Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (634,700), Luxembourg is the second-wealthiest country in the world when measured on a Gross Domestic Product (GDP) per capita basis.
Since 2002, the Luxembourg Government has proactively implemented policies and programs to support economic diversification and to attract foreign direct investment. The Government focused on key innovative industries that showed promise for supporting economic growth: logistics, information, and communications technology (ICT), health technologies including biotechnology and biomedical research; clean energy technologies, and most recently, space technology and financial services technologies. With the COVID-19 pandemic, the health-tech sector has become a priority sector to attract to Luxembourg.
Luxembourg’s economy proved resilient during the COVID-19 pandemic, as 2020 GDP only contracted by 1.3 percent, with a projected growth rate of 4 percent for 2021. Luxembourg fared much better than the 2020 EU rate of contraction of 6.4 percent. This resilience is due to a well-performing financial sector which managed to quickly revert to telework and only suffered limited effects of the pandemic. The Government of Luxembourg also provided a major economic stimulus package of 11 billion euros ($13 billion), equivalent to 18.5 percent of Luxembourg GDP, which helped stabilize the economy. This package includes direct subsidies and compensatory payments to companies, state-guaranteed loans, deferral of taxes, and social security contributions. The Government of Luxembourg borrowed a total of 5 billion euros ($6 billion) at negative interest rates due to the Grand Duchy’s Triple A credit rating.
Unemployment rose from 5.4 to 6.3 percent in 2020, a limited increase due to the generalization of a part-time employment reimbursement scheme by the State, which allows workers to keep their jobs while receiving 80 percent of their salary while having to stay at home. This measure cost the State of Luxembourg 1.3 billion euros in 2020.
Luxembourg remains a financial powerhouse thanks to the exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS) in the 1990s. Luxembourg is the world’s second largest investment fund asset domicile, after only the United States, with nearly $6 trillion of assets in custody in financial institutions.
- Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.
- Luxembourg ranks as the world’s safest city in the Mercer city index.
- Over the past decade, Luxembourg has adopted major fiscal reforms to counter money-laundering, terrorist-financing, and tax evasion.
- The Government of Luxembourg actively supports the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.
- Luxembourg launched its SpaceResources.lu initiative in 2016 and, in 2017, announced a fund offering financial support for the space resources industry. More than 50 companies dedicated to space initiatives are now active in Luxembourg. Luxembourg added an additional space fund in early 2020 to further bolster its status as a space startup nation.
- Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarter operations by virtue of its central European location and advanced road, railway, and air connectivity. Due to uncertainties related to Brexit, 50 insurers, asset managers and banking institutions have decided to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to the country.
- Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline. Inaugurated in 2017, the Luxembourg Intermodal Terminal (LIT) is ideally positioned as an international hub for the consolidation of multimodal transport flows across Europe and beyond.
- Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs. Luxembourg has set up a high-performance computer which will be part of the EU’s high-performance computer network called EURO HPC. Through various initiatives, Luxembourg seeks to attract financial technology companies to make Luxembourg home.
|TI Corruption Perceptions Index||2020||9 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||72 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||18 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||USD 766,099||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 73,910||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Luxembourg offers a public policy framework and political stability, which remain highly attractive for foreign investors, particularly for U.S. investors, given the focus on growth sectors and the historically strong bilateral relationship between the two countries. The government has increased its outreach toward companies looking to expand in Europe. Luxembourg is in the process of implementing the EU standards for the screening of foreign investment but missed the Fall 2020 implementation deadline.
In 2017, Luxembourg’s Deputy Prime Minister and Minister of the Economy and Foreign Trade, Etienne Schneider, unveiled a strategy to promote economic growth focusing on attracting FDI and supporting companies’ moving into other markets. The Luxembourg “Let’s Make It Happen” campaign, developed by the state Trade and Investment Board, focuses on five key objectives:
- Improving Luxembourg-based companies’ access to international markets
- Attracting FDI in a “targeted, service-oriented” way
- Strengthening the country’s international “economic-promotion network”
- Improving Luxembourg’s image as a “smart location” for high-performance business and industry
- Ensuring the coherence of economic promotion efforts
There is no overall economic or industrial strategy that has discriminatory effects on foreign investors, either at a market-access or post-establishment phase of investment. Luxembourg strives to attract and retain foreign investors with its unique model of “easy-access to decision-makers” and its known ability to “act swiftly.”
The Trade and Investment Board has taken the lead in investment promotion and includes representatives from the ministries of Economy, Higher Education and Research, Finance, Foreign and European Affairs, and State. Public-private trade associations such as FEDIL (Business Federation of Luxembourg, the main employers’ trade association), the Luxembourg Chamber of Commerce, and the Chamber of Skilled Trades and Crafts, as well as Luxinnovation, are also represented.
