Top 5 mistakes when starting a business in Luxembourg
What not to do when incorporating or doing accounting locally.
Luxembourg seems like a "simple" market to enter: transparent registers, understandable corporate forms, a strong ecosystem of professional consultants. In practice, however, mistakes arise more often not because of the complexity of the law itself, but because of the gap between how an entrepreneur envisions the launch and how the state and banks verify the right to operate.
This material is for informational purposes only and does not replace individual legal/tax advice; in practice, the initial configuration depends on the type of activity, ownership structure, hiring model, and revenue geography.
The most common mistakes start with the obvious: choosing the "default" legal form and signing a charter that will not satisfy investors, compliance requirements, or the actual operating cycle. Then it turns out that for a significant part of "regular" economic activity, a business permit (autorisation d'établissement) and the "right" manager are required, and without this, the business is legally paralysed even if the company is registered.
Then come the costly surprises: VAT regimes and electronic reporting, advance payments on corporate taxes, deadlines for publishing annual reports, as well as "inconspicuous" obligations such as the net wealth tax minimum and increased fees for late registration. All of this can be attributed to systemic risks, but quite often, novice entrepreneurs either forget about such "nuances" or deliberately ignore them.
1. Start "by the book"
The company is established "like among friends" — SARL or Sàrl‑S without precise answers to questions: whether investments are needed, how new shareholders/participants will join, who actually manages the business and signs documents, how voting and exit rights are arranged. The result: already in the first round of financing or during the first transaction, the charter begins to interfere with the business.
Why does this happen?
Firstly, SARL is the most popular form for start-ups, but it initially limits the liquidity of shares: transfers of shares to third parties require the consent of a qualified majority, and shares are not traded as a public instrument.
Secondly, Sàrl-S attracts capital from 1 EUR and simplified creation, but this is a form for small scale: as capital/number of participants grow, there is an obligation to change the form.
Thirdly, entrepreneurs underestimate the fact that SA/SAS is not "the same thing, only more expensive," but rather a different logic of management and control: SA allows for a monistic or dualistic system, with certain requirements for management bodies.
Legal/tax/operational implications
An unsuitable form and ill-conceived charter result in transaction costs: the need to urgently amend the charter, restructure management bodies, reissue signing authorities, update publications in registries and, most importantly, re-undergo bank compliance for the changed ownership/management structure. Any significant modification also increases the risk of errors in registry data, which later affects compliance and transactions.
Typical case
The start-up is registered as an Sàrl-S for speed and minimal capital. After 6–12 months, the first investors are attracted: capital grows, calculations become more complex, instruments need to be converted, and the director's powers need to be expanded. The company is forced to transform (or reorganise) at a time when it is more important to sell the product than to rewrite the corporate architecture. Formally, this is solvable, but the price is time, consultants, and a repeat compliance check at the bank.
How to prevent and quickly fix
Preventive measures are always much cheaper and more effective than attempts to fix everything "on the fly":
- First, set out scenarios for 24 months: 1) without investors, 2) with angel investors/funds, 3) with an international group; then choose the appropriate legal form (SARL vs SA vs SAS).
- In the articles of association, consider the following separately: signing authority, the procedure for issuing/transferring shares, protection against deadlocks, rules for convening meetings and recording decisions. This is critical for SAs due to the requirements for management bodies.
- If an unsuitable form has already been chosen, assess the cost of changing not only the charter, but also compliance: the bank will require an update of the package on beneficiaries and powers; this is often the main source of delays.
2. Business permit: when you have a company but no rights
Entrepreneurs often mistakenly believe that registering a company automatically gives them the right to conduct business. In Luxembourg, most types of regular economic activity are subject to the rule of "permit first, then work": a business permit (autorisation d'établissement) is required in advance, with rare exceptions.
Why does this happen?
The reason is almost always psychological: entrepreneurs see the "corporate" layer (articles of association, register, capital) and do not see the "professional" layer — the requirements for the manager and the actual management structure. The requirements include (depending on the activity) professional qualifications, professional integrity (honorabilité) and a fixed place of business.
Another pitfall is choosing the wrong manager: integrity checks apply not only to directors, but also to controlling shareholders and individuals who can significantly influence management.
Legal/tax/operational implications
Operationally, it looks like this: the bank asks for a permit, counterparties require confirmation of the right to operate, and you cannot legally provide services or trade. In practice, the business is stuck between "there is a legal entity" and "there is no legal access to the market."
For Sàrl-S, this is even more noticeable: the business permit number appears in the registry data. In other words, the right to operate becomes part of the registration and compliance process.
Typical case
An IT team from abroad opens a consulting and development company without first checking whether the specific activity is covered by a permit and what documents are required for qualification and management. The company is registered, but the permit has not been obtained — and the bank postpones full service until the status is clarified, because in KYC logic, the purpose and legality of the relationship must be clear.
How to prevent and fix
- Before choosing a company form, make a "business map": what exactly you sell, where value is created, how contracts are structured, and who signs them. Based on this information, see if a permit is required.
- Check the requirements for professional integrity and the scope of persons subject to verification — director, controlling owner, persons with significant influence.
