Economy and Banking Sector of Luxembourg

Luxembourg, a country in Western Europe, is bordered by Belgium, Germany, and France. It's a founding member of the European Union.

Luxembourg has stable, high-income, highly diversified market economy. Main industries of Luxembourg are banking and financial services (accounting for a quarter of GDP), production of steel and chemicals, information technology and telecommunications, and tourism.

Banking sector is the largest sector in the Luxembourg economy. Luxembourg is the most important private banking centre of the Eurozone.

Location Western Europe
Population (2016)576 249 ↑ (+0.02%)
EU Status member since 1952
Economy
National Currency EUR (Euro) since 1 January 1999
GDP 
    Nominal GDP (2015)52.1 bln EUR ↑ (+0.05%)
    Nominal GDP per Capita (2015)91 600 EUR ↑ (+0.03%)
    Real GDP Growth (2015)4.8 % ↓ (2014: 5.6 %)
Inflation Rate 
    CPI, MoM (Sep 2016)0.3 % ↓ (Aug 2016: 1.0 %)
    CPI, YoY (Sep 2016)0.3 % ↑ (Aug 2016: -0.2 %)
    CPI, Year Average (2015)0.1 % ↓ (2014: 0.7 %)
Unemployment Rate (2015)6.4 % ↑ (2014: 6.0 %)
Government Bond Yield (Sep 2016)-0.03 % ↑ (Aug 2016: -0.05 %)
Credit Ratings (as of Sep 2016)
    FitchAAA highest credit quality, outlook stable
    Moody'sAaa prime, outlook stable
    S&PAAA prime
Taxation
Withholding Tax 0.0 - 15.0%
Double Taxation Agreements 79 signed agreements
Information Exchange 
    Automatic Exchange starts in September 2017
FATCA IGA in effect since 28 March 2014, Model 1
Banking Sector
Financial Market Development 5.0 (max 7.0) rank: 14th out of 138 countries
    Banks' Soundness 6.1 (max 7.0) rank: 12th out of 138 countries
Banking Industry Country Risk 2(1 - lowest risk, 10 - highest risk)
    Economy Risk 2
    Industry Risk 3
Deposit Guarantee Scheme 
    Maximum Protected Amount 100 000 EUR
Country Ceiling for Deposits 
    Local Currency (Euro)Aaa prime
    Foreign CurrencyAaa prime
Deposit Rates (Aug 2016, EUR)0.30 % ↑ (Jul 2016: 0.17 %)
Banking Sector Structure 
    Number of Banks145
    Recent Changes (2015) new banks: 2, closed banks: 6
    Consolidated Assets (2015) 811.24 bln EUR ↑ (+0.09%)
Major Banks
 Deutsche Bank Luxembourg S.A.  BGL BNP Paribas
 Societe Generale Bank & Trust S.A.  UniCredit Luxembourg S.A.
 Banque et Caisse d’Epargne de l’Etat, Luxembourg  Hypothekenbank Frankfurt International S.A
 CACEIS Bank Luxembourg
 List of Banks in Luxembourg

Luxembourg Economy

National Currency

Luxembourg joined the Euro Area on 1 January 1999.

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GDP

According to Eurostat, nominal GDP of Luxembourg in 2015 was 52.1 bln EUR.

Luxembourg outperforms the European Union in terms of real GDP growth with the average annual differential coming to 1.6% over the past 10 years (2005 - 2015). In 2015 real GDP growth was 4.8% which was above the Euro Area average (1.6%) and above the European Union average (1.9%). Real GDP growth in 2016 - 2021 are IMF's estimates.

Real GDP Growth in Luxembourg.
Chart 1. Real GDP Growth in Luxembourg. Source: Eurostat, International Monetary Fund.

In 2015, nominal GDP per capita in Luxembourg was 91 600 EUR.

Luxembourg has an above-average level of wealth in terms of per-capita GDP at purchasing power parity (PPP); this economic welfare indicator has, on average, exceeded that of the European Union by 145.4% over the past 10 years (2005 - 2015). GDP per capita at PPP in 2016 - 2021 are IMF's estimates.

