More and more people are tempted by the idea of setting up in business, whether to see an idea come to fruition, to invent their own pace of life or to find more meaningful work. But, this path is sometimes paved with obstacles. That is why the House of Entrepreneurship’s* mission is to steer you through your business venture. Today, Marie-Sultana, lawyer, and Guylaine, business manager, address some of the most common questions and mistakes of business creators.
Introduced by the law of 23 July 2016, the Simplified Limited Liability Company (SARL-S), often nicknamed the ‘1 euro company’, is a legal form specifically designed to encourage entrepreneurship in Luxembourg. Its primary purpose is to allow business founders to test their business model quickly and at lower cost, without having to tie up the substantial initial capital required for other structures. However, make no mistake: the SARL-S is not an end in itself, but rather a transitional legal structure and stepping stone, intended to evolve into a standard SARL as the business develops.
Although setting up an SARL-S is a simple process, its operation is governed by strict mandatory rules in Luxembourg. The main distinguishing feature is the legal obligation to build up a capital reserve. Each year, the company must allocate at least 5% of its cumulative net profits to a reserve fund, until the total of the reserves and initial capital reaches the 12,000 euro threshold. Any failure to comply with this gradual capitalisation rule exposes the manager to sanctions or to the automatic reclassification of the company, highlighting that the initial flexibility comes with strict financial discipline.
| Legal criteria | Specific features of the SARL-S | Luxembourg regulatory framework |
|---|---|---|
| Initial share capital | From €1 minimum to €11,999 maximum. | Freely set by the articles of association on incorporation. |
| Type of shareholders | Exclusively natural persons. | A person may be a shareholder of only one SARL-S at a time. |
| Incorporation deed | By private deed or notarial deed. | Using a notary is optional (saving costs). |
| Creation of a reserve | Mandatory (5% of net profits per year). | Locked until Capital + Reserve = €12,000. |
| Accounting obligations | Double-entry bookkeeping and annual publication. | Identical to the requirements for a standard SARL. |
| Business permit | Strictly mandatory before starting any activity. | Issued by the General Directorate for Small and Medium-Sized Enterprises. |
| Structure timeframe | Temporary and transitional. | Intended to be transformed into a standard SARL (once €12,000 has been reached). |
To make an informed choice between an SARL-S and a standard SARL, the entrepreneur must assess the maturity level of their project. While an SARL-S can be set up without any mandatory involvement of a notary and with capital of between €1 and €11,999, a standard SARL requires a notarial deed and an immediate minimum contribution of €12,000. In addition, the SARL-S is reserved exclusively for natural persons (a sole manager may hold only one SARL-S at a time). The choice therefore depends directly on your short-term growth prospects: if your activity requires heavy investment or rapid fundraising, a standard SARL is the more appropriate choice.
Once the business plan is ready, the next step is to decide on the legal form. If you are selling your services, you have the choice of setting up in business as a sole proprietorship or as a company.
To separate your professional from your personal finances, you need to create a company, that is to say a legal entity.
This statute offers greater protection, but also implies a heavier administrative burden. “You have to document the decisions, publish your accounts and therefore, theoretically, call on the services of an accountant,” says the lawyer.
Also note that a sole proprietorship isn’t taxed in the same way as a company. Basically, in the first case, you are taxed on what enters your account, namely on your turnover. In the second case, it is the company that is taxed and you will need an additional mechanism (receipt of dividends and/or payment of remuneration by the company) to pay you income, on which you will also be taxed personally.
One is not necessarily better than the other. It all depends on your business. However, once you overshoot a certain expenditure threshold, such as renting a workspace or using subcontractors, the company tax system makes more sense in terms of taxation.
To guide you in your first steps as entrepreneurs, and in particular the choice of legal form, the House of Entrepreneurship organizes a webinar each week in English and French, followed by a Q&A session. Here is the link to register.
Thinking of setting up a SARL S? Here are some valuable tips.
Although the argument of start-up capital set at a symbolic one euro is attractive when starting out, it masks the temporary and evolving nature of this status. Luxembourg legislation imposes mandatory capitalisation through a levy on annual profits. As soon as the cumulative threshold of 12,000 euros is reached, the structure automatically loses its simplified nature and must imperatively be the subject of a formal transformation of its statutes in order to become a standard SARL. This is a natural consolidation process confirming that this model serves only as a start-up phase for the self-employed person.
