What is a domiciliary and do you need one?

The historical context and evolution of domiciliation

Until the end of the 20th century, the practice of providing registered addresses in Luxembourg was fragmented and insufficiently regulated. The period of rapid growth in the financial sector during the 1980s and 1990s led to the mass creation of companies, many of which existed solely ‘on paper’. This gave rise to the phenomenon of so-called ‘wild domiciliation’ (domiciliation sauvage), where addresses were provided by individuals who lacked the necessary qualifications and bore no responsibility for their clients’ compliance. This situation posed reputational risks for the country and hampered the fight against financial crime.

The turning point came with the adoption of the Law of 31 May 1999 on company domiciliation. This legislation not only regulated the market but also transformed domiciliation into a professional activity accessible only to a strictly defined group of individuals. The main aim of the law was to ensure the ‘seriousness’ of the financial centre and to establish strict control over who represents foreign businesses in Luxembourg and how. In today’s legal landscape, a domiciliary is not merely a landlord, but a professional intermediary entrusted by the state with supervisory and inspection functions.

Who is a domiciliary: legal status and powers

Under Luxembourg law, a domiciliation agent is a professional agent who enables a company to establish its registered office (siège social) at their premises and provides services relating to the operation of that address. It is important to note that a domiciliation arrangement applies only where the company does not have its own exclusive premises from which to conduct its business.

Regulated professions

The 1999 Act established a monopoly on the provision of domiciliation services. This right is reserved exclusively for members of regulated professions who are already subject to supervision by public authorities and are required to adhere to strict ethical and professional standards. These include:

• Credit institutions and professionals in the financial sector (PSF);
• Lawyers who are members of the Luxembourg Bar Association;
• Chartered accountants (experts-comptables);
• Auditors;
• Notaries.

Each of these entities undergoes an authorisation process. For example, in order to provide domiciliation services, a professional must demonstrate that they hold a relevant higher education qualification (in law, economics or management) and possess financial stability, evidenced by assets of at least €125,000.

The duties of a domiciliary towards the law and the state

The role of a registered agent is not limited to receiving post. They act as the ‘first line of defence’ in ensuring the company’s activities comply with the law. The agent’s main responsibilities include:

• Verification of the identity of all ultimate beneficial owners (UBOs) and members of the company’s governing bodies prior to the signing of the contract.
• Ongoing monitoring of the company’s activities to ensure compliance with anti-money laundering and counter-terrorist financing (AML/CFT) legislation.
• Storage of all corporate documentation, including shareholder registers, meeting minutes and financial statements, at the registered office.
• Notifying the relevant authorities (in particular, the RCS and the Public Prosecutor’s Office) in the event of termination of a contract with a client.

This structure of obligations makes the domiciliary agent the guarantor of the company’s transparency vis-à-vis the Luxembourg regulator.

How it works

Under Luxembourg law, there is a presumption that a company’s principal place of business coincides with the location of its registered office as specified in its articles of association. This location is regarded as the centre of management and administration.

The concepts of ‘Head Office’ and ‘Central Administration’

A registered office (siège social) is a company’s official point of contact with the outside world. However, for tax and regulatory purposes, the concept of ‘central administration’ is of critical importance. If a Luxembourg company has an address at a domiciliation agent but all decisions are taken abroad, it risks losing its status as a tax resident of Luxembourg.

A domiciliation service provides the necessary infrastructure to ensure that the ‘central management’ remains in Luxembourg. This includes the provision of meeting rooms for the board of directors, telephone lines and IT infrastructure. Thus, domiciliation is not merely an address, but the physical embodiment of a business’s presence within the jurisdiction.

Who needs a domiciliation service?

The need for a professional registered office depends on the company’s structure, the purposes for which it was established, and the requirements regarding its economic presence (substance).

When domiciliation is not enough

One of the most common mistakes made by entrepreneurs is attempting to use a registered office to conduct active business operations. Luxembourg law makes a clear distinction between an ‘administrative presence’ and a ‘real commercial establishment’.

Business Permit

Any company planning to engage in trade, consultancy, industrial manufacturing or craft production must obtain an authorisation to operate (autorisation d’établissement) from the Ministry of the Economy. To issue such an authorisation, the law requires the existence of a ‘permanent physical establishment’.

Under the law, simply using a lawyer’s or accountant’s office as a registered address is not considered a suitable establishment for the purposes of obtaining a business licence. A company must rent its own premises (or a separate office within a business centre) that are commensurate with the nature and scale of its operations.

