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Country Commercial Guides
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CHAPTER VII. INVESTMENT CLIMATE
Although small, Luxembourg has a vibrant and growing economy with the highest per capita gross domestic product in the world. Furthermore, Luxembourg both protects the rights of investors and actively pursues foreign investment through a variety of incentives, including subsidies and tax relief. Corruption is not an issue, and the regulatory structure is both fair and transparent. Luxembourg's multilingual labor is noted for its efficiency and high productivity, and labor strife is virtually non existent. A renowned banking center, Luxembourg has open capital markets and imposes no restrictions on monetary transfers. The above factors have led to a large influx of capital investments, principally from the U.S.
OPENNESS TO FOREIGN INVESTMENT
Luxembourg's economy has continued to perform exceptionally well by the standards of other industrial countries. The growth of GDP (5.7 percent in 1998) and employment remains well above the European average, inflation is low (1.4 percent in 1997), and the public finances are in surplus. Economic policy has emphasized the creation of a business-friendly tax and regulatory environment and the diversification of the economy in order to reduce reliance on the financial sector. That sector has come under increasing competitive pressure in recent years and its special position could be impacted by progress in tax harmonization in the European Union.
The Grand Duchy of Luxembourg is considered extremely open to foreign investment; the top three foreign investors are American firms. The country has a strong economic outlook for 1999, which is expected to continue in 2000 and into the twenty-first century in line with the general improvement in the economic situation in the EU member states. Even more important, Luxembourg, a founding member of the European Union and the European Monetary Union, is firmly committed to both. Luxembourg's trade policies are considered rather liberal, although some questions have been raised about the steel and agriculture industries.
Perhaps partly due to the country's small size, Luxembourg has an agile government, which is able to do things quickly; it is also a government that is supportive of foreign investment. The moderate center-left and center-right parties have traditionally formed the government of Luxembourg. As all these parties support private enterprise, successive governments have, over the past 20 years, been successful in creating an economic and social climate that encourages foreign investment. Luxembourg provides a wide range of financial incentives and assistance to investment. Among these incentives are capital grants, low-interest loans, and tax credits. The public authorities also develop industrial parks, and make them available to investors under the industrial zones program. To facilitate the investor's task, a single coordinating authority negotiates all aid, thus reducing administrative procedures to a minimum.
The small business framework law of July 29, 1968 is designed to aid individuals and firms' operations in the sectors of skilled crafts and distribution, the hotel and restaurant business, as well as transport. A capital subsidy can be granted for largely self-financed investments. Real estate investments can receive a subsidy of a maximum of 15%. Moveable property subsidies are available up to 25%. Subsidy rates of up to 45% are available for investments from associations, cooperatives and other organizations. Other subsidies that may be granted are interest subsidies, first time business bonuses, and expert assistance. Further information can be obtained from the Ministry of Economy or Chamber of Commerce.
The law of July 27, 1993 on economic development and diversification, improving general structure and regional balance of the economy aims to encourage investment, restructuring or research and development projects. This law provides four separate schemes of support. The first scheme is for small- and medium-sized businesses. The second scheme is aimed at various developing regions in Luxembourg. The third scheme covers research and development to help industrial and basic research, and competitive development. The final scheme concerns environmental protection and the rational use of energy. Further information can be obtained from the Ministère de l'Économie (19-21, Boulevard Royal, L-2449 Luxembourg, Tel: +35/2 478-1, Fax: +35/2 460448, http://www.etat.lu/EC).
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Both domestic and foreign private entities have the right to establish business enterprises. This right is well established in Luxembourg's constitution and law. The right to acquire or sell interests in business enterprises is similarly protected in law.
No restrictions in Luxembourg apply specifically to foreign investors. Foreign interests may enter into joint ventures and partnerships on the same basis as domestic partners.
PROTECTION OF PROPERTY RIGHTS
The Luxembourg court system is independent and effectively enforces property rights.
Luxembourg meets the highest standards in protecting intellectual property rights. Rights granted under American patent, trademark, or copyright law can be enforced in Luxembourg.