The amount of capital. You can create a SARL S with capital of only €1 (and a maximum of €11,999). Another advantage, you can complete the incorporation formalities yourself, and therefore save on solicitor’s fees.
The SARL-S is particularly well suited to knowledge-based service activities, consultancy, or digital service businesses that do not require heavy investment in equipment at start-up. This structure helps limit the founder’s personal financial risk. However, it is important to emphasise that starting capital that is too low can harm the company’s financial credibility with banks, landlords or major suppliers. Moreover, activities requiring substantial stock or major industrial investment are, in practice, excluded from this structure, as are certain regulated professions that are incompatible with this simplified form.
On the contrary, if your activity requires acquiring equipment and stock, then SARL S is not appropriate. Let's say you're launching a food truck for example. You will have to invest in a truck, fit it out, buy an oven, etc. However, this amount will be much higher than the maximum capital of a SARL S, which must remain less than 12,000 euros. You will then have to turn to another form of society, for example the SARL. In addition to necessarily larger capital, you will also be more credible if you wish to apply for funding afterwards.
“As an employee, you have a duty of loyalty to your employer. This means that you can’t create a competing business,” explains Marie-Sultana.
It is also necessary to check whether your employment contract contains limiting clauses.
You can be a manager, i.e. have a signing authority, in several SARL S. but, but you can’t be a partner in several SARL S. On the other hand, you can be a partner/shareholder of several other types of companies (be a partner in several SARL or SA for example).
Yes. EU residents can set up their company in Luxembourg. However, to do this, you need real premises and not just a domiciliation or mailbox. For non-EU nationals, a residence permit will be required to be present regularly in the territory to manage your activities.
It’s not that simple. To obtain your authorization of establishment, you must prove your company’s permanent establishment. If you set up in business at your home and you are a tenant, you must ask your owner and the municipality for permission.
If your activity in Luxembourg remains occasional, and is not subject to specific regulations, this is authorised. On the other hand, if the core of your activities takes place in Luxembourg, it will be necessary to create a new company. According to the House of Entrepreneurship, it can sometimes be less legally complex to create a new company in Luxembourg, rather than trying to transfer an existing company to another country. More information here.
The most common mistake is to assume that an SARL-S involves no administrative constraints. The legal and financial consequences of poor management are the same as for a large company. The SARL-S is subject to the same strict accounting obligations (keeping accounts, filing annual accounts with the Trade and Companies Register, VAT returns) as a traditional SARL. The entrepreneur must therefore factor in unavoidable annual operating costs (accountant’s fees, taxes, multi-risk insurance and professional liability insurance), otherwise they may incur personal liability for mismanagement.
The articles of association being drawn up under private deed is only a first step and remains meaningless without obtaining the business permit issued by the Ministry of the Economy. This administrative step is the real cornerstone of setting up a business in Luxembourg. This administrative procedure validates the manager’s professional qualifications and good repute, with certain activities subject to very specific diploma or experience requirements. It is essential to remember that without this permit, the business cannot actually start from a legal or tax perspective, making it impossible to open a business bank account and register for VAT.
💡 All these steps can be done online. To do this, consider applying for a LuxTrust* product on a professional basis as soon as you have obtained the authorization of establishment.
*Name of the secure authentication system in Luxembourg.
Professional insurance is also something you need to factor in when creating a company.
What insurance will you need? Think about your premises, your tools, your stock, your equipment... Not to mention your civil liability. What about your employees? And your pension plan as a self-employed worker?
All that’s left to say is that we wish you lots of success with your project!
*The House of Entrepreneurship is a project headed up by the Luxembourg Chamber of Commerce, with the support of many actors, including the Ministry of Economy and the Chamber of Trades.
Since the 1st of January 2019, Supplementary Pension Schemes are available to small traders and self-employed professionals. This is very good news fo…
Read more
Despite attractive salaries, luring talent to Luxembourg calls for a certain degree of resourcefulness. In some sectors, such as IT, banking or financ…
Read more
The Grand Duchy: the ideal place to do business?…
Read more
Every year, the press in the Grand Duchy reminds us that the Luxembourg passport is one of the most advantageous in the world... But beyond simplifyin…
Read more