Country report Luxembourg

Economic overview

The per capita GDP of Luxembourg, the smallest of the European Union states in terms of territory and population, is among the highest in the European Union (about 80,000 euros). The most important sector for the country is currently the financial one, which contributes 30% of the gross domestic product.

Luxembourg vies with Qatar for first place in the OECD ranking for GDP per capita at purchasing power parity. The economic system is open, highly dependent on foreign exchanges: 80% of the goods and services produced are intended for export, spending on domestic consumption represents a third of the GDP, 72.6% of the workforce is foreign. The service sector generates 86.8% of GDP, the industrial component 13.4%, agricultural activities 0.23%. In 2019, the growth rate was 2.3%; there was a decrease in real GDP of 3.5% in 2020.

Financial assets produce around 30% of GDP. The Luxembourg financial center is the second globally in terms of attraction of investment funds and leader in their cross-border distribution, has strong connections with London and Zurich, and in the post-Brexit perspective has strengthened its projection on Asian markets. The Grand Duchy is the main private banking center in the Eurozone and the first captive reinsurance center in Europe. The financial sector is supported by all the complementary services of management and strategy consultancy, international legal and tax assistance, auditing.

With reference to the economic measures adopted to support the national economic system, a 9 billion euro rescue package was launched at the end of March 2020, equal to approximately 14% of GDP, which included the suspension of payments of social security and welfare contributions, the blocking of tax obligations and payments and the immediate repayment of VAT credit balances (equal to a total of 4.5 billion euro). A quota of 500 million per month (between March and April 2020) was allocated to the financing of partial unemployment, which involved around 15,000 companies and over 100,000 workers.

Main sectors of industry

In the non-financial services sector, the main economic operators include SES Global (the largest commercial satellite operator in the world) and the RTL audiovisual group (the largest in Europe with 46 television channels and 29 radio stations in 9 countries, which has become in Europe for online videos). In the field of logistics, which currently employs 5% of the workforce, the Grand Duchy is enhancing its air transport (Cargolux, LuxairCargo and CargoCenter), rail transport (CFL and CFL Multimodal) and river transport capacities for product supplies petroleum products from Antwerp and building materials. All three of the country’s logistics platforms are being expanded: the river port of Mertert, connected to the intermodal platform (road and rail) of Bettembourg, and Findel international airport, which despite having a regional connotation for passenger traffic , in cargo activities is the fifth airport at European level.

The active industrial base has so far rewarded the steel industry (Arcelor-Mittal Steel s.a, the largest steel group in the world, based in Luxembourg) which produces very high quality steel alloys, including “jumbo beams” for the construction of high-rise buildings last generation. Since the 1970s, the creation of other industrial activities has been encouraged, mostly financed with American capital, in the chemical sectors (DuPont de Nemours), plastics and synthetic materials (Goodyear), mechanical engineering, automotive components, precision instruments , electronics, glass (Guardian Glass) and wood. To ensure long-term sustainable growth, the government is working to boost digitization processes and diversify sources of wealth by promoting new “knowledge-intensive” industrial activities, which leverage the development of research and the use of cutting-edge technologies.

Taxation for businesses in Luxembourg

Resident companies

For corporate income tax purposes, a company is resident in Luxembourg if it has its registered office as set out in its Articles of Association or its place of effective management. Are subject to the tax, in particular:

corporations (société anonymous, SA; société à responsabilité limitée, SARL);

general partnership (SENC);

cooperative societies;

mutual insurance company;

non-profit organizations.

Partnerships are not subject to corporate income tax. Certain types of company – such as, for example, investment companies with fixed capital (SICAF) or variable capital (SICAV) – are also exempt on the basis of specific legal provisions.

The taxable base of the corporate income tax is determined on the basis of the change undergone by the shareholders’ equity during the financial year. More specifically, the taxed income consists of the difference between the net assets at the end of the financial year and those resulting at the beginning of the period, valued according to the specific criteria dictated by the tax legislator. The tax period coincides with the calendar year, unless the company was incorporated, transferred or liquidated during the year. Dividends and capital gains from qualifying holdings are exempt; dividends deriving from non-qualified shareholdings contribute to the tax base for 50% of their amount. A consolidated regime is envisaged for companies owned by at least 95% (or, with the consent of the minority shareholders, by at least 75%).

The ordinary rate is 19% which applies to companies with taxable income exceeding €30,000 and which is reduced to 15% for companies with income below €15,000. Furthermore, the application of a municipal business tax ranging between 6 and 12% depending on the location is envisaged. Since 1 January 2011, a surcharge for the unemployment fund has been applied to the tax due. From 1 January 2013 the rate of the surcharge is 7%.


Non-resident companies

Non-Luxembourg resident companies are required to pay corporate income tax limited to specific types of income identified by law. Among them, business income related to immovable property or permanent establishments in Luxembourg.

Investing in Luxembourg

Even if, today, Luxembourg is part of the collaborative countries and is included in the White list (therefore formally it is not considered a real tax haven) it is historically considered a country strongly inclined to facilitate companies to reduce the tax burden.

Since the 1930s, in fact, the Grand Duchy has transposed its historic position of political neutrality into fiscal neutrality, soon becoming a point of attraction for capital of foreign origin. By virtue of a tax regime that is absolutely favorable for companies.

As revealed by the investigations conducted by Le Monde and IrpiMedia (within the OpenLux project), in fact, out of 140,000 companies registered in Luxembourg, 90% are, in fact, controlled by non-resident subjects and, even more specifically, 40% of these companies are, so to speak, inactive; as established for the sole purpose of holding shares in other companies.

As proof of the fact that Luxembourg is becoming the main destination for transferring money and is preparing to be the safe of many companies and businesses, it would be enough to consider the fact that the basic investment funds in the Grand Duchy manage assets of over 4,500 billion euros, and that most of the most influential billionaires in the world have interests attributable to companies based in the Grand Duchy.

Certainly Luxembourg is not the only place where tax migrants transfer profits and capital to Europe; without a doubt, however, it is one of the favorite destinations to divert profits by setting up holding companies and companies. In fact, according to Eurostat data, the taxation of the income of foreign companies that move to Luxembourg amounts to 6% of GDP for the small Grand Duchy.