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 (614,000), 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.
While the economy has evolved and flourished, its 2018 GDP did not grow as strongly as projected. However, the economy did post a GDP growth rate of 2.6 percent, higher than the EU average of 2 percent. The Luxembourg government projects a growth rate of 3 percent in 2019. Luxembourg offers a diverse and stable platform and outsized growth potential for a wide variety of U.S. investments and trade within the EU and beyond.
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 USD 5 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 in an effort 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 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, some 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. Through various initiatives, Luxembourg seeks to attract financial technology and biomedical start-ups and small companies to make Luxembourg home.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||9 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||66 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||15 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$676,418||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$70,260||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.
In the March 2017 Regional Competitiveness Index published by the European Union (EU), Luxembourg is ranked one of the best European regions to attract business. Ranked seventh with a score of 91 out of 100 (behind London and other regions of the United Kingdom; Utrecht, Netherlands; Stockholm, Sweden; Copenhagen, Denmark; Paris, France; and Munich, Germany), Luxembourg demonstrates “the ability to provide an attractive and sustainable environment for attracting businesses and citizens.”
Key points considered are health, infrastructure, higher education, labor efficiency, and innovation. According to the Index, Luxembourg ranks number one for innovation – a direct result of the increase in incentives and support for research and development, as well as for start-up ventures through the state lending agency (capital investment subsidies, financing of equipment, and seed aid to start-up entities).
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.
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 or control, and there are no 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.
The Government has improved the efficiency of investment administrative procedures, notably in the context of the overall “Digitalization” movement to offer a multitude of government services online or electronically. It usually takes 2-3 months to register a business, depending on the complexity of the business itself. On a scale of 1 to 10, Luxembourg rates 6.5 in website registration clarity and completeness of instructions to register a limited liability company, according to the Global Enterprise Registration portal of the Global Entrepreneurship Network of UNCTAD.
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: .) 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, opened in 2016 within the Luxembourg Chamber of Commerce, also provides guidance on the entire registration and creation process of a business. Between 2016 and 2018, the House of Entrepreneurship was contacted 30,000 times.
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 any difference in the salaries paid to men and women carrying out the same task or work of equal value, illegal.
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 is helping dual career families better manage.
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.
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. 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. 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. 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 forward 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.
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; 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
International Regulatory Considerations
Luxembourg is a member state of the EU and 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 parliamentary representative democracy headed by a constitutional monarch. The Constitution of 1868 provides for a flexible separation of powers between the executive and the parliament, with the judiciary watching over proper execution of laws.
The Grand Duchy has a written commercial/contractual law. Magistrate’s courts deal with cases of lesser importance in civil and commercial matters, and also 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 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). There is no government or authority interference in the court system that could affect foreign investors. As previously mentioned, the website for doing business is: , and the new one-stop-shop for setting up a business is the House of Entrepreneurship within the Luxembourg Chamber of Commerce.
Competition and Anti-Trust Laws
The Competition Inspectorate, a department within the Ministry of the Economy, is in charge of 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 in the near future. 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 convention known as International Centre for Settlement of Investment Disputes (ICSID Convention).
As investment disputes are extremely rare or 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 90 in “Resolving Insolvency” in the World Bank’s 2019 Doing Business Report.
At the end of 2018, the Luxembourg banking sector comprised 136 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.
U.S. and foreign firms are able to 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 improved the work visa process in past years, as a result 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 all 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.
5. Protection of Property Rights
Secured interests in property in Luxembourg, both movable and real, are recognized and enforced through intellectual property 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 intellectual property rights, as well as adequate protection for intellectual property, patents, copyrights, trademarks, and trade secrets.
Luxembourg ranks 92 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 (IP) protection available to companies and individuals. Luxembourg has been proactive in developing its IP standards and participates in all the major IP treaties and conventions, including:
- Bern 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 is a member state of the World Intellectual Property Organization (WIPO).
Adequate steps have also been taken to implement and enforce the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
In Luxembourg, the Litigation and Research Department (Division des Contentieux et Recherches) of the Directorate of Customs and Excise (Direction des Douanes et Accises) regulates and oversees applications to prohibit the release of counterfeit and pirated goods for free circulation, export, re-export or entry into the country. 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 to 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 number of provisions within the TRIPS Agreement describe different intellectual property rights and allow for the possibility of confiscating, or even destroying, counterfeit goods and the tools or implements used in their production.
The Luxembourg customs authorities may impose measures, such as seizures or import bans, 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 intellectual property rights, ordinary law applies.
In an effort to become the prime location for Europe’s knowledge-based and digital economies, Luxembourg implemented a new IP tax regime in 2008 that provides a very competitive tax rate (first 8 percent, then down to 3 percent) applicable to a broad range of IP income.
The level of IP protections and enforcement is excellent, and an update to the 2008 law was made in 2013. However, due to pressure from the EU Commission in Brussels to disallow fiscal advantages to specific Member States, the IP fiscal regime in Luxembourg is no longer offered as of 2016, and assets are now subject to the standard VAT rate of 17 percent.