The Board is working in cooperation with Luxembourg embassies and trade and investment offices worldwide, as well as economic and commercial attachés, honorary consuls, and foreign trade advisers, to attract FDI and retain investors. In 2016, the Ministry of the Economy expanded the role of Luxinnovation to incorporate promotion of Luxembourg abroad and to attract FDI into the country. Luxinnovation is a public private partnership agency that carries out business intelligence to target relevant investors and regions and also provides a soft-landing service for investors as they arrive in Luxembourg. The Covid-19 pandemic has led investor outreach efforts to be carried out virtually, and travel restrictions have led investors to prefer virtual meetings before traveling to the country.
Limits on Foreign Control and Right to Private Ownership and Establishment
There is a right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. There are no limits on foreign ownership/control or sector-specific restrictions.
General screening of foreign investment exists in line with that of domestic investment, with routine and non-discriminatory screening mechanisms. There are no major sectors/matters in Luxembourg in which foreign investors are denied national (domestic) treatment.
Other Investment Policy Reviews
The World Bank’s Doing Business 2019 Economy Profile provides additional detail on Luxembourg’s investment climate.
Luxembourg is included in Trade Policy Reviews (TPRs) of the EU/EC; see the TPR gateway for explanations and background.
In terms of the United Nations Conference on Trade and Development (UNCTAD) Global Action Menu for Investment Facilitation, Luxembourg’s business facilitation efforts are aligned with most of the recommended action points. Over the past decade, Luxembourg has been furthering accessibility and transparency in investment policies and regulations, as well as procedures relevant to investors. Luxembourg ranks 76th in the World Bank’s starting a business ranking, indicating it takes 16.5 days to set up a business in the country.
The Government has improved the efficiency of investment administrative procedures, notably in the context of the overall “Digitization” movement to offer a multitude of government services online or electronically. This has led to the time it takes to start a business being reduced by 2-3 months.
The Government provides a website in multiple languages, including English, that explains the business registration process: . A new business must register with the Registry of Commerce (Registre du Commerce: http://www.lbr.lu.) Foreign companies can use the site (after translating from the original French language), but it is best to consult with a local lawyer or fiduciary to complete the overall process. It is necessary to engage a notary to submit the company’s by-laws for registration.
In 2017, the Government reduced the required minimum capitalization of a new company from 12,500 euro to just 1 euro (symbolic), to encourage start-up creation. Between January 2017 and January 2018, over 680 such simplified limited liability companies (Société à responsabilité limitée simplifiée SARL-S) have registered. According to the Luxembourgish Chamber of Commerce, one client out of three has requested information on SARL-S.
After receiving a certificate from the Registry of Commerce, companies are required by law to register with and pay annual dues to the Luxembourg Chamber of Commerce, as well as the Social Security Administration, the Tax Administration (Administration des Contributions Directes) and the Value-Added-Tax Authority (TVA = taxe à la valeur ajoutée). The company will receive an official registration number reflecting the date of inception of the entity, and this number will be used in all business transactions and correspondence with administrative authorities.
The House of Entrepreneurship (HOA), opened in 2016 within the Luxembourg Chamber of Commerce, also provides guidance on the entire registration and creation process of a business. HOA receives over 10,000 enquiries per year by entrepreneurs interested in setting up a business in the country. The organization plays a key role during the COVID-19 pandemic, as it serves as a point of contact and information for businesses looking to apply for Government aid.
The Ministry of Economy continues to support networks and associations acting in favor of female entrepreneurship. The Law of December 15, 2016 incorporated the principle of equal salaries in the Grand Duchy’s legislation, which makes illegal any difference in the salaries paid to men and women carrying out the same task or work of equal value.
In general, the most promising instruments are outside the jurisdiction of the Ministry of Economy but are critical. For example, there has been an increase in the number of childcare centers close to business districts which helps dual career families.
The same government services website listed above, , includes an “International Trade” tab which provides guidance on outward investment by Luxembourgish companies on various topics, including intra-EU trade and services; import, export, and transit; licensing; and transport. The Luxembourg Government promotes outward investment via the Trade and Investment Board, which functions as a promotion entity for both inward and outward investment.
The “Let’s Make It Happen” initiative, among its many missions, is working to facilitate access to international markets for Luxembourgish companies and to strengthen Luxembourg’s international economic promotion network. Luxembourg does not restrict domestic investors from investing abroad.
Luxembourg also has a public export credit agency, the Office du Ducroire to help companies engage in export and outward investment through funding and export insurance.
In 2019, the Office du Ducroire has insured over 500 million dollars of new transactions and has paid over 2 million dollars of financial support for exports.
2. Bilateral Investment Agreements and Taxation Treaties
The United States and Luxembourg have shared a Friendship, Establishment, and Navigation Treaty since 1963, which assures national treatment and other investor protections. In 2019, the U.S. Senate ratified the Convention between the United States and the Grand Duchy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. Luxembourg and the United States also have an aviation treaty.