- If you are submitting your application online, please use the professional account on MyGuichet.lu and electronic identification via LuxTrust.
- If the mistake has already been made: temporarily freeze marketing and transactions so as not to generate negativity and a queue of "stuck" customers. At the same time, gather the documents for the permit.
3. Neglect of taxes and reporting
An entrepreneur launches sales without establishing a "tax reporting framework": VAT regime, electronic filing channels, advance payments, deadlines for filing annual accounts and their publication. As a result, problems arise along with revenue and the start of accounting.
Why does this happen?
In start-up logic, accounting is perceived as an "outsourced service", while in Luxembourg logic it is seen as market access infrastructure: without the right VAT cycle and accurate reporting, you will either be unable to work with some of your clients or find yourself in a constant state of adjustment.
What is important to know at the start
- Corporate tax rates will be differentiated from the 2025 tax year onwards: 14% up to EUR 175,000 of taxable income, a smoothing mechanism in the range of EUR 175,000–200,001, and 16% for income above EUR 200,000.
- In real life, investors and CFOs also look at the "combined" burden: corporate tax + surcharges + municipal component. For example, for the capital in 2025, it amounted to 23.87%.
- For VAT, the frequency of declarations depends on turnover (for example, up to EUR 112,000 — annual, EUR 112,000–620,000 — quarterly + annual, over EUR 620,000 — monthly + annual). Declarations are submitted electronically.
- Advance tax payments (including corporate tax) are payable quarterly, on 10 March, 10 June, 10 September and 10 December.
- Annual financial statements must be approved within six months of the end of the year and submitted to the registry within one month of approval (i.e. usually no later than seven months after the end of the financial year).
- The net wealth tax minimum from 2025 is linked to the balance sheet total and starts, in particular, at EUR 535 for a balance sheet total of up to EUR 350,000 (with further increments).
Consequences
Operating
Administrative
How to prevent and fix
- Before your first sale, work out your tax plan: what turnover do you expect, do you need a VAT number, what kind of tax returns are likely in the first 12 months?
- From day one, keep a calendar: VAT returns, quarterly advances, annual accounts deadline (7 months), dates of key publications.
- Remember the key rule: no profit does not mean no obligations (e.g., minimum property tax and advance payments).
4. UBO/RBE, updates to registers and banking KYC
The founders perceive the disclosure of beneficiaries and registry updates as a formality. In reality, this layer is the main area of risk: it is of interest to both the state (transparency and AML) and banks (KYC/AML).
Why does this happen?
Most often because the UBO circuit "does not generate revenue" and is postponed. But the law on the register of beneficial owners clearly states that submissions and changes must be reported within one month of the company becoming aware or should have become aware of an event requiring an update.
Luxembourg Business Registers acts as the registry administrator, and in legal terms, this is not just a website, but a data control infrastructure: in the event of discrepancies or incomplete submissions, rejections, requests for corrections and the transfer of materials to the appropriate authorities are possible.
Possible consequences
Risk of fines
Risk of legal action
Risk of additional compliance
In 2024, the judicial authorities explicitly stated that the focus of inspections was shifting according to the type of organisation (commercial companies, then associations, then civil societies) and that irregularities (inaccurate/inconsistent records) were being recorded and could lead to investigations. This is a very significant risk for businesses: you may not be in the spotlight for years, but it is possible that tomorrow you will be subject to an inspection.
How to prevent and fix
- Prepare a UBO ownership chart before opening an account and before the first changes in capital: who controls, what rights they have, and what documents confirm this.
- Introduce the "30 days" rule: any change in shares/votes/control immediately triggers the data update process.
- Divide up the roles: who is responsible for the registers, who for the bank, who for corporate decisions.
5. International structure
The company is being created not as an operating business, but as part of an international structure (intra-group financing, holding company, IP contour). It is a mistake to try to operate under the paradigm that it is enough to register a legal entity and sign a couple of agreements within the group.
Why does this happen?
This is because decisions are made "at the global level," and the Luxembourg company is used as a "conduit" for financial flows. However, Luxembourg has established a separate set of requirements for intra-group financing: the tax administration has published a circular on the tax regime for companies engaged in intra-group financial transactions.
Technical materials on corporate declarations explicitly address issues related to transactions with related parties (Articles 56 and 56bis of the Income Tax Act) and the application of simplification measures from Circular 56/1–56bis/1.
Possible consequences
- Tax adjustments
- Operational locks
- Reputational risk
How to prevent and fix
- Before the first intra-group agreement, record where decisions are made, who is the director/signatory, how minutes are drawn up, and what remains in Luxembourg as a management function.
- For intra-group financing, use the logic and language of Circular 56/1–56bis/1: definition of transaction, functions, risks, approach to marketability.
- Prepare documentation on intra-group prices "upon request": even if there is no obligation to attach it to the declaration.
Source: guichet.public.lu, www.luxinnovation.lu, www.houseofentrepreneurship.lu, www.cc.lu, impotsdirects.public.lu, www.csl.lu, www.lbr.lu, www.rbe.public.lu
We took photos from these sources: Unsplash
