Luxembourg: Investing in Luxembourg
Luxembourg offers a business climate favourable to foreign investment, with a very attractive tax system. According to UNCTAD's 2021 World Investment Report, FDI inflows stood at USD 62.1 billion in 2020, up from USD 14.8 billion a year earlier, despite the global economic crisis triggered by the Covid-19 pandemic. This is a sharp increase that has made the country the sixth-largest global recipient in terms of FDI inflows, gaining 19 places since last year. In 2020, the total stock of FDI stood at USD 627 billion. According to figures from OECD, half of FDIs received by Luxembourg come from the countries of the European Union, although the main investor is Bermuda (13.5%), followed by the UK (13.1%), Ireland (12.1%) and the Netherlands (9.3%). In terms of sectors, financial and insurance activities attract more than four-fifths of all investments (81.6%), with manufacturing accounting for only 2.8%. Luxembourg is also the world's second-largest investor, behind China, with as much as USD 127 billion invested in 2020, compared to USD 34 billion in 2019. According to the latest figures from OECD, in the first six months of 2021 FDI inflows to Luxembourg stood at only USD 2 billion, compared to 52.3 USD billion in the same period one year earlier.
According to the World Economic Forum (WEF), the country ranks 18th on the 2020 Global Competitiveness Index. The government of Luxembourg has established some measures in order 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; health technologies, including biotechnology and biomedical research; clean energy technologies; space technology and financial services technologies. The country has long been considered a tax haven, though in recent years it has taken steps related to the process of harmonisation 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. In 2021, the bill of law n°7885 introduced a mandatory notification and pre-approval requirement for certain foreign direct investments made by non-EEA investors in a local entity operating in a sensitive sector in the territory of Luxembourg (e.g. transport, telecommunications services, electricity generation and distribution, gas conditioning and distribution, the treatment and distribution of water, healthcare activities, technologies relating to artificial intelligence, infrastructure and systems for the exchange, payment and settlement of financial instruments). Finally, the country ranks 72nd out of 190 economies in the World Bank’s latest Doing Business report (losing six positions compared to the previous edition).
Foreign Direct Investment | 2019 | 2020 | 2021 |
FDI Inward Flow (million USD) | 12,801 | 102,269 | -9,054 |
FDI Stock (million USD) | 192,286 | 1,104,567 | 1,013,915 |
Number of Greenfield Investments* | 36 | 25 | 32 |
Value of Greenfield Investments (million USD) | 446 | 617 | 552 |
Source: UNCTAD, Latest available data
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Country Comparison For the Protection of Investors | Luxembourg | OECD | United States | Germany |
Index of Transaction Transparency* | 6.0 | 6.5 | 7.0 | 5.0 |
Index of Manager’s Responsibility** | 5.0 | 5.3 | 9.0 | 5.0 |
Index of Shareholders’ Power*** | 4.0 | 7.3 | 9.0 | 5.0 |
Source: Doing Business, Latest available data
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
Luxembourg has many attractive assets for investors on its soil. Here are the main ones:
The main obstacles to investment in Luxembourg are:
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.
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Latest Update: March 2023