Challenges of doing business in Luxembourg
Nestled among Europe’s most highly affluent and developed markets, Luxembourg is the perfect logistics hub for expanding businesses. However, complex regulations and laws make daily operations very complicated to do business in Luxembourg without the proper assistance on board.
Thanks to its ideal position and rapid access to neighbouring markets, Luxembourg has established itself successfully as a strategic centre for businesses looking forward to expanding into Europe. The country’s main airport is the seventh-largest air cargo hub in Europe and houses some of the biggest freight carriers. Effective railway links offer excellent and easy access to the other ports of the North Sea, making Luxembourg a hinterland port of Zeebrugge, Antwerp, Rotterdam, Amsterdam, and Hamburg.
The domestic economy is undoubtedly worth recognition too. Despite being demographically one of the smallest countries in the world, it is nonetheless one of the wealthiest. It tops the Global Innovation Survey (Insead) and the Global Competitiveness Index (IMD) thanks to its modern finance sector and healthy business environment. One of Luxembourg’s main financial industry pillars is private banking; it is ranked sixth globally and is the largest in the eurozone.
However, despite its strong economic credentials, doing business in Luxembourg without prior knowledge of the corporate landscape can be difficult.
Starting a Business in Luxembourg
The International Finance Corporation (IFC) and the World Bank rank Luxembourg in the 72nd position globally. Filing and processing of the business licence can be completed over two weeks, and before the business can be established, capital requirements must be completed.
Dealing with Construction Permits
Construction permits can be obtained in about 157 days, 12 procedures need to be completed. The process involves consultation with several inter-governmental departments, including the Environment Department, the Cadastre Administration, the Ministry of Works and the Urban Department (service de l’urbanisme).
Getting connected to the national electrical grid can also be a time-consuming process, on average, it may take around 120 days to complete. Applicants must first consult Creos Luxembourg S.A to get a certificate on the availability of electrical capacity, before a private unite substation for the external works can be carried out and getting an excavation permit is from the local government control. For external works to be carried out, applicants must get an application for final development.
Registering a Property
When registering property, a notary will carry out the lion’s share of the work. They are required to authenticate and draft the sale agreement, conduct a full search at the Administration du Cadastre and the property registry, and notify the tax administration of the deed transfer. Later in the process, the notary will also register the transfer deed at the Administration de l’Enregistrement et des Domaines.
In order to do business in Luxembourg, getting credit can be a difficult task, public credit registries or private credit bureaus provide little credit information. Bankruptcy and collateral laws are also limited, which restrains the lending cycle.
The IFC and World Bank rank Luxembourg in the bottom 50 countries in the world for investor protection, mainly due to the shareholder suits index and director liability index being relatively weak.
Businesses operating in Luxembourg have to make 23 tax payments each year, taking less than 60 hours a year to process. Corporate tax rates are very competitive, although certain levies – such as property tax and net wealth tax – can account for a big part of personal and company earnings.
Trading Across Borders
It is very expensive to trade across borders; almost US$400 per container more than the OECD average. Five documents have to be filed, which can take as much as 7 days to complete for exporting, while importing takes the same amount of time but requires fewer documents.
Resolving Insolvency and Enforcing Contracts
Contracts can be enforced in less than 1 year and will require 26 procedures compared to an average of 31 in the OECD. Resolving insolvency takes two years and has a fairly low rate of recovery.
Doing business in Luxembourg is a very formal misery and there is a distinct segregation between corporate and personal life. It is important to hold small talks in order to build rapport but you should never get too personal. The national language is Luxembourgish, although French, English and German are commonly spoken.
How Valsen Can Help
The experienced staff of Valsen Fiduciaries Group our global network allow us to facilitate all the processes to establish and do business in Luxembourg. We are at your disposal to help you. Please contact us through email@example.com or +248 2 525 217
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