Therefore, if your aim is to engage in active sales or provide services, a registered office may only be useful during the registration phase; however, to operate fully, you will need to move to a physical office.

Tax residency and economic presence (Substance)

In today’s world, combating ‘letterbox companies’ has become a priority for tax authorities in most countries. In line with OECD recommendations and EU directives, Luxembourg is introducing increasingly stringent requirements regarding companies’ economic presence.

In order to benefit from tax advantages (such as exemption from tax on incoming dividends under the Parent-Subsidiary Directive), a company must demonstrate that it is a genuine tax resident of Luxembourg. Using only a domiciliary company without any additional ‘substance’ may result in foreign tax authorities (for example, in the country where the subsidiary is located) refusing to apply reduced withholding tax rates.

To minimise risks, Luxembourg-based companies seek to demonstrate the following indicators of legitimacy:

• Most directors or managers are residents of Luxembourg.
• Meetings of the Board of Directors are held in person in Luxembourg, with members attending in person.
• The company has sufficient capital to bear the risks associated with its operations.
• The company has a bank account with a Luxembourg bank, and most of its transactions are processed through this account.

Today, virtual office providers are tailoring their services to meet these requirements, offering not just an address but ‘presence packages’ that include part-time office space or the services of local professional directors.

ATAD III Directive

The European Union is actively working on the ATAD III Directive (known as the ‘Unshell’ Directive), which aims to identify companies that do not have a minimum level of economic presence. Although the final text and the date of entry into force are still under discussion, the main ‘gateway’ criteria are already clear.

If a company derives more than 65% of its income from passive sources and more than 55% of this income comes from abroad, it comes under close scrutiny. If, in addition, day-to-day management has been outsourced (which is often the case with traditional domiciliation), the company may be deemed a ‘shell company’. The consequence of such a status will be the refusal to issue a tax residency certificate, which effectively nullifies all the benefits of structuring through Luxembourg.

Comparison of the costs of maintaining an address

Choosing between a virtual office, a co-working space and a dedicated office always involves striking a balance between cost and compliance with regulatory requirements.

At present, the market offers the following price benchmarks for businesses:

Office rental costs in Luxembourg vary significantly depending on the area. The central business district (Boulevard Royal) remains the most expensive, with prices of around €54 per square metre per month. Meanwhile, up-and-coming areas such as Cloche d'Or or Belval offer more modern infrastructure at prices of €35–41 per square metre.

When comparing the cost of a registered office service with that of renting an office, it is important to take into account the associated costs:

• Utility bills (electricity, water, heating);
• Property insurance;
• Cleaning and internet costs;
• Local council taxes on commercial property.

The property manager typically includes all these costs in the fixed contract price, which makes the budget more predictable.

Compliance procedure

Luxembourg domiciliary banks operate under strict supervision by the CSSF and professional associations. The ‘Know Your Customer’ (KYC) procedure here is one of the most rigorous in the world.

Documents required to start working with us

If you decide to use the services of a registered agent, please be prepared to provide:

• B For individuals (beneficiaries and directors)B : certified copies of passports, proof of address (utility bills issued within the last 3 months), a detailed CV, and a certificate of good conduct.
• B For corporate shareholdersB : articles of association, an extract from the commercial register, and the ownership structure down to the ultimate beneficial owner.
• Evidence of the origin of funds: a description of the beneficiary’s source of wealth. This may include proof of the sale of a business, receipt of an inheritance, or savings accumulated from salary.

A domiciliary agent must understand the economic rationale behind setting up a company. If the purpose of the structure appears unclear, a professional agent is entitled to refuse to provide services.

Risks and penalties: the cost of making a mistake when choosing an address

Luxembourg law imposes severe penalties for breaches of the domiciliary rules. This applies to both agents and the companies themselves.

Consequences of not having a registered address

Under the Act of 10 August 1915, a company that does not have a known and valid registered office is committing a serious offence. This may result in:

• Compulsory judicial liquidation of a company at the initiative of the state.
• A ban on directors holding senior positions for a specified period.
• Criminal fines for persons found guilty of breaching the rules on domiciliation.

Risk of contract termination

It is important to remember that the domiciliation provider has the right to terminate the contract immediately if the client fails to provide the necessary information or breaches the law. From the moment the notice of termination of domiciliation is published in the RCS register, the company is considered ‘homeless’. If a new address is not registered within a short period, the liquidation process begins.

Practical guidance on choosing a domiciliary

When choosing a partner in Luxembourg, you shouldn’t base your decision solely on price. The quality of the domiciliation service directly affects the stability of your business.

What to look out for