GDP Per Capita at Purchasing Power Parity in  Luxembourg; European Union = 100.
Chart 2. GDP Per Capita at Purchasing Power Parity in Luxembourg; European Union = 100.
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Inflation Rate

According to Eurostat, inflation rate in Luxembourg in 2015 expressed as annual percentages of average consumer prices was 0.1% which was above the Euro Area average (0.0%) and above the European Union average (0.0%). Inflation rates in 2016 - 2021 are IMF's estimates.

Inflation Rate in Luxembourg.
Chart 3. Inflation Rate in Luxembourg. Source: Eurostat, International Monetary Fund.
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Taxation in Luxembourg

Withholding Tax

Withholding taxes are imposed at source of income and are often applied to dividends, interest, royalties, rent and similar payments. The rates of withholding tax are often reduced by double taxation agreements.

Withholding tax rates applied on payments of interest and dividends in Luxembourg are shown in Table 1.

Dividends Interest
Natural person, resident 0.010.0
Natural person, non-resident 15.00.0
Table 1. Withholding tax rates in Luxembourg.
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Double Taxation Agreements

Double Taxation Agreement (DTA) is an agreement between two or more countries for the avoidance of double taxation.

Luxembourg signed DTAs which already came info force with the following jurisdictions (for agreements which came into force after 01 January 2013 the date of coming into force is given in brackets):

 Armenia
 Austria
 Azerbaijan
 Bahrain
 Barbados
 Belgium
 Brazil
 Bulgaria
 Canada
 China
 Czech Republic
 Denmark
 Estonia
 Finland
 France
 Georgia
 Germany (Sep 2013)
 Greece
 Guernsey (Aug 2014)
 Hong Kong
 Hungary
 Iceland
 India
 Indonesia
 Ireland
 Israel
 Italy
 Japan
 Kazakhstan (Dec 2013)
 Korea, Republic of
 Lao People's Democratic Republic (Mar 2014)
 Latvia
 Liechtenstein
 Lithuania
 Macedonia (Jul 2013)
 Malaysia
 Malta
 Mauritius
 Mexico
 Moldova, Republic of
 Monaco
 Mongolia
 Morocco
 Netherlands
 Norway
 Panama
 Poland
 Portugal
 Qatar
 Romania
 Russian Federation
 San Marino
 Seychelles (Aug 2013)
 Singapore
 Slovakia
 Slovenia
 South Africa
 Spain
 Sri Lanka (Apr 2014)
 Sweden
 Switzerland
 Tajikistan (Jul 2013)
 Thailand
 Trinidad and Tobago
 Tunisia
 Turkey
 United Arab Emirates
 United Kingdom
 United States
 Uzbekistan
 Vietnam

There are also several agreements between Luxembourg and other jurisdictions which were signed but haven't yet come into force (for agreements signed after after 01 January 2013 of signing the agreement is given in brackets):

 Albania
 Czech Republic (Mar 2013)
 Isle of Man (Apr 2013)
 Jersey (Apr 2013)
 Kuwait
 Saudi Arabia (May 2013)
 Sierra Leone (Oct 2013)
 Ukraine
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Information Exchange

There are 3 ways for jusrisdictions to exchange information on tax matters:

  • spontaneously;
  • on request;
  • automatically.

Tax Information Exchange Agreements (TIEAs) enable exchange of information on request relating to a specific tax investigation, either criminal or civil.

Automatic information exchange allows jurisdictions to exchange information automatically, without having a specific tax investigation.

Luxembourg signed the automatic information exchange agreement on 29 October 2014 and committed to start the automatic information exchange in September 2017.

Further Information:
Automatic Exchange of Information on Financial Accounts
Countries Which Will Not Automatically Exchange Account Information

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FATCA

Foreign Account Tax Compliance Act (FATCA) which became law in the United States in March 2010, focuses on reporting made by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. The FATCA-reporting is facilitated by Intergovernmental Agreements (IGAs).