In addition to its open trade with other member states of the European Union, and free-trade agreements between the EU and other countries, Luxembourg also signed bilateral agreements with the following countries:
Albania, Algeria, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Benin, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Burkina Faso, Burundi, Cameroon, Chile, China, Colombia, Comoros, Congo (Democratic Republic of the), Costa Rica, Cote d’Ivoire, Croatia, Cuba, Cyprus, Czech Republic, Egypt, El Salvador, Estonia, Ethiopia, Gabon, Georgia, Guatemala, Hong Kong, Hungary, India, Iran, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lebanon, Liberia, Libya, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritania, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Nicaragua, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Rwanda, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, Sudan, Tajikistan, Thailand, Togo, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zambia.
Luxembourg is a member of the Multilateral Investment Guarantee Agency (MIGA).Luxembourg has a bilateral taxation agreement with the United States, which was amended to upgrade to OECD information exchange standards on bank accounts in 2009. This update to the Treaty was ratified in 2019 by both countries and came into effect in September 2019. In 2014, the bilateral agreement on FATCA allowed Luxembourg to comply with the U.S. reporting requirements to the IRS by financial institutions with U.S. citizen clients or “U.S. Person” clients. The law came into effect in 2015.
There are no other taxation issues of concern to U.S. investors.
3. Legal Regime
Transparency of the Regulatory System
The Government of Luxembourg uses transparent policies and effective laws to foster competition and establish clear ground rules on a non-discriminatory basis. The legal system is quite welcoming with respect to FDI, and legal, regulatory, and accounting systems are transparent and consistent with international norms. With the exception of the mandatory membership in the Luxembourg Chamber of Commerce, there are no informal regulatory processes managed by non-governmental organizations or private sector associations. In addition to the Government, the Luxembourg Institute of Regulation, a public agency, proposes regulatory policies.
As confirmed by the World Bank report on Global Indicators of Regulatory Governance, the Luxembourg Government develops anticipated and publishes forward looking regulatory plans – a public list of anticipated regulatory changes and proposals intended to be adopted and implemented. These plans are available to the public, as the texts of proposed legislation are published before Parliamentary debate and voting. In addition, plans and proposed legislation is subject to review by the State Council and the Grand Duke.
Draft texts are published on a unified website where all proposed regulations are published and directly distributed to interested stakeholders. While the ministries do not have a legal obligation to publish the text of proposed regulations before their enactment, the entire text of the proposed draft law is published. ( )
In addition, the Government solicits comments on proposed laws and regulations from the public. The comments are received on the same website (www.legilux.lu), through public meetings, and through targeted outreach to stakeholders, such as business associations.
The law requires that the rulemaking body solicit comments on proposed regulations. The consultation period is typically three months, and the Government reports on the results of the consultation in the form of a consolidated response on the same website. The official journal Mémorial publishes the final text of laws, both online and in print.
Proposed legislation also includes a factsheet on the impact on public finances. The Luxembourg Government is transparent with its public finances and debt obligations through the annual budget procedure that requires Parliamentary approval. The Government also communicates on issuances of new State borrowing.
International Regulatory Considerations
Luxembourg is a member state of the EU and routinely transposes EU directives and regulations into domestic law. Luxembourg has been a World Trade Organization (WTO) member since 1995 and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Luxembourg ratified the TFA on October 5, 2015 and has an implementation rate of 100 percent.
Legal System and Judicial Independence
Luxembourg is a headed by a . The Constitution of 1868 provides for a flexible separation of powers between the executive and the parliament, with the judiciary watching over proper application of laws.
The Grand Duchy has a written commercial/contractual law. Magistrates’ courts deal with cases of lesser importance in civil and commercial matters and under the urgent procedure in the field of law enforcement.
The , of which there are three, adjudicate civil and commercial matters for all cases not specifically attributed by law to any other court. The current judicial process is considered procedurally competent, fair, and reliable, albeit notably slow (The judicial sector observes all public-school holiday periods). Regulation and enforcement actions are appealable, and they are adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). As previously mentioned, the website for doing business is: www.guichet.public.lu, and the new one-stop-shop for setting up a business is the House of Entrepreneurship within the Luxembourg Chamber of Commerce (www.houseofentrepreneurship.lu).
Competition and Antitrust Laws
The Competition Inspectorate, a department within the Ministry of the Economy, oversees investigating competition cases.
Expropriation and Compensation
The laws governing expropriation of property are quite complex, and the process can be arduous and lengthy, depending on the property. The Ministry of the Interior, along with the Ministry of Justice, sets forth the specific regulations according to each type of case.
There have been no known expropriations in the recent past or policy shifts which would indicate such actions soon. There are no tendencies by the Luxembourg Government to discriminate against U.S. investments, companies, or representatives in expropriation.
Instances of indirect expropriation or governmental action tantamount to expropriation, such as confiscatory tax regimes, that might warrant special investigation, are non-existent.
