SELLING A BUSINESS IN LUXEMBOURG
1- Overview of legal status in the sale of a business as a going concern in Luxembourg
Selling a business includes selling the tangible and intangible assets which make up the business (brand, trade name, furniture, materials, installations, right to lease and clientele: the last point being the unifying element of business).
In Luxembourg, selling a business occurs when the parties agree on what they are exchanging and the price. The sale of a business is normally done through a written private sale agreement because it does not require a notary.
The sale contract is prepared at least in duplicate. A copy of the contract will be sent to the lessor, in accordance with the provisions laid out in the leasing contract. There is no need to register the contract with the tax department.
1.1 - The sale of a business confers to the new owner the following :
- The existing work contracts on the date when the business is transferred :
-This is carried out automatically by operation of the law and is imposed on both the employees and the new owner, subject to compliance with the following:
- The business must constitute an economic entity with the necessary human and material resources to be able to function autonomously.
Additionally, the sale of business must carry a permanence of the transferred business: the transferee must continue the same or analogous activities.
Furthermore, the seller and the buyer must inform the employment institutions. If there are fewer than 15 employees, it is not necessary to do so.
It must be noted that each employee can choose to discontinue the work contract with the new business owner.
- The leasing contract of the facilities where the business is carried out :
For this point, it is necessary to refer to the leasing contract for the conditions of a lease transfer to third parties.
It may be that the provisions subordinate the transfer of the lease to obtaining prior written consent of the lessor. In this case the seller must inform the future owner that this formality must be carried out.
1.2 - The sale of business does not include the transfer of the business license to the new owner:
A business license is issued to the person making the request.
A business license released by the General Directorate for SMEs and Entrepreneurship of Luxembourg is required for the new owner prior to operating the business
2. Taxation on the sale of a business in Luxembourg
Taxes on the seller
If the seller is subject to a corporate tax, the tax on the sale is 22% on the revenue from the business operations which have not yet been taxed and on the capital gains from the sale of the fixed assets (facilities, clientele, material, equipment, etc.), as well as profits made from the sale of stocks.
Registration with the tax department
Registration of the sale with the tax department must be carried out in the month following the sale.
The business is not subject to a single rate tax.
A specific tax is applied to the tangible and intangible assets comprising the business keeping in mind that debt is not included in the deed of sale.
The material, furniture, patents and merchandise are not subject to any formalities or proportional fees. There is a fixed duty of 12 EUR.
The sale of business includes the liability for VAT on the price of merchandise in stock. The sale of material and merchandise normally are a taxable operation.
However, the government has significantly reduced the scope of this rule by providing that the taxation of business transfers to a taxable person is not to be taxed when the seller makes the request and the transferee is a taxable person who continues the seller's activity.
The effects of this derogation are two-fold :
- the sale avoids VAT
- the buyer is expected to continue the business of the seller, where the rights and oblgations in terms of VAT are transferred and also the adjustment of deductions relating to the capital goods.
The seller still must file and pay any taxes related to the taxable operations carried out before the sale.
In this regard, it is useful to include a clause in the sale contract specifying that "the buyer will be subject to the VAT for any sale of any movable assets included in the sale and to proceed, if applicable, with the adjustments which would have been applicable if the seller had continued to use those goods."