How to Register a Business in the US from Luxembourg

Step 1: Benefits of starting your US business from Luxembourg

Establishing a US business from Luxembourg offers a myriad of benefits that cater both to entrepreneurs and established companies seeking to expand their global footprint. Luxembourg’s strategic location at the heart of Europe, combined with its highly developed financial and business infrastructure, makes it an ideal launchpad for international entrepreneurship. One significant advantage is the access to a robust network of financial institutions, which provides competitive financing options and facilitates smoother international transactions. Furthermore, Luxembourg's stringent data protection laws ensure that businesses can operate with confidence, knowing that their sensitive information is safeguarded.

Another key benefit of starting a US business from Luxembourg is the country's favorable tax regime. Luxembourg offers appealing tax incentives, such as participation exemption, which can significantly reduce the financial burden on businesses. Additionally, the bilateral tax treaties between Luxembourg and the United States help to alleviate the risk of double taxation, thus maximizing profitability. The ease of doing business in Luxembourg, supported by an efficient legal framework and access to a multilingual workforce, further enhances the attractiveness of this European hub for US business ventures. Combining these advantages provides a solid foundation for sustainable business growth and international success.

Step 2: How to start your US business from Luxembourg

If you are based in Luxembourg and looking to start a business in the United States, the process primarily involves understanding US regulations, choosing the right business structure, and ensuring compliance with both US and Luxembourg laws. Begin by conducting thorough research on the different types of business entities available in the US, such as LLCs (Limited Liability Companies), C-Corporations, and S-Corporations. Each has its own set of legal, financial, and administrative requirements, so it’s important to choose the one that best fits your business needs. For foreign entrepreneurs, forming an LLC is often the simplest and most popular choice due to its flexibility and fewer administrative burdens.

Once you have decided on the business structure, the next step is to register your business with the appropriate US state authority. This typically involves selecting a state to incorporate in and filing the necessary documents, such as the Articles of Organization for an LLC or Articles of Incorporation for a corporation. You will also need to appoint a Registered Agent who has a physical address in the state of incorporation. Additionally, applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) is crucial for tax purposes. To facilitate the entire process, it may be beneficial to consult with a legal expert or business consultant who specializes in US-Luxembourg business relations, ensuring that all legal requirements are met and your business is set up for success.

Step 3: Opening a Business Bank Account

A business bank account is a separate account that is used exclusively for business transactions. But why is it important to open a business bank account?

Keeping your personal and business finances separate is crucial. A dedicated business bank account allows you to do just that, making it much easier to track your business’s income and expenses. This clear separation translates to simpler tax reporting come tax season.

But the benefits go beyond bookkeeping. Having a separate account can provide legal protection. It establishes your business as a distinct entity from yourself. In the unfortunate event of a lawsuit or bankruptcy, this separation can help shield your personal assets from business liabilities.

Furthermore, a business bank account can boost your credibility and project professionalism.

It demonstrates to clients and vendors that you take your business seriously and are committed to maintaining accurate financial records. This can be especially important in establishing trust with potential partners.

Finally, a business bank account is essential for accepting payments, even if you utilize a merchant account. Whether you use doola or another service, funneling those customer funds into a dedicated business account is necessary.

doola partners with banks that allow you to open a bank account remotely from anywhere in the world, like Mercury. Shop around and compare different banks’ fees and services.

Look for a bank that offers the features you need, such as online banking, mobile banking, or overdraft protection.

You may also want to consider working with a bank that specializes in small business banking.

Step 4: Understanding Your Compliance Requirements in Luxembourg

Understanding Compliance Requirements for Running a US Business in Luxembourg

Setting up a business in Luxembourg offers many advantages, including a favorable tax environment and strategic location within Europe. However, US businesses must carefully navigate compliance requirements to ensure smooth operations. Here are key considerations for understanding these requirements.

