World's Leading Financial & Trusts Centres
By Francis Hoogewerf FCA
Posted: 3rd September 2013 10:15Introduction
Luxembourg is a small country situated in the very heart of Europe and whose influence should not be underestimated. Having borders with France, Germany and Belgium Luxembourg provides a high skilled multilingual workforce, high quality of services and sound basis for business activity. Luxembourg is considered to be one of the best centres for providing services in private banking and investment management domain with 141banks from manycountriesfromall around the world and 150 financial service providers developing advanced and customer-oriented investment products, Luxembourg proved during the last decades, asbeing an attractive basis for almost all multinationals and other entrepreneurs. Although Luxembourg can not be considered as a real offshore centre, it offers very attractive possibilities for corporations and individuals in the form of favorable tax climate, flexible approach from the authorities who are always accessible and open for discussions.
Luxembourg is further known for its fund industry; being number one in Europe and Luxembourg can therefore consider itself one of the leaders in the European Fund Industry. Among other features that make Luxembourg so attractive for foreign investments.
- High degree of economic prosperity and stable political climate;
- Low crime rate;
- Qualified multilingual work force;
- High efficiency of legal system;
Location:49° 49′ 0″ N, 6° 6′ 0″ E
Time Zone:CET (UTC+1)
Population:approx. 511, 800
Airport:Findel (IATA: LUX, ICAO: ELLX)
Language:Luxembourgish, French, German and a lot of English and Portuguese.
Political system:Parliamentary democracy headed by a constitutional monarch (the Grand Duke)
International Dialing Code:+352
The state regime in the country is a parliamentary democracy headed by a constitutional monarch. Under the constitution of 1868, executive power is exercised by the Grand Duke and the cabinet, which consists of several other ministers. The Grand Duke has the power to dissolve the legislature, in which case new elections must be held within three months. However, since 1919, sovereignty has resided with the Nation,exercised by the Grand Duke in accordance with the Constitution and the law.
Legislative power is vested in the Chamber of Deputiesof 60members, who are directly elected to five-year terms from four constituencies. A second body, the Council of State composed of 21ordinary citizens appointed by the Grand Duke, advises the Chamber of Deputies in the drafting of legislation. Currently the head of the Grand Duchy is the Grand Duke Henri.
Political & Economic Stability
Luxembourg is famous for its political and economic stability that are the crucial factors for developing economics of the state, business, enhancing the role of the state on the global political arena and attracting investments. The authorities of the country pursue the conception of so-called special “Luxembourgish model policy” oriented to the necessities of the population, that is built on economic prosperity, active participation of the government in economic processes, and the principle of “initiative energy overcoming small size”.
The political stability of the country is assured by the fact that many EU institutions have their HQs or representatives in Luxembourg. For example General Secretariat of Europarliament, European Court of Justice, European Investment Bank. Having all these institutions along with many international organisations’ representatives Luxembourg has the ability to take part in making strategic decisions and stay one of the three “centres of management of the EU”.
Economic stability of the country can be briefly described in the following figures and comparisons with the two driving forces of the EU:
|Annual GDP per capita (2013)
|Real GDP growth (%, 2013)
|Unemployment (%, 2013)
As we can see from the table the activities of Luxembourg are in line (and even overcome in some cases) with the activities of France and Germany that represent powerful forces not only in the framework of the EU but also in the framework of global environment.
Thanks to an ideal geographical position Luxembourg offers a lot of possibilities to enter both the European and non-European markets. Despite a very favourable tax regime Luxembourg is not an offshore zone or tax haven. Taking into consideration “tax harmonisation” that was set as a priority objective by the EU and the OECD in 1996 “tax fraud” is going to be treated much more like “money laundering”. Therefore the way forward is to use tax treaties that exist in multiple quantities. “It is better to pay a little tax rather than no tax” and be transparent.
In terms of the labour force it is necessary to repeat that it is highly qualified and well educated.
The majority of the population is employed in the financial industry and service-providers sector. However Luxembourg also participate in such industries as metallurgy, telecommunication and tourism.
If you want to establish a business in Luxembourg then it is highly advised to remember about the principles of transparency, clarity and legality. The legal system in Luxembourg is highly developed and is very efficient, that is it is better to not even try to avoid it. If you are not aware of some nuances of running a business, legal procedures to follow you can always turn for advice to one of intermediary companies who are able to provide you with full and reliable information. These companies usually operate in domains of domiciliation, tax advice and consulting. All the business activity effected in Luxembourg is subject to the state law and European norms ratified by the government.
