Substance Requirements Luxembourg
Ensure your Luxembourg company meets substance requirements. Director services, registered office, personnel, and ATAD compliance.
In summary: Luxembourg substance requirements include: qualified directors (typically 2+), physical office presence, local decision-making, qualified personnel, and genuine economic activity. Proper substance is essential for tax treaty benefits and EU directive application.
Economic Substance in Luxembourg
Economic substance is a critical consideration for companies established in Luxembourg. International tax standards, EU directives, and Luxembourg tax law all require companies to have genuine economic presence to benefit from the country's tax advantages.
Key Substance Elements
Board of Directors
The composition and conduct of the board is central to demonstrating substance. Directors should have appropriate qualifications and actively manage the company.
| Requirement | Best Practice |
|---|---|
| Number of directors | Minimum 2 qualified directors |
| Residency | Majority Luxembourg/EU resident |
| Qualifications | Relevant industry/financial experience |
| Meetings | Regular board meetings in Luxembourg |
| Decision-making | Strategic decisions made in Luxembourg |
| Availability | Directors available for urgent matters |
Physical Presence
- Registered office: Official address for legal correspondence
- Office space: Dedicated premises for business activities
- Meeting rooms: Facilities for board meetings
- IT infrastructure: Proper systems and data management
- Bank accounts: Local banking relationships
Personnel
Qualified employees in Luxembourg demonstrate genuine economic activity. The level of staffing depends on the company's activities and complexity.
| Role | Function |
|---|---|
| Compliance Officer | Regulatory compliance and AML |
| Finance/Accounting | Financial management and reporting |
| Investment Management | Portfolio monitoring (for holding companies) |
| Administration | Corporate secretarial functions |
Regulatory Requirements
ATAD (Anti-Tax Avoidance Directive)
ATAD requires substance for companies to benefit from intra-group arrangements. Key provisions include:
- General Anti-Abuse Rule (GAAR)
- Interest limitation rules
- Exit taxation
- CFC rules for passive income
Tax Treaty Benefits
To access Luxembourg's 103 tax treaties, companies must demonstrate:
- Beneficial ownership of income
- Not being a conduit company
- Principal Purpose Test (PPT) compliance
- Genuine economic activity
Substance Documentation
Evidence to Maintain
- Board meeting minutes held in Luxembourg
- Signed resolutions and decisions
- Employment contracts for Luxembourg staff
- Office lease agreements
- Bank statements showing local operations
- IT and infrastructure evidence
- Travel records of directors
- Time allocation records
Our Services
- Director services: Experienced professionals for your board
- Registered office: Premium office locations in Luxembourg
- Substance assessment: Evaluation of current substance level
- Compliance monitoring: Ongoing substance maintenance
- Personnel solutions: Staffing and secondment arrangements
- Documentation: Corporate governance and record-keeping
Frequently Asked Questions
Substance refers to the economic presence of a company in Luxembourg: qualified directors, local employees, decision-making in Luxembourg, physical office, and real economic activities. It is essential to benefit from tax treaties and avoid requalification as a conduit company.
While legally one director is sufficient, for substance purposes, companies typically need at least 2 qualified directors who actively participate in management. Directors should have relevant experience and be available for regular board meetings in Luxembourg.
A registered office is the official address of the company in Luxembourg. While a virtual office may be sufficient for administrative purposes, demonstrating substance often requires a physical office with dedicated space for the company's activities.
ATAD (Anti-Tax Avoidance Directive) includes substance requirements to prevent tax abuse. Key requirements include: genuine economic activity, qualified personnel, decision-making in Luxembourg, and adequate premises. Non-compliance can result in denial of tax benefits.
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