Legal Structure

One of the first steps is to choose a suitable legal structure for your business. Options include:

• Société à Responsabilité Limitée (SARL): Similar to a limited liability company, popular among small and medium enterprises.
• Société Anonyme (SA): Comparable to a public limited company, suitable for larger businesses.
• Société en Commandite par Actions (SCA): A partnership limited by shares, often used for specific financial and investment activities.

Tax Considerations

• Corporate Tax Rate: Luxembourg's corporate income tax rate is competitive, but US businesses must consider double taxation treaties between the US and Luxembourg to avoid paying taxes in both countries.
• Value Added Tax (VAT): Registration for VAT is mandatory if your annual turnover exceeds specific thresholds. US businesses must understand VAT compliance, including periodic filings and payments.
• Transfer Pricing: Luxembourg has stringent transfer pricing regulations. Businesses must ensure that transactions between related entities are at arm’s length, requiring thorough documentation.

Financial Reporting and Auditing

US businesses must adhere to Luxembourg's financial reporting standards, which differ from US GAAP. Key points include:

1. Annual Accounts: Companies must prepare annual accounts according to the Luxembourg accounting standards. These accounts must be filed with the Trade and Companies Register (RCS).
2. Auditing Requirements: Larger businesses, especially those with significant public interest, may be subject to mandatory audits. It's crucial to understand the thresholds and requirements for statutory audits.

Employment Law

• Employment Contracts: Luxembourg law mandates written employment contracts with specific terms and conditions, including working hours, remuneration, and employee benefits.
• Social Security Contributions: Employers must register employees with Luxembourg's social security system and make regular contributions to various social security schemes.
• Work Permits: Non-EU employees require work permits. Ensure proper documentation and adherence to immigration laws.

Data Protection

Compliance with data protection regulations is crucial, especially given the EU's stringent GDPR requirements. Key points include:

• Data Processing Agreements: Ensure all data processing activities comply with GDPR, including having the necessary agreements with data processors.
• Data Subject Rights: Respect and facilitate the rights of data subjects, such as access, rectification, and deletion of personal data.

Establishing a US business in Luxembourg can be highly rewarding, but compliance with local regulations is essential. By understanding and adhering to these requirements, businesses can capitalize on the opportunities Luxembourg offers.

doola offers a Total Compliance package, including bookkeeping services, to help you stay on top of your compliance requirements. This ensures your business operates smoothly and adheres to all legal and regulatory standards.

Step 5: Understanding Your Tax Obligations in Luxembourg

Understanding Tax Obligations for Running a US Business in Luxembourg

Operating a US business in Luxembourg can offer numerous advantages, such as a central location in Europe and a favorable tax environment. However, understanding the tax obligations is crucial to ensuring compliance and optimizing financial performance. Below are key considerations to keep in mind.

Corporate Income Tax

Luxembourg imposes a corporate income tax (CIT) on businesses. The combined CIT rate, including municipal business tax and a solidarity surcharge, is approximately 24.94% as of 2023. However, various deductions and credits are available, potentially lowering the effective tax rate. It is essential to consult with a local tax advisor for tailored advice.

Value Added Tax (VAT)

Businesses in Luxembourg are subject to VAT, which is a type of consumption tax. The standard VAT rate is 17%, one of the lowest in the European Union. Some goods and services may qualify for reduced rates of 8%, 3%, or 0%. Registering for VAT is mandatory if your turnover exceeds certain thresholds.

Withholding Tax

Luxembourg requires withholding tax on dividends, interest, and royalties paid to non-residents. The standard rate is 15%, but double taxation treaties may reduce or even eliminate this obligation. The US and Luxembourg have a tax treaty in place to mitigate double taxation.

Transfer Pricing

Luxembourg adheres to OECD guidelines on transfer pricing. Transactions between related parties must be at arm's length, meaning that prices should mirror those charged between independent entities under similar conditions. Proper documentation is necessary to substantiate transfer pricing practices.