ICSID Convention and New York Convention
Luxembourg is a member state to the International Center for Settlement of Investment Disputes (ICSID Convention). Luxembourg is a signatory of the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
Investment disputes involving U.S. or other foreign investors in Luxembourg are extremely uncommon. There are no known claims by or disputes with a U.S. person or foreign investors.
The Luxembourg Chamber of Commerce and the Mediation Center offer the services of domestic dispute settlement and, on an international level, with the International Chamber of Commerce. There have been no known investment disputes over the past few years involving U.S. or other foreign investors or contractors in Luxembourg.
Within the WTO, there are no known dispute settlement cases involving Luxembourg either as a complainant, respondent, or third-party entity.
International Commercial Arbitration and Foreign Courts
The Government accepts international arbitration of investment disputes between foreign investors and the state, and the courts recognize and enforce foreign arbitral awards. International arbitration is accepted as a means for settling investment disputes among private parties, and there is a domestic arbitration body within the host economy, the Centre de Médiation (Mediation Center). Luxembourg is a member state to the International Centre for Settlement of Investment Disputes (ICSID) Convention.
As investment disputes are practically non-existent, there is no information available concerning the duration of a resolution in the local courts.
Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). Judgments of foreign courts are accepted and enforced by the local courts, and Luxembourg does have a written and consistently applied bankruptcy law, which is based on European Union-wide legislation. Monetary settlements are usually made in local currency (euro). Bankruptcy is not criminalized.
Luxembourg ranks 34 in “Resolving Insolvency” in the World Bank’s 2019 Doing Business Report.
At the end of 2020, the Luxembourg banking sector comprised 128 credit institutions from 29 different countries. Under Luxembourg law, two types of licenses are possible for the credit institutions: the Universal Banking License, and the Mortgage Bonds Banking License.
The Ministry of Finance grants credit institutions operating out of the Grand Duchy an operating license. Since the entry into force of the Single Supervisory Mechanism on November 4, 2014, credit institutions are subjected to the control of the European Central Bank, either directly or indirectly through Luxembourg’s financial sector supervisory authority, the CSSF. The supervision by the ECB/CSSF extends equally to activities performed by these undertakings in another Member State of the EU, whether by means of the establishment of a branch or by free provision of services.
4. Industrial Policies
Luxembourg is considered to be a very attractive tax location for conducting business: low effective corporate tax rates of 18 percent (with an adjusted rate of 15 percent for entities with annual taxable income less than 25,000 euro); the lowest VAT (value-added tax) rate in Europe (at 17 percent); and a variety of tax incentives, including investment tax credits, new business tax credit, subsidies for film productions, venture capital investment certificates, small business incentives, regional and national incentives, research and development incentives, and environmental incentives. The investment incentives are provided within the limitations of the EU rules on State aid, which were relaxed by the EU because of the Covid-19 pandemic. Luxembourg has taken full advantage by raising the aid ceiling for investment aid for projects focusing on digitization, sustainability, and the circular economy. Until recently, the European Court of Justice has been increasingly stringent on individual tax treatment, including a ruling specific to Luxembourg and its tax treatment of Apple. During 2020, the ECJ deemed to relax its approach in a case involving Amazon. The full impact of these decisions and their impact on judicial review of these arrangements has yet to be fully determined.
U.S. and foreign firms can participate in government/authority-financed and subsidized research and development programs.
Foreign Trade Zones/Free Ports/Trade Facilitation
Luxembourg opened a free-trade zone called Le Freeport in 2014, which was built and integrated into the cargo logistics center at Luxembourg Airport. This zone, modeled after other successful customs warehousing in premier trade regions such as Geneva and Singapore, allows the warehousing and handling of high-value merchandise (art, cars, wines) in a secure location free of fiscal obligations (no Value-Added-Tax (VAT) or import duties to be paid as long as the goods remain on the premises). Taxation only occurs when the articles leave the zone as imports into the country of consumption (or if a bottle of wine is opened at Le Freeport, it is also subject to taxation).
Performance and Data Localization Requirements
The host Government does not mandate local employment. The Government has attempted to improve the work visa process in past years, because of input from companies, embassies, and visa applicants. If the application is in order, a work visa should normally take only two months to clear. The difficulty in obtaining a Residence permit is on par with other western European countries once the applicant has provided all pertinent information to the authorities and the local district of residence.
These incentives are applied uniformly to both domestic and foreign investors. Data storage has been greatly enhanced via new state-of-the-art data centers, built by the government as part of the long-term massive ICT infrastructure development plan which includes replacing old transmission lines with fiber-optic cable across the country. The data centers have served to optimize international connectivity to large hubs such as Paris, Amsterdam, and Frankfurt, and have attracted major ICT and e-commerce players, such as Amazon and PayPal, which located their EU headquarters in Luxembourg. The centers are rated at the highest security level for data storage.
