Capital reduction with repayment in Luxembourg

Capital reduction with repayment in Luxembourg: what is the procedure?

A capital reduction with repayment in Luxembourg follows four steps: a decision of an extraordinary general meeting recorded in a notarial deed, publication of that decision in the Electronic Register of Companies and Associations, a six-month wait before any payment to shareholders, and filing of the deed with the Trade and Companies Register no later than one month after signature.

Two very different operations go by the same name, and confusing them costs the file. A reduction intended to absorb losses moves no cash: it aligns the capital with net assets that have already shrunk. A reduction with repayment to shareholders, or releasing them from paying up their securities, moves value out of the company to its shareholders. Only the second triggers the protections that the amended law of 10 August 1915 gives creditors, because only the second shrinks the security they were counting on.

The decisive fact, and the one most often overlooked before the draft deed is written, is a delay. Where the reduction is to be carried out by repayment to shareholders, that repayment may only be made six months after publication of the decision. In parallel, creditors whose claims predate publication of the minutes in the Electronic Register have thirty days from that publication to apply to the magistrate presiding the commercial chamber of the district court for security.

We regularly see minutes resolving on the reduction and a bank transfer made in the same week, sometimes because the shareholder was waiting for the cash to meet another commitment. The order is fixed: the decision, the publication, then the wait. Building the shareholder's timetable around the date of the meeting rather than the date of publication is the most common mistake on this type of operation. The order of magnitude of fees for such a file is set out in our pricing schedule; what makes it vary is the number of creditors to be dealt with, rarely the amount repaid.

When may the repayment to shareholders be paid out?

A repayment under a capital reduction in Luxembourg may only be made six months after publication of the decision, and no payment may be made while a creditor who has applied for security has neither obtained satisfaction nor been turned down.

The two rules do not say the same thing, and they stack. The six-month period is an absolute one: it runs from publication carried out in the manner the law prescribes and depends on no creditor taking any step, so even with no objection the money does not move before it expires. The thirty-day window, by contrast, is a right given to creditors whose claims predate publication of the minutes in the Electronic Register of Companies and Associations; it is exercised before the magistrate presiding the commercial chamber of the district court, who decides whether security should be provided.

The sanction behind both is a prohibition on paying. No repayment may be made and no release from paying up may be granted to shareholders as long as creditors have not obtained satisfaction, or the magistrate has not decided that there is no cause to grant their application. In other words, an objection lodged on the twenty-ninth day can push the payment well beyond the six months, and the timetable of the operation then stops being the company's to control.

These protections apply only to reductions that impoverish the company for the benefit of its shareholders: repayment, or release from paying up securities already subscribed. A reduction intended to absorb losses, which moves no value out, opens neither the thirty-day window nor the six-month period. That is why the minutes must characterise the operation unambiguously: it is that characterisation, not the amount, that determines which timetable applies.

What majorities are required in a public and a private limited company?

A capital reduction in Luxembourg amends the articles: in a public limited company it requires half the capital present or represented and two thirds of the votes; in a private limited company, a majority of shareholders representing at least three quarters of the share capital.

For the public limited company the mechanism has two stages. An extraordinary general meeting called to amend the articles deliberates validly if at least half of the shares issued is represented, and resolutions are carried by two thirds of the votes of the shareholders present or represented. If that quorum is not met, a second meeting with the same agenda deliberates validly whatever the number of shares represented, on the same two thirds of the votes cast. Unanimity of shareholders and bondholders remains required for a change of nationality or an increase in shareholders' commitments.

For the private limited company the threshold is higher but the logic simpler. Decisions amending the articles are taken by a majority of shareholders representing at least three quarters of the share capital, whereas ordinary decisions are taken by a majority representing half the capital. An increase in shareholders' commitments requires unanimity. Holding a general meeting is not in fact mandatory in a private limited company with no more than sixty shareholders, except precisely where the articles are amended: a capital reduction therefore requires the meeting to be convened.

