Luxembourg

Ease of Doing Business Rank: 72

Overview

Geographic location

The Grand Duchy of Luxembourg is a landlocked country in Northwestern Europe.

Belgium lies to the west and north, Germany to the east and France to the south.

Spoken language

The official languages of Luxembourg are French, German and Luxembourgish.

According to a 2018 Ministry of National Education study, French is the most commonly spoken language (98%), followed by English (80%), German (78%) and Luxembourgish (77%).

Population

The 2020 population estimate is 621,466.

According to 2016 data Luxembourg City is the largest city (115,227), followed by Esch-sur-Alzette (33,939) and Differdange (24,805).

Popular industries

The top industries in Luxembourg are banking, steel, telecommunications, tourism and agriculture.

Education

The Times World University Rankings includes one university in Luxembourg in the top 250 in the world.

The Legatum Prosperity Index ranks Luxembourg’s educational system 33rd out of 167 countries.

Popular entity types

The most common type of business entities in Luxembourg are Public Limited Liability Company, Private Limited Liability Company, Public Simplified Company, Partnership Limited by Shares, General Partnership and Common Limited Partnership.

Most businesses are in the form of Public or Private Limited Liability.

Luxembourg incentives for business

Luxembourg provides a 13% tax credit on increases in tangible depreciable assets investments during the tax year. Companies may also benefit from an 8% tax credit on the first EUR 150,000 of qualifying new investments and 2% on amounts exceeding this threshold providing they are intended for permanent use within EU and European Economic Area member states.

These rates increase to 9% and 4% respectively for investments in environmental protection, energy savings or employment creation for disabled workers. Intangible assets, real property and some vehicles may not qualify for credits. However, incentives are available for software acquisition and zero emission passenger cars.

Luxembourg also enacted new Intellectual property regime measures in 2018. Income generated from qualifying IP assets benefits from an 80% tax exemption. Corporate taxpayers based in Luxembourg City may enjoy an effective tax rate of 5.2% including corporate and municipal business tax. Qualifying IP assets are also exempt from Luxembourg’s Net Wealth Tax.

Research and development companies may benefit from financial support as well as general and IP tax regime incentives. The country offers loans for innovation through the Société Nationale de Crédit et d’Investissement which may include a fixed rate lower than offered in the market. Businesses may also enjoy cash grants or interest subsidies. The level of financial support varies, depending on organizational size and activity.

Investment funds resident in Luxembourg are generally exempt from corporate income tax, municipal business tax and withholding tax on dividends. Financial services companies may also benefit from specific tax regulations.

Shipping companies do not pay municipal business tax and can benefit from investment tax credits and accelerated depreciation on new and used assets. Farming businesses can benefit from a 30% deduction on new investments up to EUR 250,000.

History & Features

Main cities for business

Luxembourg City is the capital and financial center of the country.

Popular historical & tourist attractions

Even though Luxembourg is smaller than Rhode Island it is packed with history, architecture and outstanding natural landscapes.

The Old Quarter and fortifications of Luxembourg City are a UNESCO World Heritage Site. The city’s strategic position was so sought after that Holy Roman Emperors, the House of Burgundy, the Habsburgs, French and Spanish kings and the Prussians occupied it at one time. It is one of the finest examples of European military architecture spanning the centuries.

The Brock Casements include over 10 miles of caves that are the only remaining portion of a fortification built in 962. The castle was dismantled, but the caves designed to shelter thousands of soldiers and animals are open to the public. Visitors can explore workshops, slaughterhouses, stables, kitchens and more.

Notre-Dame Cathedral was founded by Jesuit priests in the 17th century and has become an icon of Luxembourg. It is a noteworthy example of late gothic architecture with many Renaissance additions. It was blessed by the Pope and the crypt contains the remains of Grand Dukes and Duchesses of Luxembourg.

Luxembourg is also home to many noteworthy museums including the Grand Duke Jean Museum of Modern Art, the Luxembourg City History Museum and Mudam Luxembourg Modern Art Museum.

The country also features several sprawling national parks including Obersauer Nature Park in northwestern Luxembourg amidst the Ardennes mountain range. This area supplies drinking water to around 70% of Luxembourg’s households and includes extensive hiking trails, off-road bicycling, solar boat rides and countless cultural events.

Luxembourg City has a vibrant dining culture. The country’s position means visitors can enjoy foods from France, Belgium and Germany as well as dishes from Italian and Portuguese immigrants.

History

Little is known about the earliest tribes living in the area. Romans conquered the area in 53 BC and later the area formed part of the Frankish kingdom.

