Luxembourg, one of the smallest European Union Member States, located between Germany, France, and Belgium. It has an area of 2,586 square kilometers and approximately 602,000 inhabitants. Due to the country’s strategic geographical location, its continuous development of external relations, and its integration into larger economic bodies, Luxembourg’s economy, and local market considerably exceed the country’s actual size.
Luxembourg has long been an active player in European development. It was one of the founding members of the European Coal and Steel Community (ECSC) in 1951 and the European Economic Community (EEC) in 1957. The creation of the Common Market was highly beneficial for the development of Luxembourg’s foreign trade.
Luxembourg’s economy is externally focused, and more than 85% of its production is exported. The country strongly supported the introduction of the euro and the enlargement of the European Union. Luxembourg is now acknowledged to be a reliable economic and political partner at European and international level.
It forms an integral part of one of the largest economic and monetary areas in the world. In addition, Luxembourg plays a driving role in the development of the “Grande Région” cross-border area formed by Luxembourg and neighboring regions in Germany, France, and Belgium.
The country’s main advantages are its strategic location in Europe, the quality of its transport, logistics and telecommunications infrastructure, the availability of a qualified multilingual workforce, political and social stability, an attractive legal and tax framework, a multicultural environment, an open-minded and international outlook and an excellent quality of life.
Quality products and services are offered by economic players in Luxembourg who can take advantage of outstanding skills and an innovative spirit based on modern culture. The Grand Duchy has proven experience in the service provider market, particularly for financial services.
A leading location for business
Luxembourg’s GDP has grown by an average of approximately 5% in volume over the past 25 years. Its economy has performed better than those of neighboring countries, and it has seen a dynamic performance in specific growth areas.
Luxembourg’s wealth originated with the discovery of iron ore in the south of the country and the resulting development of a sturdy iron and steel industry at a worldwide level. For almost a century, the iron and steel industry played a driving role in the country’s economy. It placed Luxembourg at the forefront of industrialized countries with a high standard of living.
Both the Luxembourg authorities and private operators were aware of the danger of relying solely on the iron and steel industry, and they endeavored to make the country’s economy more balanced. The measures taken were based on the construction of European economic cooperation, an aggressive policy aimed at economic diversification by offering incentives for investment and the development of an international financial sector.
These measures were highly successful. Industrial businesses of all sizes in diverse sectors, using modern technologies, joined the traditional heavy industries, mainly as a result of an influx of foreign capital. The diversification of Luxembourg’s economy is illustrated by the presence of a wide range of business sectors, particularly in the areas of chemical, plastics and synthetic materials, mechanical construction and industrial machinery, the processing of ferrous and non-ferrous metals, the car industry, precision instruments, electronic supplies, the glass industry and wood processing. Within not much more than a single decade, starting in the mid-1970s, Luxembourg’s economy moved from an industrial economy primarily dominated by the iron and steel industry to a service economy dominated by financial services.
In addition to reasons specific to the country’s location, Luxembourg’s international financial sector grew initially due to external factors. These country-specific and external factors have both contributed to the growth of a global financial center incorporating different banking cultures. Luxembourg is now home to one of the ten leading financial sectors in the world. With approximately 150 highly experienced and skilled banking institutions, a thriving investment fund industry, a dynamic insurance sector, skilled workers, and specialized companies, Luxembourg now has a full range of diversified and innovative financial services.
Numerous multinational companies have chosen to set up business in Luxembourg. They have installed large production and research and development facilities. More recently, major international groups specializing in e-commerce and information technologies have established their European or even their worldwide headquarters in Luxembourg.
A multicultural environment and a high-quality workforce
Among Luxembourg’s assets due to its central location, history, and cultural heritage are multilingualism and an international and multicultural mindset which dominates the country’s economy.
Luxembourg can rely on its extensive experience, which is a significant advantage in the global economy. At present, over 45% of the country’s resident population are foreigners, and the active society is dominated by non-nationals who represent more than 65% of the total internal workforce.
Most of Luxembourg’s native workers speak at least three languages fluently (French, German, English) in addition to Luxembourgish, the country’s own language. Given the multicultural environment, many foreign workers also speak other languages, which is a distinct advantage in establishing and developing trading relations with international partners.
The high level of specialization, top added-value business activities, skills developed over several centuries, and its innovation and research capacity have led to the presence and availability of a highly qualified workforce.
To maintain and further develop the workforce’s skills, capacities, and qualifications, Luxembourg invests heavily in education, training, and research. The University of Luxembourg, the Luxembourg School of Finance, and many other training and research institutions contribute to the development of human capital.
Attractive economic and tax policies
In addition to Luxembourg’s natural and traditional advantages, a wide range of positive benefits are offered due to measures taken by the country’s government. In this context, the measures aimed at improving companies’ competitiveness and reducing their production costs are crucial.
Throughout its history, and significantly more than other countries, Luxembourg’s economic policy has favored the development of new business activities employing a liberal, modern, flexible, favorable, and innovative legal environment.
