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Luxembourg: Country and Foreign Investment

Executive Summary

Luxembourg is in and of the European Union

Luxembourg is a constitutional monarchy and has a land area of 2,586 km2 (about 1,000 sq. miles), a population of approximately 625,000 (June 2020 estimate) and borders with Belgium, France and Germany. Luxembourg was a founding member of the EU and hosts many of its financial institutions. Languages spoken are French, German and Luxembourgish, the national language. English is also widely spoken.

Buoyant Economy Based on Financial Services

Luxembourg's economy was formerly dominated by steel production, but since the Second World War, the government has successfully encouraged a diversified financial sector to develop. Tourism is also important. In Europe, Luxembourg has the second most extensive banking industry after London with over 150 banks. Private banking is very important. The stock exchange specialises in collective investment funds and many of the several thousand Luxembourg-registered funds are also listed there.

Luxembourg is the second richest country in the world, with GDP per head at purchasing power parity for 2020 estimated at US$65,900. Annual GDP growth in 2018 was 3.1%.

Luxembourg's Low-tax Specialisations

Luxembourg is a high-tax country that has specialised types of holding company which were until recently tax-exempt. A minimum tax of €1,500 (€1,575 including a 5% solidarity tax) was introduced from 1 January 2011. In 2013, the minimum tax for holding companies was increased to €3,210 which includes the increased solidarity tax of 7%. Other corporations are subject to a minimum tax on a sliding scale of between €535 (for a balance sheet total not exceeding €350,000) to €21,400 (for a balance sheet total of €20 million and above). These amounts include the 7% solidarity surcharge. Permanent establishments in Luxembourg are not subject to the minimum tax in 2013.

'Holding' companies are suited to holding international investments, but are not allowed to trade themselves. UCIs (collective investment funds) are also taxed lightly.

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. The tax system is mostly based on German originals, apart from VAT which is of course EU-wide.

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.



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