Luxembourg
Geography
The Grand Duchy of Luxembourg lies between
Belgium, France and Germany. It is 84
km by 52 km, with an area of 2,586 sq
km (999 sq m).
Luxembourg
is divided into two parts, geologically:
the 'Oesling' in the north, part of the
Ardennes, which covers about one third
of the country, is wooded and scenically
very attractive, reaching 555 metres above
sea level; the 'good country' to the south
is mainly rolling farmland and woods,
reaching 426 metres above sea level. On
the eastern border is the wine-producing
valley of the Moselle, and in the south-west
is a narrow strip of red earth which forms
the Luxembourg iron-ore basin.
There
are a number of rivers, the most important
being the Moselle, which is canalised
and links to the larger European waterways.
There is an international airport at Findel,
north-east of the capital Luxembourg City.
Luxembourg Railways operates a country-wide
network which is well-linked to other
European railways. There is a network
of good roads, which are toll-free.
The
climate is temperate, without extremes;
annual rainfall is 31 inches. Average
daytime temperatures range from 5 degrees
Centigrade in January to 23 degrees in
July.
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Luxembourg
Population, Language and Culture
The population of Luxembourg is 480,222
(July, 2007 est.), with about 90,000 of
these living in and around Luxembourg City.
About 32% of the population is foreign.
French and German are the official languages,
but Luxembourgish, a Mosel-Frankish dialect,
attained in 1984 the status of a national
language and is the everyday language of
native Luxembourgers. English is also widely
spoken. French is the language most commonly
used in public life.
Luxembourg's
modern history began with the Congress of
Vienna, which created the autonomous Grand
Duchy; then in 1867 the Treaty of London
established Luxembourg's permanent neutrality.
Until 1990 the Grand Duchy was merged with
the Netherlands under the House of Orange-Nassau,
but has since been ruled by its own dynasty.
In 1948 Luxembourg gave up its neutrality
in order to join the emerging institutions
of post-war Europe, and was a founder member
of the EU.
Culturally,
Luxembourg has been most influenced by France
and Germany, but has developed a strong
sense of its own identity, associated with
the formalisation of its own language.
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Luxembourg
Relationship with the EU
Luxembourg is of course a founding member
of the EU, and has high rates of personal
and corporate taxation, so it cannot be
called 'offshore' as such. However, the
Luxembourg holding company form, created
in 1929, and the more recent investment
fund form, are both exempt from all taxes,
made the country as attractive as many out
and out 'offshore' jurisdictions. In 2007,
the EU forced Luxembourg to replace the
1929 regime.
The
EU Savings Tax Directive also threatened
substantial damage to Luxembourg's attractiveness
to investors. Towards the end of 2002, Luxembourg,
together with Austria, was threatening to
veto the Union's exchange of information
plans under the Savings Tax Directive because
competitor, Switzerland's compromise proposals
fell short of being 'equivalent measures'.
However, Luxembourg eventually signed up
to the compromise reached in January, 2003,
and agreed to impose a withholding tax on
non-residents' investment returns, like
Switzerland, initially at 15%, which has
applied since 1st July 2005. Figures published
in 2006 reported that EUR48m had been collected
in this way during the first 9 months of
the Directive's operation.
Many
EU institutions are based in Luxembourg,
not least the Commission itself, the Court
of Justice, the Secretariat of the Parliament,
the EIB, and the European Court of Auditors.
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Luxembourg
Government
Luxembourg is a constitutional monarchy.
The current sovereign is HRH Grand-Duke
Henri; and the heir apparent is Prince Guillaume
(son of the monarch). Under the Grand-Duke
there is an Executive Cabinet of 12 Ministers;
legislative power is in the hands of the
Chamber of Deputies (Parliament) elected
by universal suffrage under proportional
representation for a term of not more than
5 years.
The
Parliament has 60 members, and there are
three main political parties, Christian
Democrats, Socialists and Liberals, who
alternate as coalition partners and who
over time have provided a good measure of
stability and continuity. Proposed legislation
is reviewed by the Conseil d'Etat, who some
powers to block legislation from continuing
to a final vote.
Luxembourg
law reflects the country's history: most
civil and commercial law is French in origin,
while company and penal law has Belgian
roots, and direct taxes are essentially
those introduced by the Germans during their
occupation of the country in the Second
World War. EU law is of course adopted into
national law and is the source of VAT regulation
among other things.
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Luxembourg
Economy and Currency
The
Luxembourg economy is stable and prosperous,
with unemployment currently at 4.1% (2006).
The post-war history of the economy is that
of the steel industry, and its gradual and
painful replacement by financial services
as the engine of the economy.
The
iron ore in Luxembourg was discovered in
1850, and an important steel industry was
built up which dominated the economy for
much of the 20th century. Despite shedding
labour in the 1980s, the industry remains
by far the largest employer in the country,
and accounts for 25% of export earnings.
However, the US protectionist tariffs of
up to 30% imposed on steel imports in April
2002 had a severe effect.