This environment has encouraged economic players to develop dynamic and effective economic structures. Significant investments in technical capital have led to one of the highest levels of productivity in the world. Also, labor costs have been influenced positively by levels of social security contributions payable by employers that are highly competitive with those in neighboring countries.
How companies and individuals are taxed is an obvious significant competitive factor. Luxembourg’s attractive levels of tax contribute to further supporting internal demand and companies’ intentions to invest.
At present, the total tax liability for companies in Luxembourg stands at 30.60%. Corporation tax at a rate of 22% (tax on company profits) is paid in addition to the communal trade tax (7.5% on average) and the solidarity tax (5%).
As a result of tax rebates for investments and other forms of tax relief, most industrial or manufacturing companies are taxed at an overall effective rate of approximately 15% on average.
As a tax on individuals is also very favorable (with a maximum marginal rate of 39.90%), levels of net salaries and purchasing power are very high compared with the rest of the world. Wealth tax has been abolished.
What rules apply to all forms of companies when they are set up?
When an individual who wishes to carry out a business activity has developed a business plan. He or she will have to make a choice which will determine how the operation will be carried out. Where applicable, he or she operates as a self-employed sole trader (commerçant en nom propre) or set up a company.
Although official figures show that there is considerable enthusiasm for company structures, they are not required for all businesses. In making this choice, a person wishing to set up a business should bear the following factors in mind:
- Limiting the promoter’s liability
- Structure and operation of a business
- Transferring ownership of a company
- Operating costs
- Bookkeeping
- Social security
- Taxes
Starting a business in Luxembourg: Applying
Centre (Espace Enterprises) or downloaded from the Luxembourg government site at www.mcm.public.lu. A stamp duty must be submitted with each application. Any documents necessary for your application must be translated into French or German by a qualified translator.
A permit is usually issued after about three months. After completion, business permits may be collected from the Social Security Centre (Centre Commun de la Securité Sociale).
Business permits for public companies are sent by post. All licenses are in the form of a card which must be shown upon request. Once opened, the nature of the business and governmental authorization number must be shown on the company’s stationery, their emails, websites, estimates, invoices, and shop fronts and windows of business premises.
Evidence of professional qualification usually comes in the form of a certificate, university degree, or diploma. You must supply an authenticated copy of evidence; this can be done at a town hall or the Centre Emile Hamilius in Luxembourg City. All ex-pats living in Luxembourg for less than five years must supply evidence of good standing in the form of a criminal record and a certificate of non-bankruptcy or a declaration made before a notary/affidavit.
Costs of obtaining a permit
The overall costs for notaries can add up. Certified copies, notary fees, registration fees, and other legal fees will total out to about EUR 1000 or more, so be prepared for payments. Also, for the business license, you will have to pay a tax stamp for EUR 24, although the price can increase depending on your activity.
Starting a business in Luxembourg: Getting financial aid
There is financial aid available for setting up a business. Small and medium-sized companies can be rewarded with grants or reduced interest rates by the Ministry of Middle Classes.
These can be awarded on the condition that the company invests in:
- Fixed assets
- Participation in exhibitions
- Investments related to the protection of the environment
- Renovation of polluted sites
- Investment in innovation, research & development
- The main principle of supplying this aid is to encourage competition among businesses.
Details about the application are available in English on the ministry’s website. Furthermore, the Société Nationale de Crédit et d’Investissement is a bank that specializes in financing investments made by companies. It provides start-up loans for new firms.
New businesses set up in the tourism industry can turn to the Ministry of Tourism. They can be granted financial aid for any investments made in the tourist infrastructure. The Ministry of the Economy and Foreign Trade provides financial assistance to companies for investment or research & development if they promote the economic prosperity of Luxembourg.
Language proficiency
Languages are essential for doing business in any country. Luxembourg’s multicultural/ lingual nature makes it even more critical. Speaking primarily French, but in some cases, also German, Luxembourgish, or English is crucial to communicate with clients, suppliers, and government officials.
If you are not fluent in one of the previously mentioned languages, it’s crucial that you improve your language skills. However, it’s possible to hire translators and spokesperson(s) to assist you while in the process of enhancing or leaning a new language.
Here are some resources for language training:
- To enroll in language courses, please visit the platform “Youarewelcome.lu” to explore the different options.
- “My first 500 words and phrases in The 5 Languages of Luxembourg” is a research you can find here. It was developed by the American Chamber of Commerce in Luxembourg.
Conclusion
Starting a business anywhere in the world is a challenging endeavor. The same applies to Luxembourg. Preparation is vital to navigating the bureaucratic avenues related to conducting business in this commerce paradise. It is highly advisable to talk to a business consultant, as well as a local business lawyer.
Starting a business in Luxembourg might be a tedious process. However, taking into consideration the incredible benefits provided by this tiny country, all efforts are worthy. To prove this point, one just needs to look at the success rate of new businesses in Luxembourg, which surpasses the 60% mark according to the most recent entrepreneurship study.
Your business, together with you and your family, will find a piece of heaven on earth in this tiny European nation, welcoming you with open arms.
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