The importance of the banking sector has enabled the Grand Duchy of Luxembourg to withstand the Covid-19 crisis more successfully than most European countries. After a slight contraction in GDP in 2020, Allianz Trade, world leader in trade credit insurance and a subsidiary of Allianz, forecasts growth of +3% in 2021 and +3.5% in 2022. These values are above Luxembourg's long-term growth potential of +2.5%.

Growth in the Grand Duchy will continue to exceed the euro area average. The country has developed a strong competitive advantage in financial services over recent decades, making it the second-largest investment fund centre in the world after the United States and the most important private banking centre in the euro area.

Luxembourg is a great country to do business. It is an open and stable economy with few risks. It is one of the richest countries in the world (per capita). Luxembourg has a relatively favorable tax climate and a well-developed infrastructure. Moreover, Luxembourg is a member of the European Union.

What should you consider if you want to do business in Luxembourg? The tax system is not necessarily simple. The same goes for administrative procedures. It is important to apply for the necessary permits and licenses in time. In addition, personal contact is important. A lot of business is done through word of mouth and personal referrals.

The Grand Duchy of Luxembourg enjoys an excellent AA1 rating from Allianz Trade.
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Luxembourg was considered a "tax haven" due to the many tax agreements concluded with large companies. But a few years ago tax rules were tightened, making this route to avoiding tax less attractive.

  • Luxembourg has the lowest VAT rate in the EU, at 17%. Reduced rates of 8% and 3% also apply to certain goods and services. For 2023, the Luxembourg parliament has passed a law that temporarily authorizes a reduction of 1% on all VAT rates.
  • Luxembourg companies are required to pay corporation tax on company profits. The normal corporate tax rate in Luxembourg is 15%.

Luxembourg ranks 20th among the most globalized economies in the world. As an open economy, Luxembourg's prosperity is largely based on international trade. Important sectors in Luxembourg are: banking, steel, telecommunications, agriculture and tourism. Luxembourg imports mainly from the European Union.

The financial sector is the biggest contributor to the Luxembourg economy. Luxembourg is an international financial center of the European Union, with more than 140 international banks having offices in the country. In the latest Global Financial Centers Index, Luxembourg was ranked third among the most competitive financial centers in Europe, after London and Zurich.

Luxembourg is home to many large international companies that have chosen the country for their business activities: Amazon, Cargill, Dell, ArcelorMittal, Goodyear, FedEx and others. These companies benefit from Luxembourg's favorable business climate, efficient logistics and a skilled workforce.

  • Strong financial centre with a strong banking system and the second largest investment fund industry in the world.
  • Business-friendly environment with transparent and robust institutions and modern infrastructure.
  • Competitive taxation system favourable to foreign investors.
  • Solid reputation as a sophisticated financial regulatory state.
  • Very low public debt and a budget surplus.
  • High productivity levels and a well-trained, multilingual workforce.
  • Potential vulnerabilities given the structure of the financial system and the economy's substantial reliance on the banking sector.
  • Highest corporate debt stock in the euro area (320% of GDP).
  • Small open economy (export and import volumes are twice the GDP).
  • High cost of labour and heavy reliance on cross-border workers.
  • Possibility of significant improvement in terms of access to post-secondary education.
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There are many business opportunities for Belgian companies, but the traditional economic trends uniting us with the Grand Duchy should not lead us to forget that Luxembourg has an important legal and regulatory framework that often still severely penalises ill-informed foreign companies.

Added to this is the inherently suspicious nature of Luxembourgers and the strict application of regulations by local administrations, with heavy penalties to support them. Therefore, you will understand why a well-informed exporter is worth two.

Avoid seeing the Grand Duchy as an extension of Belgium and Luxembourgers as southern Belgians. Luxembourgers generally value respect for their nationality and culture. In the business world, utmost rigour is required.

The official languages are French, German and Luxembourgish. While most publications are written in French or German, Luxembourgish remains the national language. Mastering this local language helps to foster a special relationship.

When working with Luxembourg clients, be careful not to let them down with poor quality due to geographical distance and lack of market knowledge — the main complaint against Belgian suppliers.

In conclusion, the Luxembourg market is a good test market (particularly for first-time exporters) if you want to develop your business abroad. Despite its geographical proximity to Belgium, the Grand Duchy is distinguished by numerous specificities.

With nearly 100 years of international expertise, Allianz Trade will help you develop your business abroad. Our unique knowledge of local conditions is based on the financial data and technical expertise of an international insurer that is a world leader in its sector. You can position yourself with confidence in international markets.

With our network of partners such as the Office du Ducroire Luxembourg (ODL) and our clients in Luxembourg, we offer you all our expertise in the Grand Duchy to develop your business.