Branch vs subsidiary in Luxembourg: the fork liability decides

A branch (succursale) is the same legal person as its foreign parent, operating at a Luxembourg address. A subsidiary is a new Luxembourg company that the parent owns, and everything else follows from that one difference. Setting up the subsidiary means capitalising a company: €12,000 for a Sàrl, which requires a notarial deed — the company must be formed in the presence of a notary, or €30,000 for an SA.

A branch creates no second company, so there is no Luxembourg share capital to subscribe and no Luxembourg company to constitute — and no separate patrimony standing between the parent and anything that happens here. That last point, not the capital, is what the choice turns on.

Two notes on how to read what follows. The Luxembourg tax and company figures below carry their source on the claim they support, on the tax rules in force from tax year 2025. The branch column is described structurally rather than quoted from a rulebook: a succursale's own filing, permit and tax obligations sit in sources this page does not cite, so treat them as questions to confirm for your activity rather than as points settled here.

The two structures side by side

The table is the whole comparison in one view, and the rows are not independent choices you can mix. Choosing the branch to avoid capitalising a company also chooses the parent's own balance sheet as the backstop for everything that happens in Luxembourg, and the parent itself as the entity on the record here. The lines come as a package.

For an SA the capital rule is stricter than the headline: capital fully subscribed and at least one quarter paid up at incorporation. For a Sàrl, the cash no longer has to be wired on day one.

The option comes from the Law of 18 May 2026 amending the amended Law of 10 August 1915 on commercial companies, which introduced deferred paying-up of the minimum share capital of limited liability companies, and it lets the minimum be paid up within 12 months of incorporation. The deferral has a boundary: shares issued on incorporation in consideration for contributions in kind must still be fully paid up at incorporation — only cash contributions can be deferred.

The €1 Sàrl-S is not on the menu for a corporate parent, however attractive that figure looks next to the other two. Its shareholders can be only natural persons — a company can never be a shareholder. A corporate parent is therefore left with the Sàrl and the SA figures above, and those are the real floor rather than a starting point to negotiate down from.

Liability is what actually decides it

A branch has no liability shield because it has no separate legal existence to shield. A Luxembourg supplier suing the branch is suing the parent; an insolvency at home reaches the Luxembourg operation directly, and a dispute here reaches the parent's assets everywhere else.

The subsidiary contains those consequences inside its own capital, absent a parent guarantee or a fault attributable to the parent — and a landlord or an enterprise customer can ask for exactly such a guarantee where the local company is thinly capitalised, which is worth pricing in before treating the shield as absolute.

This is why the tax comparison rarely settles the question. Where the activity carries real contractual or operational risk — anything with employees, premises, deliverables or deadlines — the liability line does the deciding, and it does it before the first tax number is calculated.

Tax: the Luxembourg company's position, and the half no Luxembourg source answers

Corporate income tax on a Luxembourg company runs in three bands, not two: 14% on taxable income up to €175,000, then a transition band computed as €24,500 + 30% of the income above €175,000, running up to €200,000, and 16% above that — the structure introduced by the Law of 20 December 2024 for tax years from 2025.

Add the 7% employment-fund surcharge on the tax due and Luxembourg City's 6.75% municipal business tax, and a standard-band company seated in the capital reaches the combined 23.87% published by the Administration des contributions directes.

The divergence is repatriation. A subsidiary paying a dividend to its parent triggers a 15% withholding tax, unless the parent-subsidiary regime exempts it: broadly, where the parent holds at least 10% of the shares, or meets alternative criteria including a minimum €1,200,000 investment, under conditions.

A wholly-owned subsidiary clears the holding threshold outright, though clearing it is not the whole test — the exemption carries further conditions beyond the size of the stake. A minority-held joint venture with a local partner may not clear it at all, and that is the case where the withholding layer becomes a live number rather than a footnote.

A branch has no shares and no shareholders, so no dividend event arises between it and the parent — the profit was the parent's from the moment it was earned.

Whether that is an advantage depends on two things this page does not settle: how Luxembourg reaches the parent's local activity, and how the parent's home jurisdiction treats foreign establishment profits. Both belong in front of a tax adviser holding the group's actual numbers, and the second is a question no Luxembourg source can answer at all.

The permit conditions are written about people and premises

The autorisation d'établissement is a separate file from the company file, and reading its conditions is the fastest way to see what a Luxembourg presence is actually asked for. They are professional integrity, professional qualification in line with the planned activity, establishment in Luxembourg, effective and permanent management of the business by the permit holder, and compliance with tax and business obligations, and guichet's permit page sets out the procedure around them.

The chancellery fee is €50, the ministry acknowledges receipt of the file within 15 days under the Law of 2 September 2011, the decision window is 3 months, and silence beyond that window counts as tacit authorisation.

Two of those conditions are easy for a foreign group to underestimate, because both are drafted about people and places rather than about entities. On management: the manager must ensure day-to-day management of the business effectively and permanently, through a physical presence at the establishment. On premises: the business needs an appropriate physical installation, adapted to the nature and the scale of the activities carried on.

A group director flying in quarterly does not meet that wording, and neither does an address that exists only on paper. Nothing in either condition turns on which legal wrapper carries the activity, which is why "the branch route will be lighter here" is an assumption to test with the ministry for your specific activity rather than a conclusion to build a plan on.

The reach of the integrity requirement is the second thing to settle early. Professional integrity must be proved by the manager of the business in whose name the permit will be issued; and, where the business is operated as a company, also the person holding the majority of the shares and anyone who can exert a significant influence on the management or administration of the business.

