Luxembourg: Executive Summary

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 over 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 with over 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 third richest country in the world, with GDP per head at purchasing power parity for 2010 estimated at USD82,600. GDP in 2010 was USD41.09bn. Unemployment is low.

Growth of 3.4% was estimated for 2010, after -3.7% was recorded for 2009.

Luxembourg's Lowtax Specialisations

Luxembourg is a high-tax country, but has specialised types of 'holding' company which, until recently, were tax-exempt. A minimum tax of EUR1,500 (EUR1,575 including a 5% solidarity tax) was introduced from January 1, 2011. 'Holding' companies are suited to holding international investments, but are not allowed to trade themselves. UCIs (collective investment funds) are also taxed on a low basis. Luxembourg has applied a withholding tax to non-residents' investment returns under the EU Savings Tax Directive since it 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.

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