Since the war, the Government has made determined
and largely successful efforts to diversify
the economy, although as in most developed
countries services have tended to take over
from industrial production. Growth in the
financial sector, which now accounts for
about 22% of GDP, has more than compensated
for the decline in steel.
The
financial services sector has boomed, helped
along by old and new tax breaks. There are
more than 12,000 Holding
Companies in Luxembourg, along with
1,300 Investment
Funds and 220 banks. There is also
a substantial Eurobond issuance sector.
The
country's small size and its position have
naturally led it into close economic co-operation
with its neighbours. There has been a close
economic union with Belgium since 1921,
and after the Second World War Benelux was
formed by bringing in the Netherlands; this
was the first step towards creation of the
EU.
Luxembourg
is the richest country in the world according
to 2006 figures, with a GNP per head at
purchasing power parity of US$71,400. GDP
in 2006 was US$34.5bn. Unemployment is low.
Growth
of 2.3% was achieved in 2004, and 3.7% in
2005; in 2006 it was estimated to have risen
to 6.2%.
A
Eurostat survey in June 2004 recorded that
Luxembourg's residents enjoy around 208%
of the EU average GDP per capita, with Ireland
trailing in second place at 131%.
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Luxembourg
Entry and Residence
Entry to Luxembourg for up to 90 days for
nationals of EU countries requires a passport
or identity card; entry for up to 90 days
for nationals of a group of about 35 other
'advanced' countries including the US requires
a passport; nationals of other countries
require a 'short-stay' visa or a 'Schengen'
visa. A short-stay visa is issued by a Luxembourg
Mission or Consulate; a Schengen visa is
issued by a Schengen member state (Austria,
Belgium, France, Germany, Greece, Italy,
Netherlands, Portugal and Spain). Both types
are issued for 90 days and neither permits
remunerated activity or 'the exercise of
trade for profitable ends'.
Any
stay for the purposes of employment or remunerated
activity requires the advance issue of a
work permit by the Ministry of Labour and
the advance issue of a 'provisional residence
permit' by the Ministry of Justice. Any
stay of more than 90 days within a 6-month
period requires the advance issue of a residence
permit by the Ministry of Justice. EU citizens
other than Spanish or Portuguese nationals
are not subject to the requirement for work
permits.
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Luxembourg
Business Environment
In terms of business and communications
infrastructure, Luxembourg offers Western
European standards. The business environment
is particularly well-attuned to the finance
sector as a result of the heavy concentration
of banks and investment funds's. A wide
range of professional services is available,
but costs are high, particularly since legal
and regulatory procedures in this 'Civil
Code' jurisdiction may seem cumbersome and
bureaucratic by comparison with more relaxed
anglo-saxon countries.
To
counter the economy's dependence on the
steel industry, the government encourages
manufacturing industry and high-technology
companies by providing a range of incentives
and grants. Favourable tax and legal regimes
have also been developed for insurance,
reinsurance, group treasury operations,
and other financial service sectors. Interestingly
for a land-locked country, Luxembourg has
also introduced a maritime shipping register.
See Offshore Business
Sectors for descriptions of these
various special regimes.
The
government also provides equity funding
for certain types of project. This applies
to small and medium-sized companies and
those located in development areas.
Some
capital grants are provided by the National
Credit and Investment Corporation. New companies,
or those introducing new manufacturing systems,
can also apply for temporary or restricted
income tax exemptions.
There
are fairly extensive registration requirements
for different types of professional and
business activity in Luxembourg, although
to some extent these have been eaten away
by more liberal EU single market legislation.
'Reserved' activities, including many types
of state work, and the professions, are
accessible only through the appropriate
governing body.
Individuals
or companies wanting to carry on other types
of economic activity must obtain a permit
from the Ministry of the Middle Classes
(Ministre des Classes Moyennes); issue of
the numbered permit takes from two to four
months, and the number must be printed on
letterhead, etc
A
survey in October, 2005, ranked the city
of Luxembourg as the European capital with
the most expensive property. With an average
residential sale price of EUR470,000 (US$567,000),
Luxembourg was ranked above several European
capitals with expensive reputations.
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Luxembourg
Foreign Investment
The Luxembourg government actively encourages
foreign investment. There are no formalised
legal regimes aimed at foreign investment
as such (other than the tax-exempt 'holding'
companies and collective investment funds
- see Offshore Legal
and Tax Regimes) but on an ad hoc basis
the government offers a variety of types
of assistance including guarantees, cash,
tax incentives, subsidised loans, assistance
with development and construction projects
etc.
Luxembourg
has a wide range of customised investment
incentives specifically for new ventures
to the principality. This includes the offer
of land with favourable conditions at one
of the country's municipal business parks
or national industrial parks which are equipped
with the infrastructure necessary to support
a successful business.
In
addition, there are incentives for investment
available to Luxembourg and foreign investors
alike under the laws of 28th July 1923 and
27th July 1972. These include a tax credit
of up to 14% in respect of fixed assets
(not property), discretionary tax reductions,
and active assistance from the government.
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