At first glance, it appears that Luxembourg is a small and relatively obscure country with an estimated population of just 625,815. However, it’s actually one of the wealthiest nations in the world on a per capita basis, with a total GDP per capita of $96,269.
Not only is Luxembourg a deceptively wealthy nation, but it’s also widely considered to be a tax haven of choice for corporations and wealthy individuals from across the globe. This has been the case since the 1960s, during which time Luxembourg emerged as a financial center for the offshore trade in European bonds.
These factors contribute to Luxembourg’s deserved status as an attractive hub for investors, but what else helps the country to appeal to entities with wealth and disposable capital?
Investment in Luxembourg – What You Need to Know
Interestingly, Luxembourg’s progressive tax haven status remains to this day, with a favourable regime underpinned by the lack of withholding taxes on interest and royalty payments.
Overall, economists estimate that 80% of all profits shifted from EU member states end up in tax havens such as Luxembourg, which accounted for a staggering $47 billion in moved funds back in 2015.
This is why tax experts such as RSM do such large volumes of work in Luxembourg, in order to create lucrative and compliant structures in a bid to optimise profits.
While this is definitely appealing to institutional and large-scale investors, Luxembourg’s innately stable economy and aforementioned GDP performance also engages investors with lesser resources.
It can also be argued that Luxembourg’s economic success can be partially attributed to its location on the continent, which allows for good connectivity with fellow European countries and seamless capital inflows between economies.
This also lends itself to a multilingual workforce and business environment, with Luxembourgish, French and German all widely used and fluent languages in the region.
What About Tax and Legal Ramifications?
We’ve already touched on Luxembourg’s favourable tax system, which actively encourages corporations from all over the world to form special purpose entities in the region.
This certainly allows companies and investors to create more profitable and extensive business models, largely through foreign direct investment (FDI).
According to the International Monetary Fund (IMF), Luxembourg attracts a staggering $4 trillion in FDI, with much of this cash flowing through empty corporate shells that are designed solely for the purpose of minimising tax liabilities.
Outside of such shells and the region’s bustling financial market, there are other sectors that continue to perform well and provide an attractive opportunity to investors. The shipping and logistics industry is one of the fastest-growing entities in Luxembourg, for example, thanks largely to the region’s location and outstanding transportation links with Europe.
High-value markets such as automotive, aerospace and ICT (information and communication technologies) are also thriving in Luxembourg, with these entities offering huge potential to international investors.
We’d argue that the space segment is particularly lucrative at present, with the manufacturing of satellite and instrument structures highly profitable and evolving as an increasingly profitable endeavour.
These are definitely markets to target as an investor, while Luxembourg itself remains synonymous with wealth creation and successful tax avoidance across the board.
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