Enforcement on the respect of data storage rules, such as the EU GDPR, rests with the Luxembourg data protection regulator CNPD.
5. Protection of Property Rights
Secured interests in property in Luxembourg, both movable and real, are recognized and enforced through intellectual property rights (IPR) and community laws. The legal system that protects and facilitates acquisition and disposition of all property rights, such as land and buildings, is based on a land register, called cadastre in French, where each parcel of property is documented in terms of ownership and duration. There is adherence to key international agreements on iIPR, as well as adequate protection for patents, copyrights, trademarks, and trade secrets.
Luxembourg ranks 31 out of 190 countries in the World Bank’s 2019 Doing Business Report for ease of registering property.
Luxembourg law allows the securitization of many types of assets, risks, revenues, and activities. It makes securitization accessible to all types of investors (institutional or individual), which means that securitization can easily facilitate the financing of a company or the management of personal or family wealth. An extremely wide range of assets can be securitized: securities, loans, subordinated or non-subordinated bonds, risks linked to debt (commercial and other), moveable and immovable property (whether tangible or not).
Under Luxembourg law, a securitization vehicle can be constituted either as a company or a fund. Securitization companies can benefit from EU directives and double tax treaties. Securitization organizations that continually issue transferable assets for the public must be approved and supervised by the financial sector supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF).
Intellectual Property Rights
Trademarks, designs, patents, and copyrights are the principal forms of intellectual property rights (IPR) available to companies and individuals. Luxembourg has been proactive in developing its IPR standards and participates in all the major IPR treaties and conventions, including:
- Berne Convention
- Patent Cooperation Treaty (PCT)
- Paris Convention
- Patent Law Treaty (PLT)
- Madrid Agreement and Protocol
The country is a signatory of the European Patent Convention, created by the European Patent Office (EPO), and a member state of the World Intellectual Property Organization (WIPO).
Adequate steps have also been taken to implement and enforce the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The regulation stipulating the measures to prohibit the release for free circulation, export, re-export, or entry for the suspension of counterfeit and pirated goods states that the competent authority to receive applications must be a customs authority. In Luxembourg, this is the Litigation and Research Department (Division des Contentieux et Recherches) of the Directorate of Customs and Excise (Direction des Douanes et Accises). Customs officers have every right to seize (but not necessarily destroy) goods. Most cases are related to customs declaration abuses by the owner (importing products above the maximum allowable amount for tax-free treatment within the EU), and not counterfeit goods.
The merits of a counterfeit goods case are decided by judicial proceedings; thus, the ordinary law courts are responsible for deciding whether there are grounds for a case. A few provisions within the agreement deal with different IPR and allow for the possibility of confiscating, or even destroying, counterfeit goods and the tools or implements used for their production.
The Luxembourg customs authorities may impose measures for a period of six months, which may be renewed at the request of the rights holder. The customs office tracks the seizures of counterfeit goods, notably at Luxembourg Airport, but this is a small part of customs work. There are no public statistics on such seizures.
The main rules of civil procedure are contained in the Luxembourg Code of Civil Procedure and in the Administration of Justice Act. In the absence of specific rules concerning material and local jurisdiction for certain IPR, ordinary law applies.
In an effort to become the prime location for Europe’s knowledge-based and digital economy, Luxembourg implemented a new IPR tax regime in 2008, providing for a very competitive tax rate (first 8%, then down to 3%) applicable to a broad range of IPR income generated by taxpayers. However, due to pressure from the EU Commission in Brussels to disallow specific member state fiscal advantages, the IPR fiscal regime in Luxembourg was no longer offered as of 2016, and assets are now subject to the standard VAT rate of 17%.
In March 2018, the Luxembourg Government voted to approve the legislative measures necessary to bring Luxembourg’s new IPR regime into force with effect from January 1, 2018. The new regime is fully consistent with all recommendations made by the OECD’s Forum on Harmful Tax Practices, including those set out in the OECD/G20 BEPS Project Action 5 Final Report published in October 2015.
Under the new regime, eligible net income from qualifying IPR assets benefits from an 80% exemption from income taxes. Consequently, a corporate taxpayer based in Luxembourg City with eligible net income was taxed on such income at an overall (i.e., corporate income taxes plus municipal business tax) effective tax rate of 5.202% in the 2018 tax year.
IPR assets qualifying for the new regime also benefit from a full exemption from Luxembourg’s net wealth tax. Luxembourg is not included in the USTR’s 2021 Special 301 Report or 2020 Notorious Markets List.
6. Financial Sector
Capital Markets and Portfolio Investment
Luxembourg government policies, which reflect the European Union’s free movement of capital framework, facilitate the free flow of financial resources to support the product and factor markets. Credit is allocated on market terms, and foreign investors can get credit on the local market, thanks to the sophisticated and extremely developed international financial sector, depending on the banks’ individual lending policies.
