Luxembourg's corporate landscape
To lay the foundations for our analysis of the reasons that motivate companies to set up in Luxembourg, we will begin by establishing a frame of reference for the current corporate landscape in the Grand Duchy.
According to Hithorizons, a company specialising in providing business data and analysis on companies in Europe, there were some 142,826 companies in Luxembourg as of December 2024. Within this total, not all sectors are equally represented. In recent years, the Luxembourg economy has specialised above all in services and high-value-added industries, particularly financial services, information technology, biotechnology, the automotive industry, and satellite and space technologies.
However, it is the financial sector that stands out above all. Luxembourg has become one of Europe's main international financial centres, home to many of the largest international financial institutions, asset managers, and insurance companies.
This sector has grown so much that it has become the country's economic engine and is so important that according to a report by Luxembourg for Finance and Deloitte, if the direct, indirect, and induced effects of the financial sector on the rest of the economy are taken into account, 135,519 jobs, representing 29.5% of national employment, were linked to the financial sector at the end of 2021.
Factors that make Luxembourg an attractive place for companies
There are many reasons why companies establish their corporate headquarters in Luxembourg, but as we will see later, some are much more important than others. Below, we will examine the different business advantages of Luxembourg one by one.
Political and economic stability
Luxembourg enjoys a stable political system based on a parliamentary monarchy that promotes legal certainty and business confidence. It has also managed to achieve a low level of public deb,t together with constant economic growth reflected by one of the highest GDPs per capita in the world. And to top it all off, it is part of the European Union, which gives it access to the European market and regulatory guarantees. This stability ensures a predictable and ideal environment for companies that can plan long-term investments and operations.
Strategic geographical position
The country's location in the centre of Europe allows the companies based there to access their neighbouring markets directly. This proximity, together with its excellent land and air transport infrastructure, means that around 60% of European countries can be reached in less than half a day, making the country a highly important logistical centre.
Speed of administrative procedures
When it comes to setting up a company, one of the major obstacles entrepreneurs face, especially first-time entrepreneurs, is administrative procedures and bureaucracy. In this sense, one of the great advantages of business in Luxembourg is the efficiency of its administrative procedures, which significantly facilitate business creation and management compared to other countries. The government has worked on digitising and simplifying its processes, centralising many of them on platforms such as Guichet.lu, which greatly facilitates all kinds of procedures such as tax registration, social security procedures, or applications for establishment authorisations.
Support for entrepreneurship and innovation
When asking the question “Why choose Luxembourg for business?” one of the most noticeable answers is the country's commitment to business growth. The government seeks both to support established companies and to stimulate the creation of new business initiatives and attract foreign investment.
One of the main ways to help companies is through advisory and training services and by creating networking opportunities. Many institutions in the country offer these types of services, and some of them do so through incubators, which are also able to help companies in other ways. Some of these institutions are the House of Entrepreneurship, Luxinnovation, the Chambre de Commerce, the Chambre des Métiers, the House of Sustainability, the House of Training, the House of Startups (HoST) and the Luxembourg-City Incubator (LCI).
In addition, Luxembourg offers multiple programs specifically designed to support companies developing in certain sectors or to help the development of companies in specific areas such as digital transformation, innovation or sustainability. Some of these programs are Fit 4 Start, Fit 4 Digital, Fit 4 Innovation and Fit 4 Sustainability.
Favourable tax environment
Although the aforementioned aspects are very important, one of the most important factors influencing the attractiveness of the Grand Duchy is undoubtedly the Luxembourg tax benefits for companies.
Luxembourg corporate tax, recently modified with a reduction of one percentage point, stands at 14% for companies with a tax base of less than 175,000 euros or 16% for those with a tax base of more than 200,000 euros. This added to the municipal tax on economic activities and the contribution to the employment fund results in a maximum aggregate tax rate of 23.87% in the city of Luxembourg in 2025.
Although the tax rate is attractive compared to other countries such as France, Belgium or Italy, it is quite close to the European average, which at first glance seems to contradict the claim of exceptional tax attractiveness. However, given the considerable number of possible tax optimisations and benefits in Luxembourg, the real rate can be considerably reduced. Moreover, although many of these optimisations are generally legal, tax benefits sometimes come from hidden arrangements.
- 🔃 Tax optimisations: Regarding tax optimisations, the OpenLux investigation, carried out by Le Monde and sixteen other newspapers and published in February 2021, shed light on how multinational companies and billionaires use Luxembourg companies to carry out tax optimisations and avoid taxes. Organisations such as Oxfam France, a leading organisation in the fight against inequality and poverty, highlighted how this investigation exposed the exploitation of loopholes in the economic system by billionaires and large corporations.
According to this investigation, almost half of the commercial companies registered in the country are pure financial holdings with no less than 6,500 billion euros in assets. Behind ingenious plots and cascading subsidiaries, Le Monde managed to calculate that twenty-nine of the thirty-seven CAC 40 groups based in France are also present in Luxembourg through at least 166 subsidiaries. Some of these companies are Dassault, Michelin, Sanofi, Danone, LVMH, L'Oréal and Chanel. Although some of them correspond to real operations on Luxembourg soil, three-quarters of these subsidiaries essentially serve financial interests.
These subsidiaries, whose interest is purely financial, are mostly present in the Grand Duchy for reasons of tax optimisation. Although this practice is legal, provided that the rules and regulations are respected, the extent of its application in Luxembourg shows how many of the companies are only established in the country to evade the taxation to which they would be subject in their countries of origin if they had not resorted to Luxembourg subsidiaries with optimisations that, according to the authors of the investigation, can reduce the effective rate to 1% or 2%.
- 🔐 Hidden agreements: Sometimes tax optimisations go beyond the legal scope. In 2014, a few years before the OpenLux investigation, documents obtained by the International Consortium of Investigative Journalists known as the Luxembourg Leaks revealed how hundreds of multinational corporations had signed tax agreements with Luxembourg that allowed them to pay an effective tax rate of less than 1%. FedEx Corp, for example, established two subsidiaries in Luxembourg to transfer profits from its operations in Mexico, France, and Brazil to the company's subsidiaries in Hong Kong. Luxembourg agreed to tax the income at a rate of 0.25%, leaving 99.75% of the transfers tax-free.
Financial secrecy
Another factor that undoubtedly attracts many companies is the level of financial privacy that Luxembourg manages to maintain. Although the country has made notable progress in its efforts to combat tax evasion and improve transparency, it still has a long way to go. Significant policy changes, such as the elimination of bank secrecy and participation in the automatic exchange of information, demonstrate the positive steps taken by the country. However, Luxembourg continues to maintain a high level of financial secrecy.
According to the Financial Privacy Index 2022 calculated by the Tax Justice Network, Luxembourg continues to be a destination offering high standards of financial privacy and security, ranking fifth out of 144 with a score of 55 out of 100. This index takes into account a country's financial secrecy laws and the scope of its financial services provided to residents of other countries.
