Luxembourg – The Gibraltar of the North
The Grand Duchy of Luxembourg is a small country located in Western Europe and spans just 2,586km2. It is landlocked and shares its boundaries with three other countries: Germany, Belgium, and France. Like its neighboring countries, Luxembourg is a member of the European Union (E.U.) and uses the euro (EUR) as its national currency system.
The largest and most populated area is the capital of Luxembourg: Luxembourg City. It is located in central Luxembourg and covers a total of 51km2. The population for Luxembourg is 633,622 (est. 2021), with 128,512 (est. 2022) people living in the capital city, making it the least populated country in the European Union. The country is subdivided into three central districts and a further 12 cantons. Despite Luxembourg’s small size, it is the third wealthiest country globally, based on the GDP per capita figure of $116,921 (est. 2021). It is also a city of historical importance, and UNESCO lists the old quarter as a world heritage site.
Luxembourg’s original economy was based around the industrial sector, particularly in the manufacturing of steel, yet in recent years it has seen a boom in service-related industries, which now account for 86% of the country’s total GDP. The financial sector is robust, generating a quarter of the national GDP, with many international companies choosing to run their operations from Luxembourg. The biggest employers in the country are Arcelor Mittal, Dexia BIL, Cactus, CFL, Goodyear, BGL, and Luxair. The highly skilled workforce and robust infrastructure have also attracted foreign companies such as Skype.
Luxembourg exported $204.6 billion worth of goods in 2021. Main export partners are Germany, France, Belgium, and Italy, and significant exported goods are machinery, steel, chemicals, glass, and rubber. The total GDP stands at $73,26 billion (2022). The government has injected cash into the financial sector, and the economic forecast looks bright.
The strategic positioning of Luxembourg’s only airport – Luxembourg Findel Airport (LUX) – allows for convenient transportation to the rest of Europe. The airport is located just 6km away from the city center and has two terminals, which handle 1.6 million passengers annually (2020). It also has a separate cargo terminal, with three airlines transporting goods to America, Asia, and Europe.
Many modern expressways connect Luxembourg City to the rest of the country and cities in Germany, France, and Belgium. Luxembourg has a railway station, with a new terminal inside Luxembourg airport. The entire railway system is owned and operated by Chemins de Fer Luxembourgeois and offers domestic services and high-speed trains to France, Germany, and Belgium. Luxembourg is committed to continuously expanding its transportation structure.
The country has a solid and stable Internet backbone, along with a well-developed telecommunications system; a study by the ITU ICT Development Index ranked Luxembourg as having the seventh-best Internet and communications infrastructure in the world.
Luxembourg is a cosmopolitan city, with many foreign nationals working in the country. Only 63% were officially born in the country, while the remaining 37% consist of Portuguese, French, Italian, German, and British residents. The current labor force stands at 286,132 (est. Dec. 2021), of which over half commute to work from the bordering countries. Over 80% of the population work within the service sector, particularly in banking and information technology, while 14.2% work in industry and only 2.2%in agriculture. The country’s official language is Luxembourgish, with German and French being used for administrative purposes. Many Luxembourgers are bi-lingual and speak the English language fluently.
The University of Luxembourg is the only higher education facility in the country. It is a multilingual university, with courses held in French, German and English. It specializes in law, economics, the sciences, and languages, with several internationally accredited degree types on offer. Over 6,783 students from 94 countries are currently enrolled in study programs (2021).
Luxembourg’s competitive salary rates and high quality of living attract professional workers worldwide. Luxembourg’s unemployment rate remains relatively low at 5.46% (2021).
Luxembourg Business Costs
Office rentals are the highest in the capital city, with the average office rental in Luxembourg CBD costing $67.62 per square foot per annum. It is placed at number 11 on the list of the most expensive office rental locations globally, but it is still lower than costs in London, Paris, and Milan.
Luxembourg has a complex corporate and personal tax system. Any individual who works in the country for over six months of the year is classed as a resident, regardless of their nationality. Income taxes are charged on 9 different income sources and can vary depending on what municipality the individual works in. Flat tax rates range from 20%-21.5%, with a 4% employment fund surcharge and an additional municipality tax of up to 10.5%. Social security charges are also contributed by both the employer and employee in three areas: accident insurance, pension insurance, and sickness insurance. Corporate taxes are charged at three levels: income tax, a municipal tax on all profits, along a wealth tax. Again rates vary depending on what municipality the business is in and will never exceed 28.59% (2020). In 2008 Luxembourg reduced the corporate tax rate by 1%, and in 2009 capital duty was abolished, providing more favorable tax rates for businesses. Luxembourg has some of the lowest VAT rates in the E.U., with a flat rate of 15% for most goods and services and discounted rates of 3%, 6%, and 12% for selected items.
Anyone legally working under a contract in Luxembourg is entitled to a minimum wage of €2,256.95 per month, which is one of the highest minimum wages in Europe. However, the workforce is generally extremely proficient, hard-working, and highly-skilled, providing an excellent cost-benefit ratio for the employer.