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How to dissolve a Sole Proprietorship in Luxembourg
A sole trader who stops business activity must complete a number of administrative procedures and formalities relating to: business license; social security; VAT; Registre de commerce et des sociétés (RCS); taxes, etc.
Remember one important aspect
The specific steps may vary depending on the individual circumstances of the entrepreneur. In order to ensure compliance with Luxembourg laws and regulations, it is strongly recommended to consult a legal or financial professional.
Read moreIn Luxembourg, the liquidation of a sole proprietor (also known as a sole trader or sole proprietorship) involves several steps. Unlike the liquidation of a company, there is no need to hold 3 meetings, no need to appoint a liquidator and no need to appoint an auditor.
In general terms, the process of the voluntary liquidation of a sole proprietorship can be summarized in 8 steps.
The sole proprietor, also known as the owner, must decide to stop operations and liquidate the business. Unlike the liquidation of a company, it is not necessary to hold 3 meetings, and reach a decision with the board of directors. It is enough for the founder to come to the conclusion on his own that the sole proprietorship should be closed.
How to dissolve a company in Luxembourg
The first step is to notify the relevant authorities of the decision to liquidate. In Luxembourg, this is primarily the Registre de Commerce et des Sociétés (RCS). You must submit a liquidation petition.
Cancellation of the business permit
The Minister of the Economy, who is responsible for business permits, must be informed within one month of the departure of the manager holding the business permit.
The manager must send the original version of the business permit to the General Directorate for Small and Medium Enterprises at the Ministry of the Economy, together with the following documents:
- the cessation form;
- a copy of their identity card or passport;
- the reason for the cessation.
It is necessary to notify the General Directorate of Small and Medium Enterprises, more specifically the Department of Business Permits. Their contact details are as follows. Postal address: BP 535 / L-2937 Luxembourg. Phone: (+352) 247-74 700 (available Monday to Friday, 9:00-12:00 and 13:30-16:30, except weekends).
In return, a ministerial order will be sent by mail.
Cancellation of the Social Security
Within 8 days of ceasing business, a sole trader must:
Cancel the membership
Cancellation of affiliation to the Joint Social Security Centre (Centre commun de la sécurité sociale, CCSS) by means of a declaration of withdrawal for self-employed persons.
Stop the membership of employees
Cancelling membership by sending CCSS a notice of termination of employment for employees, if applicable.
All declarations must be duly completed, dated and signed by a sole trader.
It must also include:
- 13-digit national identification number (matricule) of the self-employed person / the national identification number of the employee and the employer;
- business address;
- reason for the cessation of the activity;
- date of the end of the activity / of the last day of work.
The declarant will receive an acknowledgement of receipt for verification purposes.
Declaration of cessation with the Registration Duties, Estates and VAT Authority
Within 15 days of ceasing business activity, a sole trader must send a declaration of cessation to the Registration Duties, Estates and VAT Authority.
The statement must be properly completed, dated and signed by a sole trader. It must include:
- VAT number of the business;
- buyer's contact information, if any;
- value of the business net of VAT in the case of a transfer (sale) of the business to another person.
Notification of termination to the Internal Revenue Service
Unless a sole trader moves abroad, the trader remains liable for tax as an individual.
Therefore, a sole trader does not have to notify the Administration des contributions directes of the cessation of his activity. However, if there is a foreseeable decrease in income, the sole trader can ask his tax office to adjust his advance payments.
Other requirements
Depending on the sole trader’s business activity, a sole trader must also:
- notify the Chamber of Commerce of the cessation of activity;
- for craftsmen: return the craftsman's card to the Chamber of Skilled Trades and Crafts (Chambre des Métiers), which will then inform the social security institutions;
- in the case of industrial activities: inform the Ministry of the Economy / the Fedil;
- if the business has a "commodo/incommodo" operating licence (for listed establishments), inform the competent authority, etc.
Prioritize the payment of outstanding debts and liabilities. Notify your creditors that you are closing your business and make arrangements to pay any outstanding debts.
All creditors must be treated equally. This means that the sole trader's remaining assets are distributed fairly, based on how much the sole proprietor owes each creditor.
The self-employed person is fully responsible for any debts and must personally handle all financial obligations to others. They invest their own money in the business. While they get to keep all the profits, they also bear all the risks.
You must liquidate the assets of the business if you have not appointed a liquidator. This may involve selling stock, equipment, machinery or property. The proceeds of the liquidation will be used to pay any remaining debts.
The liquidator serves as the legal representative of a company during its liquidation, with responsibilities that include:
Corporate assets mangement
Sale of the company's assets, which can be anything from real estate to stock.
Identification and notification of creditors
Preparation of a list of all creditors of the company and notification of them about the dissolution of the company.
Find out more about the role of a liquidator in our guide to winding up a company.
You must meet all outstanding tax obligations. This includes paying income tax, social security and value added tax.
The entrepreneur must obtain a tax exemption certificate from the tax authorities.
You can close a sole proprietor's bank account once all financial matters have been resolved. Make sure all outstanding checks and payments are processed. Request a statement from the bank that you have no outstanding liabilities and that the accounts have been closed.
A corporate account is an essential part of any business, from the smallest to the largest. It's necessary for transactions.
How to open a business bank account in Luxembourg
If you have existing contracts, you must terminate them according to the terms of the contract. Notify customers, suppliers, and other interested parties that the business is closing. Provide information about how existing contracts and obligations will be honored or terminated.
If there are employees, resolve employment issues, including final pay, accrued vacation, and any other outstanding employment issues.
Prepare and file the necessary documents to close the sole proprietorship with the Registrar of Trades and Companies (RCS). You may also be required to submit a financial statement for your business.
A sole trader must deregister with the RCS using the electronic filing procedure on the official website of the Government of the Grand Duchy of Luxembourg. There is a fee to unregister from RCS.
Complete the formal process of canceling your registration with the Registrar of Trades and Companies to close the legal entity formally.
Remember one important aspect
The specific steps may vary depending on the individual circumstances of the entrepreneur. In order to ensure compliance with Luxembourg laws and regulations, it is strongly recommended to consult a legal or financial professional.
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Frequently Asked Questions (FAQ)
How to dissolve a sole proprietorship in Luxembourg
A sole proprietor who wants to close down his business has to go through several administrative procedures and formalities concerning: the business license, social security, VAT, the Registre de Commerce et des Sociétés (RCS), taxes, etc.
Is it difficult to dissolve a sole proprietorship in Luxembourg
A sole proprietorship is easily dissolved when the business closes, but you must remember to cancel all licenses and registrations related to it.
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