Since Luxembourg is a member of the European Union and the Eurozone the state currency is euro that has replaced Luxembourgish franc and Belgian franc in 1999 (the date when the country joined the Eurozone). The state bank is the Central Bank of Luxembourg (the Banque centrale du Luxembourg, BCL).
In terms of exchange control please be aware that Luxembourg has no exchange controls.
When the question of secrecy of information is concerned it should be mentioned that earlier the Tax Justice Network, a Brussels-based, nongovernmental organisation, has called Luxembourg the “Death Star” of European financial secrecy for its opposition to the sharing of information. Article 41 of the Luxembourg Financial Sector Act used to hide all the information related to the beneficiary owner and cash deposits, however starting 2015 this will not be the case anymore and more information will be circulating between the institutions for assuring the principles of transparency and clarity, and protecting against fraud and money-laundering transactions.
The legal system in Luxembourg is a mixture of local practice, legal tradition, and French, Belgian, and German systems. Luxembourg disposes of a developed and clear legal and regulatory system. To be in line with today’s needs and to develop the Luxembourg financial sector on a constant basis, Luxembourg created a modern legal and tax framework and keeps innovating it. As an example, Luxembourgish law of 13 February2007, established Specialised Investment Funds as a vehicle designed for alternative investments and other funds aimed at sophisticated investors. It was amended by the law of 26 March 2012, to take account of new and impending EU legislation including the UCITS IV directive and the Alternative Investment Fund Managers Directive, which came into effect on 22 July 2013, as well as the increased experience of Luxembourg’s financial regulator, the Financial Sector Supervisory Commission (usually known by its French acronym, CSSF), in overseeing alternative funds. The law brings the SIF legislation into line with AIFM Directive rules in areas including delegation, risk management and the handling of conflicts of interest.
The general approach towards offshore operations is the EU one, i.e. negative.
The number of case law is very limited and there is still no systematic publication of case-law in Luxembourg. The major published case law reporter and digest is the Pasicrisie luxembourgeoise. Case law of the constitutional court isavailable on the Legilux website under Mémorial A. With regard to the foreign origins of some legislation, Luxembourg courts on occasion cite French, Belgian or German case law in their decisions.
Luxembourg participates in multiple treaties related to a vast range of spheres and as of July 2012 hadsigned 69 Double Tax Treaties, following the OECD Model Tax Convention.
The tax regime in Luxembourg in general is very favourable but in order to avoid any possible misunderstandings of different tax rates, exemptions etc it is highly advised to study carefully the conditions in every case. Hereinafter some pointes are highlighted. Stamp duties are levied at various rates on the registration of notary deeds, bailiff deeds and certain acts of the judiciary. As an EU member state in Luxembourg import duties and rules are applicable. A variety of tax incentives are available for shipping companies (e.g. tax credits, municipal business tax exemption), tax credits for qualifying investments in enterprises situated in Luxembourg and for eligible assets physically used in another country within EEA. An exemption is also provided for qualifying investment fund vehicles.
Hereinafter a brief outline of the most common types of legal entities is provided. The entrepreneur can choose one of the six type of companies to set up: la société anonyme (SA), la société à responsabilité limitée (SARL), la société en nom collectif (SNC), la société en commandité simple (SCS), la société en commandité par actions (SCA), la société coopérative (SC).
SA (Joint stock company) is a public limited company, can be set up by only one shareholder (resident or non-resident). Minimum share capital amounts to 31, 000 euro. The general assembly meeting is once a year.
SARL is a private limited company that has at least one shareholder. The minimum capital required is generally 12.500 euro (strictly 12.394). The SARL can issue registered shares and has the possibility to distribute interim dividends. A shareholder meeting is at least one per year.
SNC represents a general partnership of SME. No minimum capital required. All members are jointly and severally liable without limitation for all obligations of the company.
SCS – limited partnership with limited and unlimited (general) categories of partners. The limited partners are liable only by their contributions and cannot act as manager.
SCA is a partnership limited by shares, that has at least one limited and one unlimited partner. Very similar to SA but upon this structure the management is effected by the limited members and no minimum capital required.
SC is a cooperative company established at least seven people. The responsibilities of the founders are regulated by “statut”
For more information Francis Hoogewerf can be contacted via email at Francis@hoogewerf.com