One item in the notice is specific to this operation and conditions the validity of the vote. Where the general meeting is called to decide on a reduction of the share capital, the notices state the purpose of the reduction and the manner in which it will be carried out. A notice announcing an amendment to the articles without saying that the capital will be reduced, or how, weakens the resolution passed. We ask to review the draft notice before it goes out, for that reason alone.

Can the reduction take the capital below the legal minimum?

A capital reduction in Luxembourg cannot leave the capital below the legal minimum: where it would have that effect, the general meeting must simultaneously resolve either on an increase by the amount needed or on the company's conversion.

The two floors are well known and do not move with the operation: the minimum share capital of a private limited company is EUR 12,000, and that of a public limited company EUR 30,000. What is less well known is that the law does not forbid voting a reduction that would cross that floor: it requires the same meeting to settle the alternative, by an increase bringing the capital back to the required minimum or by moving to a company form with a lower floor. An agenda that does not provide for that second resolution leaves the company in an irregular position from the moment of the vote.

A neighbouring limit is worth recalling for the private limited company, because it is reached by a different route than a reduction. A repurchase by the company of its own shares may not have the effect that the nominal value, or failing that the accounting par value, of the shares held by persons other than the company falls below the minimum share capital. Buying a shareholder out through a share repurchase rather than a capital reduction therefore does not get around the floor: it reappears in the same place, in another form.

The practical consequence is read in the agenda, not in the balance sheet. In the holding files we see, the intended reduction rarely goes all the way down to the floor, but it comes close where the company was capitalised for an acquisition that never happened. Checking the distance to the legal minimum before convening costs one reading of the balance sheet; discovering it after the vote costs a second meeting and a second notarial deed.

Is the repayment a dividend subject to withholding tax?

A capital reduction valid in Luxembourg under company law does not settle the tax characterisation of the payment: article 97 of the income tax law treats products allocated, in whatever form, by reason of shares or capital shares as income from movable capital.

Three tax rules frame the flow out to the shareholder, and all three are verifiable. Article 97 of the income tax law characterises as income from movable capital the dividends, profit shares and other products allocated, in whatever form, by reason of shares, capital shares, beneficiary shares or other participations in companies limited by capital. Article 164(3) adds hidden distributions: advantages which a shareholder receives directly or indirectly and would not normally have obtained had they not held that status are added back to taxable income.

Finally, a distribution bears withholding tax on investment income of 15 % of the gross amount, to be declared on form 900 within eight days of the income being made available, with the parent-subsidiary regime able to exempt the distribution where its conditions are met at that date.

What the official pages consulted do not provide has to be said plainly: none of them states the test that would take a repayment made under a capital reduction outside the characterisation as income from movable capital.

The only exclusion the direct tax administration sets out in this area concerns shares or capital allocated free of charge or partly free of charge where their issue entails a corresponding reduction in the share of the participation inherent in the beneficiary's old securities, which is not our situation. The boundary between a repayment of contributions and a disguised distribution is therefore settled upstream, with the competent tax office, on the strength of the file.

In practice the question the administration will ask is familiar even though its test does not appear on those pages: did the company have distributable reserves at the moment it chose to return capital instead? A file reducing capital while reserves are available calls for a written justification in the minutes, dated the day of the decision. We find that this reasoning paragraph, written after the event, is the document most often missing during an audit, and the hardest to reconstruct two financial years later.

How is the reduction and the repayment accounted for?

Accounting for a capital reduction in Luxembourg follows the standard chart of accounts: account 101 "Subscribed capital" is reduced by the amount voted, and the debt arising towards the shareholder sits in account 4712 "Amounts owed to shareholders" until payment.

The applicable chart of accounts is the one determined by the grand-ducal regulation of 12 September 2019, which applies to financial years beginning on or after 1 January 2020. It splits the accounts into seven classes, with balance-sheet operations taking the first five. Class 1 carries capital, provisions and financial debts, with account 101 for the subscribed capital of companies limited by capital and heading 11 for premiums. Class 4 carries third-party accounts, including account 4712 reserved for amounts owed to shareholders, itself split between principal and accrued interest.