Since the financial crisis and tighter regulation through EU central banking authority and stability mechanisms, banks had become more selective in their lending practices pre-COVID. The private sector has access to a variety of credit instruments, including those issued by the National Public Investment Agency (SNCI), and there is an effective regulatory system established to encourage and facilitate portfolio investment.
Luxembourg continues to be recognized as a model of fighting money-laundering activities within its banking system through the enactment of strict regulations and monitoring of fund sources. Indeed, the number of enforcements reflects the degree to which the government remains committed to fighting money-laundering. The country has its own stock market, a sub-set of which was rebranded in 2016 as a “green exchange” to promote securities (primarily bonds in Luxembourg) reflecting ecologically sound investments.
Money and Banking System
Luxembourg’s banking system is sound and strong, having been shored up following the global financial crisis by emergency investments by the Government of Luxembourg in BGL BNP Paribas (formerly Banque Generale du Luxembourg and then Fortis) and in Banque Internationale a Luxembourg (BIL), formerly Dexia, in 2008.
At the end of 2020, 128 credit institutions were operating, with total assets of EUR 851 billion during the first quarter of 2020 (USD 1,018 billion), and approximately 26,000 employees.
Luxembourg has a central bank, Banque Centrale de Luxembourg. Foreign banks can establish operations, subject to the same regulations as Luxembourgish banks.
Due to the U.S. FATCA law, local retail bank Raiffeisen bank still refuses U.S. citizens as clients. However, two banks have offered to serve U.S. citizen customers: BIL and the State Bank and Savings Bank (Banque et Caisse d’Epargne de l’Etat).
On February 21, 2018, the Luxembourg House of Financial Technology (LHoFT) signed a Memorandum of Understanding (MoU) with the European FinTech platform, B-Hive, based in Brussels, and the Dutch Blockchain Coalition, that will favor collaboration in the field of distributed ledger technology, otherwise known as blockchain. The MoU confirms mutual interest and defines the fields of collaboration, among other things, on how blockchain technology can benefit society and business in general or on how they can help define international and/or European standards for distributed ledger technology.
The Ministry of Finance is tracking developments very closely in the field of virtual currencies and has said it will adapt its legislation in accordance with the results of ongoing European and international studies. Luxembourg places virtual currencies under the legal regime of payment companies. The CSSF continues close supervision and oversight of virtual currencies.
Foreign Exchange and Remittances
There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments) into a freely usable currency and at a legal market-clearing rate. Luxembourg was a proponent of the euro currency and adopted it immediately at inception in 1999 (as part of the “Eurozone” of EU member states adopting the euro to replace their former domestic currencies.) The European Central Bank is the authority in charge of the euro currency. Pre COVID, Luxembourg has taken steps to move toward a “cash-less” system and the COVID-19 pandemic further accelerated the move towards an increasingly “cash-less” economy.
There have not been any recent changes to remittance policies with respect to access to foreign exchange for investment remittances. There is no difficulty in obtaining foreign exchange, which has been freely traded since the 1960s, and the Luxembourg stock market trades in forty different currencies, so is truly international and expanding rapidly.
The average delay period currently in effect for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal, legal channels is approximately 24 hours. Investors can remit through a legal parallel market including one utilizing cash and convertible negotiable instruments (such as dollar-denominated host government bonds issued in lieu of immediate payments in dollars). There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.
Sovereign Wealth Funds
Luxembourg created a sovereign wealth fund in 2014. The fund is under the auspices of the Ministry of Finance and operates with 234 million euros of assets. Until the fund reaches 250 million euros of assets, it operates a conservative investment policy, with a portfolio of 57% of bonds, 40% of stocks and 3% of liquidities. The sovereign wealth fund only invests outside of Luxembourg and is audited by an independent audit company.
7. State-Owned Enterprises
The most prominent state-owned enterprise (SOE) in Luxembourg is POST (formerly P&T, postal and telecommunications), whose sole shareholder is the government of Luxembourg and whose board of directors is composed of civil servants. POST responded to the competition created by new players in the market (Orange, Proximus) by transforming itself from a passive utility company into a commercial enterprise, recruiting from the corporate sector, and improving consumer products and services. POST also publishes an annual report and communicates in a similar manner to a private company.
Another sector in which SOEs have been very active is the energy sector (electric and gas utilities), which is now liberalized as well. Anyone can become a provider or distributor (via networks) of electricity and gas. The former state electricity utility, Cegedel, was absorbed into a private company, Encevo, along with a nearby German utility and the former state gas utility, with an independent board of directors. Creos, the new distribution network for energy, is jointly held by the government and private shareholders.
Finally, an important market which appears to have barriers to entry is freight air transport, due to the dominance of the majority state-owned Cargolux. It is the largest consumer of U.S. production in Luxembourg in terms of value, owing to their all-Boeing fleet of 30 747-freighter aircraft (including 14 of the new-generation 747-8F, of which Cargolux was a launch customer). It received a capital increase from the Luxembourg government in return for a larger share ownership of the company.
