Foundations

A public utility foundation (foundation) is an independent, separately constituted non-profit entity, with its own established and reliable source of income and its own governing board. A foundation is a legal person which has no members or shareholders. Its purpose must be stated in its articles of association. The notarial deed must contain the AoA of the foundation. The notarial deed of the founder must then be submitted to the Minister of Justice. After approval by the Minister of Justice, the articles of association of the foundation must be approved by Grand Ducal decree. The positive opinion of the Minister of Finance will essentially depend on the amount allocated to the foundation. It is generally considered that this amount is sufficient if it allows the foundation to carry out its purpose without any further revenue for several years.

• The articles of association of a foundation must contain certain information specified by law: • The purpose of the foundation • Its name and registered office (which must be in Luxembourg) • Certain information relating to the directors • The intended purpose of the assets in case of dissolution of the foundation
• Once approved by the Minister of Justice and by Grand Ducal decree, the AoA must be published in the Luxembourg Recueil électronique des sociétés et associations. The foundation must also be registered with the Trade and Companies’ Register
• While a non-profit organization can have any non-profitable purpose, the foundation must have one of the purposes listed by Luxembourg law, for example a philanthropic, social, religious, scientific, artistic, educational, sports related or touristic aim.
• The foundation cannot carry out any industrial or commercial operations. However, the foundation can pursue an accessory profitable aim, provided this is dependent on the main non-profitable activity.
• The AoA of a foundation determine all provisions for the nomination and powers of the directors. The governance rules of a foundation are not imposed by law, and can be freely organized in the AOA. The District Court can dismiss a director who has proven to be negligent or ineffective, who does not fulfil the obligations foreseen by the law or the articles of association, or who disposes of the foundation assets for a purpose other than its statutory purpose.
• The foundation is in principle dissolved by the expiry of its term. It can further be dissolved by a court decision, if it is not able to provide the services for which it has been constituted. In such circumstances, the court will appoint one or several liquidators, who will distribute the assets in accordance with the statutory provisions. If the allocation foreseen in the articles of association cannot be realised, the liquidators will transfer the assets to the Minister of Justice, who will decide on their allocation in keeping with the purpose of the foundation.
• The foundation is a legal person. Therefore, the board members are not personally liable for the debts of the entity, except in case of negligence and/or mismanagement. Further, the District Court can dismiss a director who has proven to be negligent or ineffective, who does not fulfil the obligations foreseen by law or the AoA, or who disposes of foundation assets for a purpose other than the foundation’s statutory purpose.
• The board has the duty to maintain financial records and keep an administration. The directors must provide the Minister of Justice with the foundation’s annual accounts and budget, within two months following the end of the financial year. These documents are then published in the Recueil électronique des sociétés et associations. These annual accounts do not have to be independently audited.
• In principle, foundations are considered to be commercial entities, and therefore subject to corporate income tax and a solidarity surcharge. However, depending on the exact structure of the foundation and the purpose it is pursuing, it might be exempted from tax.

B. Limited liability company (société à responsibilité limitée, SARL)

A limited is formed by means of a notarial deed that includes the AoA and must be filed with the Trade and Companies Register (registre de commerce et des sociétés – RCS) and shall include the following information:

• The type of the entity and its name. Company name shall start or end
• The identity of the natural or legal person or persons by whom or on whose behalf the incorporation deed has been signed. Entity has at least one shareholder, at most one hundred, regardless its origin or nationality. In case of one founder that is a natural person, special rules apply.
• The place where the entity has its seat
• Duration of the company
• A detailed description of the purpose of the entity
• The amount of subscribed capital and the amount of the authorized capital (when applicable); the amount of subscribed capital initially paid-up
• If any, the classes of shares and the attached rights to each class, the number of shares subscribed to and, in case of an authorized capital, the shares to be issued in each class with attached rights as well as the number of shares with their nominal value (when specified) and any condition restricting the transfer of shares
• The way board members (and supervisors) are appointed and dismissed, as well as the scope of their competences
• The person designated as having responsibility for day-to-day management of the company (managing director), must be in a position to exercise effective oversight of the company in Luxembourg on an ongoing basis. This implies a physical presence in the country most of the time.
• The approximate amount of the costs in relation to the formation of the company.
• Minimum registered capital of €12,000, fully paid-up at incorporation.
• The limited liability company is a legal person. Therefore, the board members are not liable for the debts of the entity, except in case of negligence and/or mismanagement
• Applicable taxes:
• EIT: 26.01% (this includes 18% EIT, a solidarity surtax of 7% and 6.75% municipal business tax)
• Wealth tax: 0.5%. Besides the EIT as mentioned before, a limited is also subject to * 15% dividend tax in case profits are being distributed to shareholders (natural persons).
• The board has the duty to maintain financial records and keep an administration. The financial statements shall be approved by the shareholders meeting within 6 months from the end of the financial year and be filed with the Trade and Companies Register within 7 months. Appointment of an external auditor and audit obligations apply in case two of the three following conditions are met: a) annual sales over €8.8 million b) over 50 employees c) assets over €4.4 million
• The timeframe for setting up a limited is roughly two to three weeks