In the mid-10th century, the Count of the Ardennes wanted to expand his territory. He acquired the Saxon fortress known as Lucilinburhuc (Luxembourg) and it became an independent region. The count’s successors expanded the family’s holdings and by about 1060, one of his descendants became the first Count of Luxembourg.

In 1354, the region became a state of the Holy Roman Empire known as the Duchy of Luxembourg, but still ruled by a Luxembourg family member. However, by 1443 the family was forced to cede the duchy to the Duke of Burgundy. The duke’s assets and the duchy passed to the Habsburgs in 1477.

Habsburg territories divided in 1555–56 and the duchy went to the Spanish Habsburgs. The duchy managed to sidestep the Thirty Years’ War until 1635 when France entered the conflict. Luxembourg suffered greatly from the war, famine and epidemics and did not enjoy peace even after the official end of the war.

By 1684, the French had conquered the entire region. Luxembourg returned to Spain in 1697 after another war. In 1714, the last Habsburg monarch of Spain died without a successor and eventually Luxembourg passed to the Austrian Habsburgs.

The French Revolution created great turmoil in Europe and by 1795 Luxembourg was under French rule again. They suppressed the clergy and introduced compulsory military service which led to rebellion in 1798.

After the defeat of Napoleon in 1814, the Congress of Vienna elevated Luxembourg to the status of grand duchy and awarded it to the king of the Netherlands. Legally, Luxembourg was an independent state, but the king ignored their sovereignty and taxed the country heavily.

Belgium was also under the king’s rule and revolted in 1830. They claimed the grand duchy as their own. However, France, Britain, Prussia, Russia, and Austria gave the French-speaking part of the duchy to Belgium and the king retained the Luxembourgish region.

In 1842, Luxembourg entered into a customs union with Prussia which led to industrialization and improved infrastructure. Unrest in Europe led to a more liberal constitution in 1856. In 1867, the great powers agreed to Luxembourg’s independence and neutrality with a German aristocratic family ruling.

Initially, the family did not interfere with Luxembourg’s government, but during World War I Germany occupied the grand duchy. After liberation, a public vote established a grand duchess at the helm of a new republic.

German occupied Luxembourg again in World War II, but when the war ended Luxembourg formed multiple alliances and improved their economic position. By the end of the 20th century they were a banking and financial service hub with the highest per capita gross domestic product in the world.

Today, Luxembourg operates under a democratic constitutional market and has a mixed market economy.

Other relevant facts

According to 2019 data, most people identify as Luxembourger (51.1%), followed by Portuguese (15.7%), French (7.5%), Italian (3.6%), Belgian (3.3%), German (2.1%), Spanish (1.1%), British (1%) and other nationalities (14.6%).

As of 2018, most of Luxembourg’s population is Christian (73.2%), followed by Muslim (2.6%) and other religions (.6%).

Additional Information for Business

According to Forbes’ 2019 Best Countries for Business, Luxembourg is the 23rd best country in the world for conducting business.

The 2019 Index of Economic Freedom rates Luxembourg 17th globally and states, “The judiciary, independent and free of corruption, protects property rights and upholds the rule of law. High levels of regulatory transparency and efficiency encourage entrepreneurial activity.”

World Bank’s “Doing Business” rankings rate Luxembourg 72nd for ease of doing business in the world.

Luxembourg Entity Support Services by Blueback Global

Blueback Global provides a one-stop integrated solution to managing all aspects of your global operations. We can take the burden off you or your company’s internal resources by managing Entity Setup, Local Payroll, Accounting, Tax Reporting, HR Admin and Regulatory Compliance matters associated with operating in a foreign country. Our services are designed to be flexible and customized, so whether you are starting from entity registration, or have already registered but need support in setting payroll or hire employees, we can help at every point of the process.

The common scenarios that may give rise to the need for Blueback Global’s services include the following:

With our integrated approach, you can expect the following experience:

We have an initial complimentary meeting to discuss the scope, objectives and plans for your expansion plan into Luxembourg. After this meeting, you can expect a follow-up proposal from Blueback Global within 1 to 3 business days, that outlines that the approach, scope of work and expected deliverables and outcome. Thereafter, our implementation team will then work closely with your team to register the local entity, set up payroll, accounting process, employee social security and benefits. We will then develop a mutually agreed timeline and approach for ongoing payroll, accounting, tax reporting and HR support. Blueback Global will set up a compliance calendar so that you know exactly what and when compliance items such as tax reporting and payroll returns are due. We will of course facilitate all of these, so you do not have to keep track of the compliance dates.

Our goal is to make the process as smooth, simple and successful as possible, and remove the anxiety of operating in a foreign location, to deliver a great customer experience.

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