Luxembourg Executive Summary

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Luxembourg Executive Summary

Luxembourg is In and Of the European Union

Luxembourg is a constitutional monarchy, has a land area of about 1,000 sq miles, a population of just under 500,000, and is sandwiched between Belgium, France and Germany. With Belgium and the Netherlands, it forms part of Benelux, which was a precursor of the EU. Luxembourg was a founder-member of the EU and hosts many of the EU's financial institutions. Languages spoken are French, German and English, with Luxemburgish the everyday language of Luxembourgers.

Economy Buoyant Based on Financial Services

Luxembourg's economy was dominated by steel production, but since the Second World War the Government has successfully encouraged development of a diversified financial sector. Tourism is also important. In Europe, Luxembourg has the second most extensive banking industry after London (more than 150 banks at the time of writing). The Luxembourg private banking industry is possibly Europe's biggest. The Stock Exchange specialises in collective investment funds and many of the several thousand Luxembourg-registered funds are also listed there.

Luxembourg is the richest country in the world according to 2008 World Bank figures, with a GNP per head at purchasing power parity of USD78,559. GDP in 2009 was USD47.06bn. Unemployment is low.

Luxembourg's Lowtax Specialisations

Luxembourg is a high-tax country, but has specialised types of 'holding' company which are tax-exempt. They are suited to holding international investments, but are not allowed to trade themselves. UCIs (collective investment funds) are also taxed on a low basis. The EU forced abolition of the holding company regime from January 1, 2007, although existing companies can continue benefiting from their current tax regime until December 31, 2010. Luxembourg has launched a replacement, known as the Family Private Assets Management Company, or SPF. The EU's Savings Tax Directive also threatened problems for Luxembourg banks and UCIs, and the country has applied a withholding tax to non-residents' investment returns, since the Directive came into force in July, 2005.

Plenty of Taxes in Luxembourg!

Income Tax and Municipal Business Tax on Profits give a nearly 30% marginal corporation tax rate; the rates for individuals are higher, and they pay a wealth tax in addition. The tax system is mostly based on German originals, apart from VAT which is of course an EU-inspired tax.

Immigration Controlled by Housing and Work Permits

EU citizens have freedom of movement in Luxembourg of course, but other nationals need residence and work permits.

LUXEMBOURG: EXECUTIVE SUMMARY

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