The six-month delay has an accounting consequence that year-ends show poorly. Between the decision and the payment, the company no longer carries the amount as capital but as a debt, and that debt often crosses a year-end: the annual accounts then show reduced capital and a liability to the shareholder, a perfectly regular presentation but one that surprises the bank if it was not flagged. Our article on the capital increase by contribution in kind covers the opposite movement through the same accounts, and the presentation of those items on the balance sheet follows the Luxembourg annual accounts framework.

Two side effects are worth anticipating. On duties, the deed amending the articles bears a specific fixed registration duty of 75 euros collected by the Registration Duties, Estates and VAT Authority, due as soon as the notarial deed is presented for registration: that line does not follow the amount repaid. On net wealth tax, the payment reduces the balance sheet total, which can move the company within the scale of the minimum net wealth tax, which is based on that total: the effect is measured before the operation, on interim figures, rather than at the following year-end.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). The documentary review dated 6 October 2026 relies on the accessible sources identified below. Points not confirmed against primary texts are explicitly identified in this section.

The sources consulted, all read on 6 October 2026, are the following.

The amended law of 10 August 1915 on commercial companies gives the six-month period after publication of the decision before any repayment to shareholders, the thirty-day window open to creditors whose claims predate publication of the minutes to apply for security to the magistrate presiding the commercial chamber of the district court, the prohibition on paying or releasing while creditors have not obtained satisfaction or been turned down, the obligation on the meeting to resolve at the same time on an increase by the amount needed or on conversion where the reduction would take the capital below the legal minimum, and the floor that applies to a private limited company's repurchase of its own shares.

On Guichet.lu: "Société anonyme (SA)" and "Société à responsabilité limitée (SARL)" for the minimum capital of each form and the statutory majorities; "Assemblée générale des actionnaires d'une SA" for the quorum of half the shares issued, the two thirds of votes, the second meeting without quorum and unanimity for an increase in commitments; "Assemblée générale des associés d'une SARL ou d'une SARL-S" for the three-quarters majority and the exemption from holding a meeting below sixty shareholders;

"Convocation d'une assemblée générale de SA" for stating the purpose of the reduction and the manner in which it will be carried out; "Dépôts modificatifs et rectificatifs au RCS", "Dépôt des statuts coordonnés au RCS" and "Publication et publicité des dépôts au RCS" for registration of the paper original, electronic filing within one month of signature and publication in the Electronic Register within fifteen days; "Droits d'enregistrement" for the specific fixed registration duty on company deeds; "Distributions de dividendes" for the 15 % withholding and form 900 within eight days.

The direct tax administration's page "Revenu net provenant de capitaux mobiliers" and the circular on article 164 give the scope of article 97, the exclusion of shares allocated free of charge with a corresponding reduction in the share of participation, and the definition of the hidden distribution of article 164(3). The standard chart of accounts determined by the grand-ducal regulation of 12 September 2019, applicable to financial years beginning on or after 1 January 2020, gives the seven classes, account 101, heading 11 and account 4712 with its subdivisions.

Four points could not be verified in their primary source and are therefore not asserted here. The full text of the sources first: the domains guichet.public.lu, legilux.public.lu, impotsdirects.public.lu and cnc.lu are blocked by the network proxy of our editorial environment, and those pages were read through indexed extracts using a search restricted to official domains; the statements above reproduce those extracts without extrapolation.

Next, the numbering of the articles of the consolidated 1915 law: two extracts attach different content to the same article number, so no number is cited for the capital reduction rules, only the law itself. Next, the exact scope of the six-month period, which the extracts read attach to the law without allowing us to say whether it applies identically to every form of company limited by capital.

Last, the test that would take a repayment of capital outside article 97, which is absent from the pages consulted. These points can be checked in the consolidated text of the law of 10 August 1915 on legilux.public.lu, in that of the law of 4 December 1967 on impotsdirects.public.lu, and with the competent tax office for an individual file.

This article sets out the state of the law at the date of publication and is not personalised legal or tax advice: the timetable that applies, the majorities required, the need for a second resolution in view of the legal minimum and the tax characterisation of the payment depend on the form of the company, on its articles, on the state of its reserves and on the status of the shareholder repaid. Report an error to contact@financialservices.lu: the correction is dated in the article.