Luxembourg: Investing

FDI in Figures

Luxembourg offers a business climate favourable to foreign investment, with a very attractive tax system. According to UNCTAD's World Investment Report 2024, FDI inflows were negative by USD 62.8 billion in 2023. At the end of the same period, the total stock of FDI stood at USD 1.18 trillion, more than 14 times the country’s GDP. According to figures from the Central Bank, the main investing countries in terms of stock at the end of 2023 were the United States (21.7%), the United Kingdom (10.3%), the Cayman Islands (8.5%), the Netherlands (7.0%), and Ireland (6.2%). In terms of sectors, financial and insurance activities attract more than four-fifths of all investments, with manufacturing accounting for a marginal share. According to the latest figures from the OECD, in the first six months of 2024, FDI inflows to the country were negative by nearly USD 3 billion, compared to a negative inflow of USD 54.7 billion recorded in the same period one year earlier.

The government of Luxembourg has established some measures to make the country even more attractive to FDI, such as fiscal benefits, equipment, and construction projects. The government focused on key innovative industries like logistics; ICT; and health technologies, including biotechnology and biomedical research; clean energy technologies; space technology, and financial services technologies. Luxembourg has long been considered a tax haven, though in recent years it has taken steps related to the process of harmonization of financial standards both within the EU and at the international level. Furthermore, the “Multilateral Convention to Implement Tax Treaty Related Measures To Prevent Base Erosion and Profit Shifting” - which aims at combating tax avoidance by multinational companies - entered into force for Luxembourg in 2019. On 1 September 2023, the Luxembourg Act of 14 July 2023 entered into force, establishing a national screening mechanism for foreign direct investments that are likely to affect security or public order. The Act imposes regulations on non-EU/EEA investors seeking to invest in Luxembourg-based entities operating in critical sectors such as energy, health, defence, finance, telecoms, data, media, and agri-food industries within Luxembourg. To comply with the Regulation, the Act mandates a prior notification process and screening procedure, along with enforcement mechanisms in instances of non-compliance with the prior notification obligation or screening decisions. Finally, the Grand Duchy ranks 20th among the 133 economies on the Global Innovation Index 2024 and 5th out of 184 countries on the latest Index of Economic Freedom. According to the World Economic Forum (WEF), the country ranks 23rd on the Global Competitiveness Index 2024.

What to consider if you invest in Luxembourg

Strong Points

Luxembourg has many attractive assets for investors on its soil. Here are the main ones:

• One of the most open economies in the world, with few foreign exchange controls and foreign capital flowing freely, allowing the country to have an undisputed pro-business environment
• The country is a global finance hub with a strong and broad banking sector (126 banks listed in 2021 - Central Bank of Luxembourg) and a thriving investment fund industry.
• A very attractive tax system that provides the country with solid and consistent income
• One of the lowest public debts in the European Union
• Extremely developed transport infrastructure connecting the country to major cities and foreign capitals (motorways, air and trains)
• A highly skilled multilingual workforce with significant purchasing power
• Outstanding quality of the digital infrastructure (Luxembourg has the highest concentration of Tier IV data centres in Europe and ranks 3rd in the EU for connectivity - 2020 Digital Economy and Society Index)

Weak Points

The main obstacles to investment in Luxembourg are:

• A weakly diversified economy and extremely dependent on its banking and financial sector
• An employment market dependent on "frontier" workers, resulting from a small and ageing Luxembourg working population
• The long-term budgetary impact of the ageing of the population and the necessary reforms of the country's pension system

Government Measures to Motivate or Restrict FDI

The Luxembourg government has taken  measures to encourage the establishment of businesses on its soil:

•  Subsidies granted to SMEs (retail, restaurant or hotel) through the National Society for Investment Credit (SNCI)
• Community income tax and business tax exemption of 25% for eight years for start-up businesses
• Commercial licenses granted faster and more transparently
• Measures were put in place to protect minority investors in order to facilitate their ability to resolve commercial damages in court and to facilitate access to the key information about the companies in which they invest

In general, Luxembourg's tax legislation provides various incentives in the following areas: investment tax credit, risk capital, tax incentives for research and development (R&D) and intellectual property (IP), recruitment of the unemployed, audiovisual activities, vocational training.

Procedures Relative to Foreign Investment

Freedom of Establishment

Yes

Acquisition of Holdings

A majority holding interest in the capital of a local company is legal in Luxembourg.

Obligation to Declare

Whatever may be the form of investments chosen (momentary commercial association, Economic Interest Grouping - EIG, an independent agent's activity or a branch), access to an economic profit-making activity on the Luxembourg territory is subject to:

1) the same formalities (registration/enrollment at the Companies' Trade Register, application for a VTA number, initial declaration at the Direct Taxes Administration, etc.)

2) the same obligations (obtaining an establishment authorization for commercial activities, crafts, industrial activities and liberal professions) as in the case of a creation of an enterprise in Luxembourg.

Competent Organisation For the Declaration

Direct Taxes Administration

Investment Opportunities

Investment Aid Agency

Luxembourg Trade & Invest
Economic Development Agency (IDELUX) (french)

Tenders, Projects and Public Procurement

Tenders Info, Tenders in Luxembourg
Ted - Tenders Electronic daily, Business opportunities in EU 27
DgMarket, Tenders Worldwide

Other Useful Resources

Guichet.lu (for businesses)

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