China has invested in Cargolux, with a Chinese regional fund currently holding approximately one-third of the shares. Cargolux has aggressively expanded in China.
Private enterprises can compete with public enterprises in Luxembourg under the same terms and conditions in all respects. All markets are now open or have been liberalized via EU directives to encourage market competition over monopolistic entities. There is a national regulator (National Institute of Regulation), which sets forth regulations and standards for economic sectors, mostly derived from EU directives transposed into local law. While markets continue to open, the government has maintained a large enough stake in critical sectors such as energy, to ensure national security.
OECD Guidelines on Corporate Governance of SOEs
Luxembourg is an OECD member with established practices consistent with OECD guidelines as far as SOEs are concerned. There is no centralized ownership entity that exercises ownership rights for each of the SOEs.
In general, if the government has a share in an enterprise, they will receive board of directors’ seats on a comparable basis to other shareholders and in proportion to their share, with no formal management reporting directly to a line minister.
The court processes are transparent and non-discriminatory.
Foreign investors can participate equally in ongoing privatization programs, and the bidding process is transparent with no barriers erected against foreign investors at the time of the initial investment or after the investment is made. Moreover, there are no laws or regulations specifically authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation, or control. There are no other practices by private firms to force local ownership or restrict foreign investment, participation in, or control of domestic enterprises. There has been no evidence to suggest that potential conflicts of interest exist. Government officials sitting on boards of directors do not appear to have impacted freedom of investment in the private sector.
8. Responsible Business Conduct
There is a heightened awareness of responsible business conduct in Luxembourg, whether it is in the corporate sector or among the consuming public. In financial matters, a desire to avoid inclusion on the OECD’s tax haven grey list has driven a push for greater transparency. While Luxembourg has always taken a lead role in ecological matters, including stringent trash sorting and mandatory recycling procedures, the global discussion on climate change, pushed to the forefront by the Paris Agreement on Climate Change (COP 21) and pressure from the EU in terms of concrete goals and directives, has made green finance a high priority.
In 2016, Luxembourg Stock Exchange (LuxSE) created the Luxembourg Green Exchange (LGX), the world’s first stock exchange to deal with securities related to climate change. It currently lists over $320 billion of green bonds. LGX is a dedicated platform for issuers and investors focused on green instruments. With over 750 securities denominated in 32 countries, this represents a 50% global market share for green bonds. In its offer, LuxSE helps issuers market their green securities by generating awareness for their green projects.
There have been no controversial instances of corporate impact on human rights in Luxembourg.
There are also independent NGOs, worker organizations/unions, and business trade associations promoting and monitoring RBC. These organizations can do their work freely and often directly integrated into the review, oversight, and supervisory process.
Luxembourg has not only implemented EU directives concerning emissions reduction, but also set forth major new energy policies to promote clean energies and energy conservation in consumer households.
In 2010, the energy pass became compulsory for existing dwellings (houses and residences) that change owners or tenants and for accommodations that undergo substantial installation transformation ( www.myenergy.lu ).
Starting in 2017, the government offered subsidies for zero-emissions vehicles as part of the tax reform. Starting in 2018, the government offered subsidies for hybrid plug-in electric vehicles (PHEV) owned by private customers, and zero emission (100 percent electric) vehicles owned by companies, as part of the tax reform. The government also adopted measures to make all public transportation free.
There are no systemic labor or human rights concerns relating to RBC, with the government encouraging companies to respect human rights and pleading for a duty-of-care principle at the international level. In June 2018, the government adopted the country’s first National Action Plan to Implement the UN Guiding Principles on Business and Human Rights, an initiative welcomed by civil society actors for educating the private sector on its responsibilities but criticized for failing to introduce a binding legal framework. In Luxembourg, there have been very few cases of labor exploitation and labor trafficking, with many of them occurring in the catering and construction sectors. Given the high bar of evidence for trafficking crimes and the fact that many victims travel to Luxembourg by their own means, perpetrators were often sentenced for the employment and/or exploitation of illegal workers and benefited from a suspended sentence if first-time offenders.
Luxembourg signed the Montreux Document on Private Military and Security Companies in 2013
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
- North Korea Sanctions & Enforcement Actions Advisory
Department of Labor
Regulations are enforced by the strong but flexible Financial Sector Surveillance Commission (CSSF, which is equivalent to the U.S. Securities and Exchange Commission). U.S. firms have not identified corruption as an obstacle to FDI in Luxembourg. There are no known areas or sectors where corruption is pervasive, whether in Government procurement, transfers, performance requirements, dispute settlement, regulatory system, or taxation.
