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Luxembourg Brings the Right Balance of Flexibility and Protection for Investors

David Sarfas, CSC’s managing director in Luxembourg, François-Xavier Goossens, head of Corporate and Legal Solutions, Luxembourg, and Salvatore Rosato, head of Capital Markets, Luxembourg, discuss the country’s continuing appeal to corporates and funds.

Luxembourg continues to act as one of the main gateways to Europe for investors and international businesses. This was the main takeaway from the webinar we hosted yesterday, “Doing Business Internationally: Luxembourg”—the first in a new limited webinar series from CSC, featuring in-market experts across 12 jurisdictions, discussing critical aspects for doing business in each market.

Luxembourg is the largest investment fund center in Europe and the second-largest in the world (after the U.S.), with EUR 5.5 trillion AUM in investment funds[1]. The country is also the European hub for a significant number of international corporations and a leading player in capital markets.

So what explains its appeal? And what do potential investors need to know about the country and its business climate?

Here are the key takeaways from our Doing Business in Luxembourg webinar.

Firm foundations

Most importantly, Luxembourg offers political and economic stability and a long-established financial services sector. Its AAA rating is well deserved.

Its government supports business and attracts investment through financial incentives, an advantageous tax environment, and well-developed physical and digital infrastructure.

Luxembourg may be a small country, but it has an enviably high standard of living that makes it a magnet for finance professionals from across Europe and further afield. In fact, Luxembourg has the world’s largest share of people in high-skilled employment[2]. Its global workforce means that international clients can often be served in their native language.

A business-friendly environment

None of this happens by accident. Luxembourg works hard to create an environment conducive to business success. The country’s reliance on the financial sector—which accounts for more than a quarter (26.5%) of GDP[3]—means that regulators are cooperative and responsive.

Meanwhile, the presence of 126 banks[4] gives international businesses access to familiar institutions, speeding up processes such as opening an account. A large private banking sector helps to make Luxembourg a flexible and welcoming center for private wealth.

In addition, the country’s long history at the financial heart of Europe means that a highly skilled professional services sector has evolved to meet the needs of businesses and funds.

A comprehensive investor toolkit

As well as being the largest investment fund center in Europe, Luxembourg is also a huge fund distribution hub. Luxembourg-domiciled funds are distributed in 80 countries[5], with a particular focus on Europe, Asia, Latin America, and the Middle East. It’s a prime location for private equity and real-estate funds, with around EUR 962 billion in alternative AUM[6].

What attracts investment funds to Luxembourg? Alongside a business-friendly environment, the country offers a comprehensive and flexible funds toolkit. In practice, that toolkit offers a suitable vehicle for any asset class, investor type, and risk profile. The undertaking for collective investment in transferable securities (UCITS), for example, can be considered best-in-class for investor protection in Europe.

At the other end of the spectrum, the special limited partnership (SCSp) is similar to an Anglo-Saxon limited partnership in terms of contractual flexibility and regulatory freedom. It’s extremely popular with alternative fund managers.

The Reserved Alternative Investment Fund(RAIF) sits somewhere in the middle. It isn’t subject to regulatory approval, but does require the appointment of an external alternative investment fund manager. 

These are three examples of a well-considered range of investment vehicles that offers wide legal, regulatory, and structural choice. Most vehicles offer EU-wide licensing if relevant criteria are met.   

A question of substance

All of this is underpinned by robust legal structures, predictable tax treatments, and a well-established culture of responsible investing.

For securities, the recently modernized securitization law offers perhaps the best balance of protection and flexibility in Europe. This beneficial environment comes with some compliance obligations. Luxembourg is a well-regulated jurisdiction, and businesses should be aware of their responsibilities and have the expertise to meet them.

Substance is one example. Entities need a genuine footprint in the country if they want to benefit from tax efficiencies, such as the participation exemption regime, and avoid the possibility of being challenged by foreign tax authorities. To stay on the safe side, at least 50% of board members should be Luxembourg residents, and board meetings should be held regularly in the country. An office and payrolled employee are also required.

Compliant companies and funds will find everything they need to be successful in Luxembourg. The country is a highly developed financial hub at the heart of Europe that continues to innovate and grow. 

Why CSC?

CSC provides knowledge-based solutions for every phase of the business life cycle, helping businesses form entities, maintain compliance, execute transaction work, and support real estate, M&A, and other corporate transactions in hundreds of U.S. and international jurisdictions.

We work with some of the world’s largest banks and commercial lenders to reduce risk in their lien portfolios, improve their transaction speeds, and create a secure environment for their financial processing needs. We also provide solutions for secure real estate document preparation and recording.

We are the trusted partner for 90% of the Fortune 500®, nearly 10,000 law firms, and more than 3,000 financial organizations. Headquartered in Wilmington, Delaware, USA, since 1899, we are a global company capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve.

Missed this webinar? Watch on-demand, and register for the full series here.

[1] CSSF 2022

[2] World Economic Forum

[3] Luxinnovation

[4] Central Bank of Luxembourg

[5] Luxembourg for Finance

[6] CSSF 2022