Foreign Direct Investments (FDI) roles and transactions in and out of Luxembourg are exceptionally high, mainly because of activities linked to Luxembourg’s role as a financial hub, executed through captive financial institutions. After two years of fewer incorporations because of the COVID-19 pandemic, foreign direct investment in Luxembourg is finally picking up speed again. For example, Luxembourg is a growing hub for Chinese investors who want to invest in Europe. China is then strengthening its presence in Luxembourg.
Embrace Luxembourg’s wave of innovation
Since 2002, the Luxembourg Government has proactively carried out policies and programs to aid economic diversification and entice foreign direct investment. The Government concentrated on major innovative industries that showed promise for benefiting economic growth, such as logistics, ICT, health technologies, 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 pertained to the process of harmonization of financial standards both within the EU and at the global level. Similarly, the “Multilateral Convention to Implement Tax Treaty Related Measures To Prevent Base Erosion and Profit Shifting”, which aims at battling tax avoidance by multinational companies, entered into force for Luxembourg in 2019.
On 16 September 2021, the Luxembourg legislator declared bill of law n°7885 to enforce the FDI Regulation (the Bill of Law) and initiated a mandatory notification and pre-approval requirement for specific foreign direct investments made by non-EEA investors in a local entity operating in a delicate sector in the territory of Luxembourg (e.g. transport, telecommunications services, electricity generation and distribution, treatment and distribution of water, healthcare activities, etc ).
Finally, the country places 72nd out of 190 economies in the World Bank’s latest Doing Business report (losing six positions compared to the last edition).
What to consider if you invest in Luxembourg
Luxembourg has various desirable assets for investors on its soil. Here are the major ones:
- There is a right for foreign and domestic private entities to create and own business enterprises and engage in all forms of remunerative activity. There are no restrictions on foreign ownership or control, and there are no sector-specific limitations.
- Luxembourg is one of the most receptive economies in the world, with few foreign exchange controls and foreign capital flowing freely, enabling the country to have an undisputed pro-business environment.
- Luxembourg’s banking system is valid and strong. The country is an international finance hub with a vast banking sector and a thriving investment fund industry.
- It has one of the lowest public debts in the European Union
- Luxembourg has a highly competent multilingual workforce with substantial purchasing power
- Foreign investors choose Luxembourg as a location for their investment activities as the local authorities provide several tax exemptions applicable to investment vehicles.
- It has an outstanding quality of digital infrastructure, and an extremely developed transport infrastructure connecting the country to major cities and foreign capitals.
- Foreign investors are allowed to participate in ongoing privatization programs, and the bidding process is transparent with no impediments against foreign investors at the time of the initial investment or after the investment is made.
- Although Luxembourg is a small country, it provides one of the most solid economic growths in Europe.
Government Measures to Motivate Luxembourg Foreign Direct Investments
The Luxembourg government has taken measures to encourage the establishment of businesses on its soil:
- Subsidies are given to SMEs through the National Society for Investment Credit (SNCI)
- Enhancing the country’s international “economic-promotion network”
- Community income tax and business tax exemption of 25% for eight years for start-up businesses.
- Commercial licenses are given faster and more transparently
- Improving Luxembourg-based companies’ entry into the international market and ensuring the coherence of economic promotion efforts.
- Measures were put in place to ensure minority investors in order to promote their ability to settle commercial damages in court and to promote access to crucial information about the companies in which they invest.
Generally, Luxembourg’s tax legislation gives various incentives in the subsequent areas:
- investment tax credit,
- risk capital,
- tax incentives for research and development (R&D) and
- intellectual property (IP),
- recruitment of the unemployed,
- audiovisual activities, and
- vocational training
There is no comprehensive economic or industrial strategy that has discriminatory effects on foreign investors, either at a market-access or post-establishment phase of investment, so, Luxembourg strives to entice and retain foreign investors with its extraordinary model of easy access to decision-makers and its known ability to act swiftly.
To expand and invest in Europe, setup your investment vehicle in Luxembourg, contact your Damalion expert now.
