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Branch vs. subsidiary in Luxembourg

Updated on Friday 22nd October 2021

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branch_vs_subsidiary_in_luxembourg.jpgForeign investors can easily develop their business and open a company in Luxembourg. They have a number of business entities they can choose from, and among these, they can establish a branch or a subsidiary in Luxembourg. The two structures are very different, although their main purpose is to continue the company’s activities abroad. But for a better understanding in this regard, you can discuss with our company formation agents in Luxembourg.


Setting up a branch

 

Establishing a branch in Luxembourg can be easily accomplished and it requires less preparation and time as opposed to establishing a subsidiary. The set-up time represents one of the major differences between the two business formats. For establishing a branch in Luxembourg the entrepreneur needs to have a business permit and afterwards register the company at the Trade and Companies Registrar. An initial capital is not mandatory for a branch in Luxembourg
 
Here are other important aspects to consider at the time a branch is registered in Luxembourg:
 
  • The Articles of Association, copies and original, are among the solicited documents for branch registration.
  • A declaration stating the intention of opening a branch in Luxembourg, signed by owners, administrators, and directors is required.
  • The Certificate of Registration of the parent company is part of the branch incorporation in Luxembourg.
  • The registration number issued for a newly-formed branch in Luxembourg will be mentioned by the Certificate of Incorporation.
 
One should note that branches must be registered for taxation when preparing the formalities in Luxembourg. All the aspects can be discussed with our company formation agents in Luxembourg who can manage all the paperwork.


Setting up a subsidiary
 

A subsidiary opened in Luxembourg is considered a legal entity, unlike the branch. This gives the subsidiary a certain amount of independence from the parent company, but it also means that the legal process for establishment will take longer than for the branch. Most commonly, subsidiaries in Luxembourg take the form of a private limited liability company or a joint stock company. They both have minimum share capital requirements and they both need special licenses before incorporation.
 
A limited liability company is often the right type of structure for a subsidiary formation in Luxembourg. In the case of private LLCs, EUR 12,000 is the minimum share capital required, while the public ones can be established for EUR 31,000. Here are other business aspects related to subsidiary formation in Luxembourg:
 
  • The minimum share capital is deposited in a local bank account in Luxembourg.
  • A declaration stating the intention of opening a subsidiary in Luxembourg is required. This document is normally signed by the owners of the parent company, administrators, and managers.
  • VAT registration is mandatory in Luxembourg.
  • A legal representative must be appointed for a subsidiary in Luxembourg
 
Interested in complete services for subsidiary formation in Luxembourg? You should get in touch with our team of company formation specialists in Luxembourg and see how they can help you.


Differences between branches and subsidiaries
 

The most important difference between the two forms of legal entities is the degree of independence towards the parent company. A branch office has a certain degree of independence, but it is not legally separated from the parent company. The advantages of a branch are fewer administrative procedures for company registration, as opposed to the subsidiary, and fewer administrative and operational procedures. The main disadvantage of a branch: the parent company has full responsibility and liability.

A subsidiary is a company that is legally independent from the parent company. This is the main advantage for a subsidiary: the parent company has limited liability. Disadvantages for a subsidiary include more complicated administrative and operational procedures compared to those necessary for a branch office.


Taxation of branches and subsidiaries in Luxembourg
 

Another difference between a branch and a subsidiary is given by tax characteristics. There are no taxes for branches in Luxembourg. Profits are immediately taken by the head office. However, the branch must provide the Luxembourg Inland Revenue with annual financial data regarding the parent company.

A subsidiary is subject to income tax in Luxemburg. A subsidiary can choose to distribute its profits and it can repatriate or distribute net profits with low or no withholding tax on dividends.
 

A branch or a subsidiary - What is the proper choice for you?

 
While subsidiaries are separate entities and 100% independent, branches must report every aspect to the parent company. Subsidiaries can develop other activities too, while branches must have the same operations as the parent firm. These aspects are attentively measured by business owners who need to decide on future operations in a specific country, in this case, Luxembourg. We also present you other characteristics of branches and subsidiaries that stand at the base of choosing between these two entities:
 
  1. The head office is informed by each decision made by a branch.
  2. A subsidiary has a separate legal entity that offers 100% flexibility.
  3. While branches have joint accounts with the parent company, subsidiaries have their own bank accounts.
  4. Setting up a branch is a lot easier from a tax point of view compared to subsidiaries for which another tax structure is imposed.
 
Regardless of the chosen business structure, please do not hesitate to get in touch with our Luxembourg company formation agents and see how they can help you with the formalities imposed. The same team can help business owners understand better the tax rules and comply with them.
 

Making investments in Luxembourg

 
Luxembourg is certainly one of the most popular business destinations in the world. Foreign investors already know the potential of this country when it comes to profit and business development, so the decision to expand its portfolio in Luxembourg is more than natural. The financial sector is extremely well developed, in which thousands of companies already operate.
 
Among the top features that underline the reasons why investments in Luxembourg are profitable, we mention the excellent tax system, the possibility to develop a business with the help of a balanced and experienced workforce, the economy without fluctuations, and even very good living standards.
 
Even if Luxembourg is a small country, the business potential is huge, the state having very good international connections that allow the development of companies at a fairly fast pace, compared to other European countries. We remind you that Luxembourg has laid the foundations of the European Union that we know today, and this aspect does nothing but offer even greater confidence in the business environment based on a well-developed legislative system. Here are some statistics about investments in Luxembourg:
 
  • In terms of total FDIs, Luxembourg registered more than USD 128 billion in 2019.
  • Luxembourg ranked 72nd out of 190 worldwide economies, according to the 2020 Doing Business report that refers to the ease of doing business.
  • Around 50% of the total FDIs in Luxembourg come from European Union.
  • Bermuda is the main investor of Luxembourg, with more than 13.5% of the total investments in a year.
 

If you need further tailored information regarding the available options for company formation in Luxembourg, please contact our company formation team in Luxembourg.

 

Meet us in Luxembourg

Contact our specialists in company formation in Luxembourg, who have a large experience in finance and international business. 

Set up an appointment with us at (+352)278 617 15. Alternatively you can incorporate your company without traveling to Luxembourg.
 

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