Patents
Luxembourg is a member of the World Intellectual Property Organization (WIPO) and the European Patent Convention (EPC). A single European patent, valid throughout the EU, does not yet exist since the community patent convention has not yet come into force. In the meantime, the patent applicant can choose between a national and a multiple-country patent. In the latter case, a single application to the European Patent Office in Munich is required for obtaining patents valid in a number of countries within the EU, as well as Liechtenstein, Monaco and Switzerland. A patent thus granted will only be valid in Luxembourg if a copy of the grant, in one of Luxembourg's three official languages (French, German and Luxembourgish), is filed.Trademarks
An EU Trademark Office has been established in Alicante, Spain. Applications for EU trademarks should be directed to this office. Trademarks in Luxembourg are regulated by the Uniform Benelux Law of 1962, which offers protection in Belgium, the Netherlands and Luxembourg. A trademark application can be filed with the Luxembourg Intellectual Property Office in the Ministry of Economic Affairs (http://www.etat.lu/EC) or with the Benelux Trademark Office located in the Netherlands (Benelux Trademarks Office, Bordewijklaan 15, NL-2591 XR The Hague, Tel: +31/70 349-1111, Fax: +31/70/347-5708, http://www.bmb-bbm.org). A search is required to ascertain whether or not a similar trademark for the same category of product already exists. If granted, protection lasts for ten years from the date of application and can be renewed for further periods of ten years. Trademarks must generally be used within three years of registration.Trademark Exhaustion
An EU Directive regarding trademarks applies the principle of community exhaustion under which parallel imports into the European Union are prohibited without approval of the trademark holder or his/her authorized distributor. Luxembourg and its Benelux partners (Belgium and the Netherlands) previously applied the principle of universal exhaustion under which parallel imports were allowed. A few cases have reached the Luxembourg trade courts, which have returned divergent opinions as to whether Community exhaustion has replaced universal exhaustion in Luxembourg.Copyrights
Luxembourg is a member of the Bern Convention managed by WIPO and the Universal Copyright Convention (UCC) managed by UNESCO. As a member of the UCC, to which the United States and 50 other countries belong, Luxembourg accords automatic copyright protection to works produced in other UCC countries. Protection exists for life of the author, plus 50 years after death. In addition Luxembourg has laws that conform to existing EU Directives. EU Directives, however, permit some variation in each member-state and American firms wishing to protect their copyrights in Luxembourg should consult local legal counsel.Trade Related Aspects of Intellectual Property Rights (TRIPS) Luxembourg has fully implemented the WTO Agreement on TRIPS.
PERFORMANCE REQUIREMENTS AND INCENTIVES
Investment in Luxembourg can benefit from personal income tax as well as corporation tax relief. This aid is only allowed on tangible assets other than buildings, agricultural livestock, and mineral or fossil reserves made during the accounting year. The rate of tax relief on additional investments is 12%.
The Société Nationale de Crédit et d'Investissement (SNCI-National Credit and Investment Corporation) grants medium and long terms loans for industrial or service projects. These loans cover business equipment, buildings and safety equipment used solely for business purposes. They can be for up to ten years with 15-year loans the exception. The loan is usually between 25%-50% of the investment, but can be greater.
In the case of exports, financing can be established for the Luxembourg part of the export. The percentage financed is between 25%-75% of the total value of the operation. The SNCI is also able to purchase equity convertible to shares, acquire a share holding in a company, contribute capital to an established company, and participate in any organization or other group aimed at established or reorganizing businesses. Innovation loans are available to industrial and service enterprises at a 5% per year fixed rate. For further information, contact:
Société Nationale de Crédit et d'Investissement
7 rue du Saint Esprit
L-1475 Luxembourg
Tel: +35/2 461971-1
Fax: +35/2 461979
Email: snci@snci.lu
http://www.snci.luNATIONAL INVESTMENT INCENTIVES
Luxembourg provides a wide range of financial incentives and assistance to investment. Among these incentives are capital grants, low-interest loans, and tax credits. In order to facilitate the startup of a new venture, the government may, on a case by case basis, grant support toward funding of a company's investment project. Financial support may take the form of capital grants or medium and long-term loans under favorable conditions by the National Credit and Investment Corporation.
The public authorities also develop industrial parks, and make them available to investors under the industrial zones program. Premium land can be made available by the government in one of the ten national industrial parks. Land is also available in municipal or regional business parks. The industrial sites are fully equipped with all public infrastructures, such as water, sewer, power, gas, and telecommunications and are located on or close to major international roads and transportation axes. Many of the industrial parks are equipped with railway spurs connected to the international networks.
To facilitate the investor's task, a single coordinating authority negotiates all aid, thus reducing administrative procedures to a minimum.