Giving or accepting a bribe, including between a local company and a public official, is a criminal act subject to the penal code. Recently, a mayor was implicated in abusing his office for personal purposes. Senior Government officials take anti-corruption efforts seriously. International, regional, or local nongovernmental watchdog organizations do not operate in the country, given the low risk.
Luxembourg has laws, regulations, and penalties to combat corruption effectively, and they are enforced impartially with no disproportionate attention to foreign investors or any other group. The country ranks very favorably on the World Bank’s corruption index.
Luxembourg has made anti-money laundering and suppression of terrorism financing a priority, given its status as a leading world financial center. The government has taken the lead in freezing bank accounts suspected to be connected to terrorist networks, and since 2004 extended the law against money-laundering and terrorist financing to additional professional groups (including auditors, accountants, attorneys, and notaries).
On February 14, 2018, a new law implementing a substantial part of the fourth anti-money laundering (AML) directive was published in the Official Journal of Luxembourg. The law entered into force on February 18, 2018. Local police, responsible for combating corruption, also work closely with neighboring countries’ law enforcement officials, as well as with Interpol and Europol.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
Luxembourg signed and ratified the UN Anticorruption Convention (signed December 2003 and ratified in November 2007).
Luxembourg is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
Resources to Report Corruption
The contacts at government agency or agencies are responsible for combating corruption are:
Director of Criminal and Judicial Affairs
Ministry of Justice
13 rue Erasme
Telephone: +352 247 84537 firstname.lastname@example.org
Contact at “watchdog” organization
Financial Sector Surveillance Commission (CSSF)
283, route d’Arlon L-1150 Luxembourg
+352 26 251 2217
email@example.com / firstname.lastname@example.org
10. Political and Security Environment
Luxembourg has consistently ranked among the most politically stable and overall safest countries in the world. There have been no recent serious incidents involving politically motivated damage to projects or installations. The environment is not growing more politicized such that civil disturbances would be likely.
Of note: many of the demonstrations which do occur in Luxembourg are not aimed at the Grand Duchy, but rather at the EU offices located within Luxembourg (for example, the European Court of Justice and periodic European ministerial meetings). There are no known nascent insurrections, belligerent neighbors, or other politically motivated activities.
In response to the George Floyd murder in the United States, there was a protest of approximately 1,500 people outside the Embassy. It was peaceful and without incident. There have only been small and peaceful demonstrations during the COVID-19 pandemic, mainly from restaurant and bar owners protesting the closure of their business and the hardship it creates.
11. Labor Policies and Practices
Luxembourg boasts a very stable, diverse, multilingual, and qualified labor market, benefiting from the approximately 207,000 industrial and service employees (known as “cross-border” workers) who come to work in Luxembourg on a daily basis from neighboring Belgium, France, and Germany. Foreign (non-Luxembourger) workers are treated by Luxembourg the same as nationals, including free COVID testing. Work permit constraints have been somewhat relaxed for non-EU applicants (including Americans), particularly for qualified persons for skilled positions.
Foreign investors often cite Luxembourg’s labor relations as a primary reason for locating in the Grand Duchy. Unemployment in Luxembourg has risen from 5.4 percent to 6.3 percent because of the COVID-19 pandemic.
Most industrial workers are organized by unions, linked to one of the major political parties. Luxembourg is proud of the system of representatives of business, unions, and Government participating in a tripartite process in the conduct of major labor negotiations, which serves to avoid strikes, common in neighboring France and Germany.
Luxembourg has a strong trade relationship with the United States. Every employee working in Luxembourg, whether a resident, European, or a third-country national, is subject to the provisions of labor law. Most active laws and regulations regarding work and employment in Luxembourg are incorporated in the Labor Code. The Inspectorate of Labor and Mines has responsibility for working conditions and protection of workers in the exercise of their professional activity (apart from civil servants).
Collective bargaining agreements are common in the public and private sectors. The country has a labor dispute resolution mechanism in place called office de la conciliation (conciliation office).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$76,199||2019||$71,105||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2019||$730,521||2019||$766,099||BEA data available at https://apps.bea.gov/international/factsheet/|
|Host country’s FDI in the United States ($M USD, stock positions)||2019||$515,444||2019||$297,052||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2019||4,898%||2019||4,850%||UNCTAD data available at
* Source for Host Country Data: Luxembourg Statistics office STATEC (www.statec.lu)
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||3,495,262||100%||Total Outward||4,359,923||100%|
|United States||690,827||19.8%||The Netherlands||717,063||16.4%|
|United Kingdom||491,529||14%||United Kingdom||704,537||16.1%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||4,936,288||100%||All Countries||2,238,677||100%||All Countries||2,697,611||100%|
|United States||1,381,487||28%||United States||659,836||29%||United States||721,651||27%|
|United Kingdom||378,052||8%||France||171,561||8%||United Kingdom||264,727||10%|
|The Netherlands||222,005||4%||Cayman Islands||133,251||6%||The Netherlands||151,687||6%|