LUXEMBOURG: Useful Info

Despite its small population and limited resources, the Luxembourg (the only Grand Duchy in the world) is the richest country in the world, with a GDP per capita of $77,595 as of 2005. Much of its prosperity comes from being a tax haven and banking centre, with the financial sector contributing to 22% of the GDP.

Luxembourg is one of the six founding countries of the European Economic Community (later the European Union), and has particularly close trading and financial ties to Belgium and the Netherlands. In 1999 it joined the euro currency area. More than 30% of Luxembourg’s workforce are foreign and cross-border workers from France, Germany and Belgium. Luxembourg is divided into two parts, geologically. Its northern woodlands are scenic and a popular tourist destination. The south is its agricultural centre, while the eastern border cradles the wine valleys of the Moselle. Luxembourg’s iron-ore basin, once the backbone of its economy, lies in the south-west.

QUICK FACTS

Population: 465,000 (UN, 2005)
Capital: Luxembourg
Area: 2,586 sq km (999 sq miles)
Major languages: French, German, Luxembourgish
Monetary unit: 1 Euro = 100 cents
Main exports: Steel products, chemicals, rubber products
GNI per capita: US $56,230 (World Bank, 2005)

ECONOMIC BACKGROUND

Luxembourg’s stable political environment and business-friendly banking and taxation policies have attracted many investors. Though the proposed EU Savings Tax Directive has forced it to impose a withholding tax on non-residents’ investment returns, there are still many factors that make it one of the most stable investment opportunities.

The government offers many incentives and grants to the manufacturing industry and high-technology companies. Insurance, reinsurance, group treasury operations, and other financial service sectors are also given very favourable tax and legal regimes. New companies or those who are bringing in new manufacturing systems can even ask for temporary or restricted income tax exemptions.

As additional incentive, the government provides equity funding for certain types of projects spearheaded by small and medium-sized companies who choose to operate in development areas. The National Credit and Investment Corporation can also provide capital grants.

Luxembourg has excellent business and communications infrastructure. There is a heavy concentration of banks and investment funds, making the business environment particularly well-attuned to the finance sector. 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 workforce is highly skilled and there is a wide range of professional services; however, the costs are higher than in other countries. Another difficulty that firms may encounter while doing business in Luxembourg is the heavy bureaucracy. The registration requirements for different types of professional and business activities are extensive, and there are some functions or services that require the approval and even partnership with the appropriate governing body. Despite being a landlocked country, Luxembourg has also introduced a maritime shipping register.

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