TRANSPARENCY OF THE REGULATORY SYSTEM
The Luxembourg government has adopted a generally transparent policy and effective laws to foster competition. Tax, labor, health, safety, and other laws and policies avoid distortions and impediments to efficient mobilization and allocation of investments compared to other EU member states.
CORRUPTION
Corruption is not a factor in Luxembourg business environment.
The provisions of the Treaty of Rome that relate to competition apply to the activities of any firm when they are likely to affect trade between member states of the European Union. In particular, these provisions prohibit any agreement that aims or has the effect of preventing, restricting, or distorting competition within the common market or a substantial part of it. Since the vast majority of Luxembourg businesses have significant trading relations with businesses in other EU member states, these provisions apply by and large to the whole of Luxembourg's economic activity.
Luxembourg law regards unfair trading as any act which is contrary to the honest practices of industry or trade, or any agreement by which a trader, industrialist, or craftsman attempts to win away part of a competitor's customer base or to reduce his competitiveness.
Money laundering
There have been accusations that Luxembourg is a money laundering center. As a result, Parliament has passed legislation extending money laundering laws to include all criminal activities, providing some of the toughest legislation against money laundering in the world.LABOR
The multilingual labor force in Luxembourg is renowned for its efficiency and high productivity. Workers are highly trained and able to perform complex tasks, and they are able to adapt to new production methods as they frequently follow continuing education courses. Although unemployment is low, there is no real shortage of manpower, mainly because of the presence of a large number of workers commuting from the neighboring countries and the conversion of the Luxembourg steel industry.
There are virtually no strikes, and the rate of absenteeism is very low. Luxembourg has a solid tradition of absence of industrial disputes. Social problems are dealt with under a broad system of negotiation and conciliation between labor and management (the 'social partners') at both company and national levels. These arrangements have enabled Luxembourg to remain free from major strikes since 1921.
The principle of free movement of labor is one of the cornerstones of the European Union, and its logical consequence is the international coordination of social security. For a small country like Luxembourg, the question is all the more important since around 50% of the workforce consists of foreigners, whether living in Luxembourg or commuting from neighboring countries to Luxembourg.
Luxembourg's comprehensive social security package is composed of five major elements: sickness and maternity, retirement, family allowances, accidents, and unemployment fund. This extensive social security system is built around a series of independent public institutions, each insuring against a particular kind of risk, and organized into professional categories. In general, a board of elected representatives, which includes employers and employees, manages these different categories.
An agreement on Social Security between the United States and Luxembourg became effective on November 1, 1993. Companies that have U.S.-based employees working in Luxembourg or Luxembourg personnel in the United States may be able to realize substantial tax savings as a result of the agreement. Duplicate coverage and taxation under the U.S. and Luxembourg Social Security systems will be eliminated. Employers or employees who wish to know more about any of the agreements should contact:
Social Security Administration
Office of International Policy
P.O. Box 17741
Baltimore, Maryland 21235
Tel: (410) 965-3548 or (410) 965-3554In Luxembourg law, the relationship between employer and employee is in principle an individual one. The employer must enter into a written contract with each of his employees, and their respective rights and responsibilities are governed by Articles 1979 et seq. of the Civil Code, and by common law. Firing a Luxembourg employee can be very expensive. An employee may be dismissed immediately in the event of gross misconduct. Both employer and employee have the right to terminate a contract of employment, even against the wishes of the other party. Termination is a unilateral action, and subject to certain rules of form; it must also take due account of the appropriate period of notice prescribed by the law.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Since the 1960s, comprehensive and market oriented legislation has permitted Luxembourg to develop a solid reputation as one of the most important financial centers in Europe. The large number of banks, the steadily increasing number of investment funds, the leading position of the Luxembourg Stock Exchange in the listing of Eurobond, as well as the rapidly developing clearing and custodial services are but some of the financial center's outstanding features.
Luxembourg banks, by in large, loan directly to individual and corporate entities in other European countries and in North America. Total bank assets climbed by 9.8 percent between 1997 and 1998, reaching 20,446 billion LUF ($552.6 billion). Luxembourg banks play an important role in both the Eurobond market generally and in the ECU bond market.
Another source of financial strength is the stock market, which lists more than 15,000 international securities, including many Eurobonds. The total trading volume in 1998 increased to 112 billion LUF ($3.03 billion), a change of 25 percent from the year before.