On March 22, 2018, the Luxembourg Government approved legislative measures to bring Luxembourg’s new IP regime into force with effect from January 1, 2018. The new regime is fully consistent with all recommendations made by the Organisation for Economic Cooperation and Development (OECD) Forum on Harmful Tax Practices, including those set out in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project Action 5 Final Report published in October 2015.
Under the new regime, eligible net income from qualifying IP assets will benefit from an 80 percent exemption on income taxes. Consequently, a corporate taxpayer based in Luxembourg City with eligible net income will be taxed on such income at an overall (i.e. corporate income taxes plus municipal business tax) effective tax rate of 5.202 percent in the 2018 tax year.
IP assets qualifying for the new regime also benefit from a full exemption from Luxembourg’s net wealth tax. Luxembourg is not listed in the United States Trade Representative (USTR) 2019 Special 301 Report, nor is it listed on the 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 are able to 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 have become more selective in their lending practices. 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.
In recent years, Luxembourg has been recognized as a model of fighting money-laundering activities within its banking system through the enactment of strict regulations and monitoring of fund sources. 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 world financial crisis by emergency investments by the Government of Luxembourg in BGL BNP Paribas (formerly Banque Generale du Luxembourg and then Fortis) and by the Government of Luxembourg in Banque Internationale a Luxembourg (BIL), formerly Dexia, in 2008.
At the end of 2018, 136 credit institutions were operating, with total assets of EUR 790 billion during the first quarter of 2019 (USD 894 billion), and approximately 26,000 employees.
Luxembourg has a central bank, Banque Centrale de Luxembourg. Foreign banks are allowed to 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.
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.
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 at a fast rate.
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 quite brief, 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 tutelage 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 percent of bonds, 40 percent of stocks and 3 percent 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, Enovos, 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. Cargolux, the largest consumer of U.S. production in Luxembourg in terms of value, owing to their all-Boeing fleet of 27 747-freighter aircraft (including 14 of the new-generation 747-8F, of which Cargolux was a launch customer) received a capital increase from the Luxembourg government in return for a larger share of the company.
China has invested in Cargolux, with a Chinese regional fund currently holding approximately one-third of shares. Cargolux has aggressively expanded in China.
Private enterprises are allowed to 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 up, 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 are allowed to 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, and 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. Government officials sitting on boards of directors does not appear to have impacted freedom of investment in the private sector.
8. Responsible Business Conduct
Generally speaking, 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. After only one year, it had already listed €63 (USD 78) billion of green bonds. It currently lists over USD 130 billion of green bonds. LGX is a dedicated platform for issuers and investors focused on green instruments. It 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 are able to do their work freely.
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 ( ).
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.
OECD Guidelines for Multinational Enterprises
As an OECD member, Luxembourg adheres to the OECD Guidelines for Multinational Enterprises. Its national contact point promoting these guidelines for responsible business conduct is located in the Ministry of Economy and composed of representatives from several ministries, business associations and trade unions. Contact information is here: .
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. 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.
In particular, 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 14 February 2018, a new law implementing a substantial part of the fourth anti-money laundering directive (4th AML Directive) was published in the Official Journal of Luxembourg. The law entered into force on February 18, 2018. Also, local police, who are responsible for combating corruption, 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 Dec 2003 and ratified Nov 2007).
Luxembourg is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Director of Criminal and Judicial Affairs
Ministry of Justice
13 rue Erasme
Telephone: +352 247 84537
Contact at “watchdog” organization
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 is that many of the demonstrations which 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 the periodic European ministerial meetings). There are no known nascent insurrections, belligerent neighbors, or other politically-motivated activities.
11. Labor Policies and Practices
Luxembourg boasts a very stable, diverse, multilingual and qualified labor market, benefiting from the approximately 192,000 industrial and service employees (known as “cross-border” workers) who come to work in Luxembourg on a daily basis from the neighboring countries of Belgium, France and Germany. Foreign (non-Luxembourger) workers are treated the same as nationals. Work permit constraints were 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 stabilized at approximately 5 percent. However, this rate remains below the EU average of 6.5 percent, and labor relations have been peaceful since the 1930s.
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 the neighboring countries of France and Germany.
Luxembourg has a 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 (with the exception of civil servants).
12. OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) does not currently work in Luxembourg.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* Source for Host Country Data: Luxembourg Statistics office Statec
Table 3: Sources and Destination of FDI
|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||3,987,835||100%||Total Outward||4,812,170||100%|
|United States||721,855||18%||United Kingdom||834,595||17%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||4,675,344||100%||All Countries||2,245,182||100%||All Countries||100%|
|United States||1,135,943||24%||United States||532,080||%||United States||603,863||25%|
14. Contact for More Information
U.S. Embassy Luxembourg
22 Boulevard Emmanuel Servais
L-2535 Luxembourg, Luxembourg