That scope is easy to misread, because the permit is applied for in one named manager's name and so looks like a test of one person — but the wording follows control upwards, which takes it into the parent's shareholder register.

For the permit holder, the paperwork then depends on residence: permit holders non-resident or resident under 10 years need a notarised non-bankruptcy declaration (under 6 months) plus criminal-record extracts from every state of residence of the last 10 years. Those extracts are the item that arrives late from three different countries, so they are worth requesting before anything else in the file is drafted.

The same drafting is what defeats the "we will just domicile it" plan, because the domiciliation rule is narrower than it first reads: a company without its own premises may, under certain conditions, be domiciled with a third party and fix its registered office there — but guichet states this suits only companies whose activity does not require their own premises, and expressly not a commercial company which the law requires to have a physical establishment in Luxembourg; to count as a stable establishment a company must occupy real premises of its own.

For an operating business with staff, stock or customers on the ground, that is the wrong end of the rule to be standing on.

The register: what each route puts on it

For a subsidiary, the order of operations is unforgiving in one specific way: the articles of association must be registered with the Trade and Companies Register before the permit is definitively granted. So the register comes first and the permit closes second; a plan that treats the permit as the gate to everything else has the order backwards.

The deposit deadline is 1 month from signature, the beneficial owners go to the RBE within 1 month of the triggering event, and annual accounts follow within 7 months of the financial year end.

A branch has no equivalent sequence on this page, and that absence is the thing to act on rather than to fill in with assumptions. Because there is no second company, there are no separate Luxembourg statutes and no separate Luxembourg annual accounts — the constitutive documents and the accounts that exist anywhere are the parent's own.

What a branch registration would require the parent to file and publish in Luxembourg is therefore a question to put to Luxembourg Business Registers before the structure is fixed, and it is the one most easily missed at the decision stage, because it is not a question about the Luxembourg operation at all.

The frictions nobody advertises

Banking. Onboarding a subsidiary is a self-contained compliance file: one company, one shareholder register, one set of accounts. A branch has no file of its own to present, because the customer is the parent — every tier of ownership above it, every jurisdiction in the chain. Bank onboarding tends to be the slowest step on either route, and the branch starts that conversation with more to explain.

Counterparties. A contract with a branch is a contract with the foreign parent, so a Luxembourg landlord or enterprise buyer reading it is assessing a foreign balance sheet. A subsidiary puts the contracting party inside the jurisdiction.

That is a structural difference in the counterparty's own risk analysis rather than a matter of taste — and it cuts both ways, because a thinly capitalised subsidiary can be asked for a parent guarantee to close the same gap from the other side.

Funding. Eligibility for national aid is decided scheme by scheme, and it is worth checking against the funding landscape before the structure is fixed rather than after: an operation that exists only to represent the parent has little Luxembourg activity, spend or headcount to put in a grant file, whatever the group's consolidated numbers look like.

Check which programmes you qualify for

Common questions

Three questions decide whether the branch route is workable in practice. Two of them have answers that follow from the branch simply being the parent. The third is the one that gets expensive, because it assumes a route between the two structures that does not exist.

Can a branch hire employees in Luxembourg?

Hiring in Luxembourg makes whoever hires an employer for social security purposes, whatever wrapper the activity sits in, and the entry declaration for a new employee is due within 8 days.

What is specific to a branch is who that employer is: with no second legal person, the party named on the employment contract is the foreign parent itself. That is what turns a later move of the business into a Luxembourg company from an internal reorganisation into a live employment question, and it is worth raising with employment counsel before it is raised with staff.

Does a branch get its own VAT number?

Not its own in the sense of a second taxpayer. The registration obligation is written about persons rather than about wrappers. In general, any person not established or domiciled in Luxembourg who carries out supplies of goods or services whose place of taxation is deemed to be in Luxembourg must register for Luxembourg VAT — except businesses declaring those receipts under the One-Stop-Shop (OSS) regime. The initial declaration is due within 15 days.

Because there is no second legal person, the number attaches to the foreign company as registered in Luxembourg.

Can a branch be converted into a subsidiary later?

Not by conversion in the legal sense. A change of legal form is an operation inside one company: a change of legal form entails neither dissolution of the company nor the creation of a new legal personality. A branch and a company are not two forms of one entity, so there is nothing to transform.

The route is to incorporate the subsidiary and move the business into it — a transfer, not a transformation, which re-opens the contracts, the employment relationships, the permit file and the bank file that were each settled once already. Starting with the structure you intend to keep avoids paying that bill twice.

Before you commit to either

The choice is made on liability, on disclosure, and on what the parent's own tax system does with the result — and only the first two are Luxembourg questions at all. Work through the six points below before the structure is fixed, because each becomes markedly harder to revisit once the permit is issued and the bank file is open.

1. Price the liability exposure honestly — the worst realistic Luxembourg claim, against the parent's balance sheet rather than the local one.
2. Ask the parent's own tax adviser how the home jurisdiction treats foreign branch profits versus dividends received; the Luxembourg half of the answer is only half.
3. Identify the person who will hold the permit and be physically present at the establishment, before filing anything.
4. Check who the integrity requirement reaches in the parent's ownership chain, and start collecting the residence-dependent paperwork for anyone non-resident.
5. Ask Luxembourg Business Registers what a branch registration would require the parent to file and publish here, and confirm the group can live with that answer.
6. Approach the bank with the structure already decided — reopening the account file after a change is the slowest step to redo.