An interesting new addition to Luxembourg's financial scene is international clearing, which is handled by the Cedel group. Under a structure established in January 1995, an electronic order routing service was set up between Luxembourg, Europe, North America and also Asia. Under this structure, Cedel bank has developed an international clearing and settlement system with links to security markets in over 30 countries. 114,000 securities are admitted into the system; over $1.5 trillion of customers' securities are cleared, and trades worth up to $100 billion are settled in a business day.
On May 14, 1999, Cedel group and Deutsche Börse Clearing announced a merger creating a new Cedel International that will be the basis for a single European clearing organization on the model of the Depository Trust Company (DTC). The goal of the new organization is to create a pan-European clearinghouse. Once shareholders and regulatory authorities approve the merger, other securities depositories are invited to join the new structure. The SBF group, the holding company of the Paris Bourse, and Sicovam, the French central securities depository, have already signed a memorandum to join the alliance. The creation of the European clearinghouse will enable the new Cedel International to offer customers standardized procedures and access to the entire securities market.
The free movement of capital within Europe, the explosive development of services in private banking, the banking secrecy laws and the high level of professionalism continue to stimulate the development of the Luxembourg financial center.
Luxembourg City serves furthermore as the European Union's capital for financial policy. The European Investment Bank, the European Court of Auditors, the Directorate General for Credit and Investment are all headquartered in Luxembourg.
CONVERSION AND TRANSFER POLICIES
Payments and transfers require no prior authorization. Transactions may be executed in Belgian or Luxembourg francs as well as in other currencies. The Luxembourg franc is fully convertible with no restrictions on either inward or outward, current and capital account transactions.
Luxembourg's monetary regulatory L'institut Monétaire Luxembourgeois (IML) has recently been transformed into Luxembourg's first national Central Bank to comply with European Monetary Union convergence criteria. In the run up to the EMU, Luxembourg was always a leader in fulfilling convergence criteria. With the start of EMU on January 1, 1999, Luxembourg began using the euro for accounting purposes.
DISPUTE SETTLEMENT
Social conflicts in Luxembourg can usually be avoided due to regular consultations between the social partners and the Government. The "Luxembourg Model," based on constructive dialogue between labor, employers, and the government, has led to a national consensus on the measures necessary to overcome the structural crises of the 70s and 80s, and to stimulate economic growth.
POLITICAL VIOLENCE
The Embassy does not know of any incidents of politically motivated damage to foreign investments in Luxembourg in recent years.
BILATERAL INVESTMENT AGREEMENTS
Luxembourg has concluded bilateral agreements with a number of community member states and certain other countries, including Brazil, Canada, Cape Verde, Switzerland, Tunisia, and the United States.
As a partner in the Belgium-Luxembourg Economic Union (BLEU), it has valid bilateral investment treaties or agreements with Bangladesh, Cameroon, Sri Lanka, China, the Czech Republic, Egypt, Hungary, the Republic of Korea, Malaysia, Morocco, Romania, Rwanda, Singapore, the Slovak Republic, Tunisia, and Turkey. Additionally, BLEU agreements have been signed, but not yet implemented, with Bulgaria, Burundi, Liberia, Mauritania, Malta, and Thailand. Luxembourg and Belgium together, but outside the BLEU, have also signed investments treaties with Poland and Russia. All these agreements provide for mutual protection of investments.
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
Luxembourg has many foreign investors bringing money into different aspects of the economy, with the United States currently ranking in first place. Large American firms such as Goodyear, Guardian and DuPont continually invest money in subsidiaries and other investments in Luxembourg, with Goodyear currently being the country's second largest private employer.
FOREIGN DIRECT INVESTMENT STATISTICS
The Luxembourg Ministry of Economic Affairs conducted a study on investments by foreign companies in Luxembourg and Luxembourg companies in other countries. The study is available by contacting the Service Central de la Statistique et des Études Économiques (STATEC) at +35/2 478-4268 or visit their website at http://www.statec.lu.
There are approximately 100 subsidiaries/branches of American companies operating in Luxembourg, making the U.S. the country's largest source of foreign investment. Goodyear, DuPont and Guardian are among the largest employers of labor in the country.
The ARBED group is the fourth largest steel group in the world, and the second largest group in Europe. Luxembourg is also well represented in communications with the Société Européenne de Satellites S.A. (SES) and transportation with Luxair and Cargolux, handling the transport of persons and freight, respectively. However, in terms of size of workforce, of the 268 largest companies in Luxembourg, no fewer than 41 are banks.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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