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DOING BUSINESS IN LUXEMBOURG

Luxembourg Business Services Overview About Luxembourg Setting up a Business in Luxembourg Taxation

ABOUT LUXEMBOURG

Overview

Lying in the centre of Western Europe between Belgium, France and Germany, the Grand Duchy of Luxembourg covers an area of 2,586 square kilometres. It is one of the smallest Countries in Europe, but the countryside varies greatly, from the hilly Ardennes in the North, to a mineral rich and beautiful forest and farmlands in the South.

The Grand Duchy is an independent State and a founder member of the European Union. The location of the Duchy at the heart of the European Community provides easy access to some of Europe's largest financial and industrial centres, such as Paris, Frankfurt, Köln, Amsterdam, Brussels and Strasbourg.

Traditionally, the country has followed an open economic policy promoting international trade which has attracted foreign capital investment in the Duchy evidenced by a number of significant treaties signed by Luxembourg with its neighbours, such as the Belgian-Luxembourg Union (1921) (implementing common trade between the two countries) and the Benelux economic co-operation treaty (1958) (signed with the Netherlands and Belgium), leading towards more advantageous economical unification.

The Economy

Luxembourg's reputation is as a trustworthy political and economic partner. The economic policy of Luxembourg is characterised by the highly professional and dynamic spirit of the country.

Historically, the economy has been largely influenced by the steel industry. In the early 1970s the government made significant efforts to diversify the economy in order to avoid the risk of over-reliance on this one industrial sector and diversify and attract foreign multinationals. As a result of this reform, the economy of the country has been growing rapidly and nowadays relies on a much broader broad range of industries such as chemistry, plastics and synthetic materials, mechanics, machine construction, processing of ferrous, non ferrous metals, supplying parts to the automotive industry, precision instruments, as well as a burgeoning glass industry. All these industries improve the competitiveness of Luxembourg on the international market.

The most significant part of the Grand Duchy’s economy is its flourishing financial sector which comprise of more than 200 banks, 1,900 investment funds and 20,000 holding companies. The largest banks are Dexia-Bil, Fortis BGL, Kredietbank Luxembourg and a subsidiary of Belgian KBC. Luxembourg is considered to be one of the most important financial centres in Europe that offers the entire spectrum of financial services in both corporate and private banking. It is the third largest investment fund centre in the world.

A highly competitive tax regime, strict banking secrecy laws and international business environment have also made Luxembourg one of the leading locations for corporate headquarters and a highly suitable jurisdiction for holding companies. These holding companies are often very advantageous from a structural, administrative, financial and fiscal point of view. Insurance, private pension funds, securitisation and venture capital investment vehicles also represent a large part of the financial sector and as a result have increasingly become a main source of employment.

As a result of its continuous economical growth, Luxembourg residents have very favourable standards of living, with the one of the highest GDP (Gross Domestic Product) per inhabitant (approximately EUR 50 800 per inhabitant) and the highest social welfare per head. There is low inflation, low unemployment and a balanced budget.

The Government

The country is a representative democracy in the form of a constitutional monarchy headed by the Grand Duke Henri. The role of the Duke, however, is largely ceremonial. In practice the country is governed by the Cabinet of Ministers who exercise the executive power and by the Parliament which represents the legislative power in Luxembourg. The Cabinet of Ministers includes the Prime Minister, who serves as head of government. The Prime Minister is the leader of the political party or coalition of parties having the most seats in Parliament, known as the Chamber of Deputies. The members of the Chamber of Deputies are elected to a 5-year term. A second body, the Council of State (Conseil d'Etat), is composed of 21 ordinary citizens appointed by the Grand Duke, which advises the Chamber of Deputies in the drafting of legislation. However, the Council’s opinions have no binding effect.

The Grand Duchy is administratively divided into three districts, which are in turn divided into Cantons, Communes and Municipalities. Communes are administrative authorities possessing legal personality and administrating their patrimony. A Communal Council (Conseil Communal) is directly elected by the inhabitants. A Commune is administered by the mayor and the alderman (Collège des bourgmestres et échevins) chosen from the Communal councillors.

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Laws, Regulations and Standards

The legal system of the Grand Duchy is mainly based on the Roman law. The Luxembourg Constitution provides with the constitutional provisions of the Grand Duchy, the fundamental rights of individual citizens and the organization of public bodies. It is superior to the ordinary law and to executive regulations, which have to be conformed to the Constitution.

The Luxembourg legislation consists of laws, codes and regulations. Many laws are based on French or Belgian legislation. An increasing amount of legislation has its source in European Union regulations, directives and decisions.

The main individually compiled codes are the Civil Code, Commercial Code, Penal Code, Criminal Procedure and Civil Procedure Codes. Current legislation for Luxembourg is first published in the official gazette  Mémorial.

Facts and Figures

Official Name The Grand Duchy of Luxembourg
Capital City Luxembourg City
Other main cities Esch-Sur-Alzette
Differdange
Dudelange
Population 448,569 inhabitants (2002 estimate); approximately 36% of the population are foreigners, mostly from other EU Member States, many cross border employees come to work in Luxembourg from neighbouring countries.
Working Population 293,700, mainly Luxembourgers, cross border workers from France, Germany and Belgium and immigrants from Portugal and Italy.
Unemployment Rate 3,8%
Official Languages French, German and Luxembourg
Currency Euro
Exchange Rate EUR US $1.203
GDP USD 20.1 billion
GDP per head USD 56,000
GDP growth 1.2%
Inflation 2%
Exports 51% of GDP
Top import sources Germany
France
Belgium
UK
Italy
Spain
Netherlands
China
Top export markets Germany
France
Belgium
USA
Religions Roman Catholic – 87%
Protestant, Jewish, Islamic - 13%
Area Size 2,586 sq. kilometres

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The People

Key Concepts

The population of the Grand Duchy is of approximately 449,000. The Luxembourgers are generally fluent in French, German and English in addition to their mother tongue, Luxembourgish. French is frequently used as the administrative and business language, although German and English are also quite common in business circles.

This multilingualism is also a direct result of the relative small size of the country as well as its association with both France and Germany. When going abroad (which literally is not very far) the Luxembourgers have to speak other languages, simply because their own is not understood elsewhere. It is hardly surprising therefore that many Luxembourgers speak several languages. For those wishing to work in the business areas of Luxembourg it is an essential to speak at least one foreign language.

The Luxembourgers are known for their politeness and intelligence. In addition to their multilingual skills the Luxembourg people have other professional qualities such as punctuality, perseverance, practical approach to business and a capacity for work. Cosmopolitism and diversity of cultures may also be considered to be the main characteristics of the Luxembourgers.

On other hand, Luxembourgers are careful and prudent. They take time before they trust people and approach getting to know you in a deliberate, measured manner, which cannot be rushed.

Business Practice and Etiquette
  • The average working week is from 09am to 6pm.
  • Appointments should be made 1 to 2 weeks in advance and punctuality is highly emphasised. Meetings adhere to strict timetables.
  • In general, the Luxembourg business etiquette is very formal. It is common in Luxembourg business to address partners by their honorific titles, Monsieur or Madame, and their surname.
  • Luxembourgers compartmentalize their business and personal lives.
  • Building a successful relationship with Luxembourg businesses requires a sincere interest in the country and the people.
  • Luxembourgers expect prompt replies to requests for information, price quotes and terms.
  • Foreigners who are fluent in the country’s languages are well respected.
  • Business attire is formal.
  • Greetings are reserved and formal until a relationship has been established. The most common greeting is a brief handshake.
  • This is a hierarchical culture, so it is crucial that you show proper respect and deference to those who have attained positions of importance.

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