Social Security Contributions

If you have employees in Luxembourg, social security contributions are obligatory. Both employers and employees contribute to the social security system, covering pensions, healthcare, and other benefits. The total contribution rate is approximately 25% of the employee's gross salary.

Tax Residency and Permanent Establishment

Understanding the concept of tax residency is vital. A business is considered a tax resident in Luxembourg if it is managed and controlled from there. Additionally, having a permanent establishment (e.g., an office or factory) in Luxembourg may subject the business to local taxation on the income attributable to that establishment.

Double Taxation Relief

The tax treaty between the US and Luxembourg provides mechanisms for avoiding double taxation. This includes credits for taxes paid in one country against tax liabilities in the other, subject to specific limitations and rules.

• Ensure Compliance: Regularly review your tax obligations to avoid penalties and interest. File all necessary tax returns on time.
• Consult Experts: Utilize tax advisors familiar with both US and Luxembourg tax laws to navigate complex regulations.
• Stay Updated: Tax laws and rates can change. Keep abreast of any modifications to maintain compliance and optimize tax liabilities.

In conclusion, successfully managing tax obligations for a US business operating in Luxembourg requires a thorough understanding of local tax laws and international agreements. Seeking professional advice is highly recommended to navigate this intricate landscape effectively.

It’s a good idea to consult with a tax professional or an accountant (or to hire these roles in-house) to make sure you’re not missing anything.

doola's Total Compliance package can handle your tax filings for you, ensuring you remain compliant with federal, state, and local tax requirements.

Step 6: How doola Can Assist

doola simplifies the incorporation and setup process for your company, ensuring you’re ready to charge customers, hire your team, and raise funds as quickly as possible.

Fill out your company details in the doola form in less than 10 minutes. Then, we’ll incorporate your company in any of the 50 US states, get your IRS tax ID (EIN) for you, and file your 83(b) tax election if needed. 

doola can also help you open a bank account and start accepting payments even before the IRS assigns your tax ID.

doola founders also gain access to exclusive discounts at leading software partners, one-click onboarding with select partners, and free CPA consultations.

The doola Application

It takes less than 10 minutes to fill out the details of your new company. You’ll choose your company structure (C corporation, limited liability company) and pick a company name.

Our instant company name checker will let you know if it’s available before you submit your application. You’ll add an address and phone number and review and sign your EIN SS4 letter in one click.

Forming the Company

doola will review your application and file your formation documents in the state within one business day. doola charges $297 for our Starter Plan and your first year of registered agent services (a state compliance requirement), and $297 each year thereafter to maintain your registered agent. 

You can also opt for our Total Compliance plan.

Getting Your IRS Tax ID (EIN)

After your formation in the state is complete, doola will file for your company’s IRS tax ID. Founders who provide a US Social Security number, US address, and US phone are eligible for expedited processing. All other users will receive standard processing. 

For standard orders, doola will fax your form SS4 to the IRS and then call the IRS to retrieve the EIN for you to expedite the process if we can, using real-time IRS data to determine when your filing is likely to be available.

Filing Your 83(b) Tax Election

Many startup founders choose to file an 83(b) tax election to potentially save on future personal taxes. doola can file and mail your 83(b) tax election in one click for both US and non-US founders — no trip to the post office required.

We’ll file it using USPS Certified Mail with tracking, and you’ll get a copy of your signed 83(b) election and proof of filing in your Dashboard.

Partner Perks and Discounts

doola partners with a range of third-party tools to offer special pricing or access to founders. We offer discounts on engineering, tax and finance, compliance, and operations tools, including Amazon Web Services.

doola also partners with Mercury to provide faster, automatic onboarding using your doola company information so you can get ready to bank and fundraise even faster.

Founders may also access discounts on other doola products, including up to one year of free credits toward payment processing.

Read our guides for startup founders, or learn more about doola and how we can help you set up your new business quickly and easily.

Turn your entrepreneurship dream into reality today!

We do our best to provide accurate and up to date information, however the information provided here are just guidelines. Please speak with a tax and compliance professional in your country