Luxembourg: Offshore Business Sectors
Offshore Banking Units
A substantial international banking sector has developed in Luxembourg due to a combination of factors, including a relatively relaxed regulatory regime, the 'holding' company legislation, the growth of the Euromarkets, and the existence of the Luxembourg Stock Exchange on which most Eurobonds are listed. It is also significant that CEDEL is based in Luxembourg.
Broadly speaking, the needs of domestic companies are handled by local Luxembourg banks, while the international banks provide cross-border services. A very wide range of capital markets and commercial banking products are on offer; some of the key services are:
- multi-currency lending and loan syndication;
- issuance and listing of securities, particularly Eurobonds
- custodial and depositary services
- 'fiduciary' business which is the local equivalent of the trust
- project and international financing vehicles
- equity and financial derivatives issuance and trading
- foreign exchange trading
- trade finance
- gold trading (settled through CEDEL)
As of June, 2013, there were 143 banks registered in Luxembourg, with a balance sheet total of EUR738,441bn.
Private banking services are particularly strong in Luxembourg, due to the absence of withholding tax on interest payments, and tight banking secrecy, alongside the very wide range of financial products that is available.
Banking secrecy has a statutory basis in Luxembourg, under articles 458 and 459 of the Penal Code, the Grand-Ducal Regulation of 1989 which prevents disclosure to the tax authorities, and most recently the law of 5th April 1993 which prevents bank staff from passing information on deposit accounts to parent banks. It is a criminal offence for bank staff to break secrecy laws except in clearly defined and very limited circumstances. The Luxembourg courts are likely to permit disclosure of information only when there is clear evidence of tax fraud or money-laundering activity.
In February 2009, however, in the light of recent proposals by the European Commission to tighten its rules on banking secrecy, Luxembourg’s Prime Minister Jean-Claude Juncker revealed that he was prepared to negotiate.
Frequently challenged about its lack of transparency, Luxembourg’s Prime Minister stated that the country was prepared to discuss the abolition of banking secrecy with the European Commission, but, given that Luxembourg has its own particular position on the issue, Juncker also made clear that these discussions would need to form part of a two-way dialogue.