Luxembourg has FATCA agreement with the U.S. in effect since 28 March 2014 (Intergovernmental Agreement Model 1). Financial institutions operating in Luxembourg are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. The agreement is reciprocal: Luxembourg financial accounts hold in U.S. financial institutions will be reported to Luxembourg authorities.

Further Information:
FATCA and European countries

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Luxembourg Banking Sector

Financial Market Development

According to World Economic Forum's Global Competitiveness Report 2016-2017, financial market development in Luxembourg is scored 5.0 out of maximum 7.0 and ranked 14th out of 138 analysed economies. Soundness of banks is scored 6.1 bringing Luxembourg into the 12th place, trustworthiness and confidence of financial market is scored 4.9 (34th place).

Financial Market Development in Luxembourg.
Chart 4. Financial Market Development in Luxembourg. Source: WEF.
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Banking Industry Country Risk

Banking Industry Country Risk Assessment (BICRA) is a methodology designed by Standard&Poor's "to evaluate and compare global banking systems". A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA methodology has two main analytical components: "economic risk" and "industry risk". Each of the components is then further divided into 3 "factors" that result in an economic and industry risk score for each country.

Luxembourg is included into group '2' with economic risk scored '2' and industry risk scored '3'.

BICRA Group 2
Economic risk 2
    Economic resilience very low
     Economic imbalances very low
    Credit risk in economy intermediate
Industry risk 3
    Institutional framework intermediate
    Competitive dynamics low
    Systemwide funding low
Government support assessment supportive

Table 2. BICRA for Luxembourg. Source: S&P's.

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Deposit Guarantee Scheme

Deposit Guarantee Schemes compensate certain deposits held by depositors of a bank that becomes unable to meet its obligations.

From a depositor's point of view it is important to know:

  • if the depositor is eligible within the terms of the deposit guarantee scheme;
  • if the depositor's bank is a participant in the deposit guarantee scheme;
  • if the depositor's type of deposit is covered by the deposit guarantee scheme.

All these details about deposit guarantee scheme in Luxembourg are summarised in Table 3.

Scheme Participantsall credit institutions operating in Luxembourg, branches of non-EU banks, branches of Luxembourg banks abroad
Scheme Exemptionsbranches of EU-banks (covered by their home countries)
Eligible Depositorsnatural persons, small businesses with headquarters in EU
Covered Accountsall cash deposits
Covered Currenciesall
Maximum Protected Amount100 000 EUR
Paid In CurrencyEUR

Table 3. Deposit guarantee scheme in Luxembourg.

Further Information:
Deposit Guarantee Schemes in Europe

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Country Ceiling for Deposits

Moody's country ceilings for deposits specify the highest rating that can be assigned to local- or foreign- currency denominated deposit obligations of a bank or other deposit taking institution domiciled within that country.

Local currency (Euro) deposit ceiling for Luxembourg is set to Aaa (prime), foreign currency deposit ceiling is Aaa (prime).

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Deposit Rates

In Aug 2016, an agreed annualised deposit rate in local currency (Euro) of new contracts with agreed maturity up to 1 year between credit institutions and households was 0.30% which was below the Euro Area average (0.53%).

Deposit Rates in Luxembourg.
Chart 5. Deposit Rates in Luxembourg. Source: ECB.

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Banking Sector Structure

Currently there are 145 credit institutions operating in Luxembourg.

Recent structural changes (2013 - 2015) of the banking sector of Luxembourg are summarised in Table 4.

201320142015
Number of Opened Banks792
Number of Closed Banks196

Table 4. Recent structural changes in the banking sector of Luxembourg.

All the credit institutions operating in Luxembourg can be classified into several categories. Table 5 summarises the number of banks in each category.

CategoryNumber of Banks
Banks103
Branches of foreign banks41
Central banks1

Table 5. Number of banks by category in Luxembourg.

The list of the most recently opened banks in Luxembourg is provided in Table 6.

There are 41 branches of foreign banks from 13 different countries in Luxembourg. Table 7 shows 10 countries having the biggest number of branches in Luxembourg.

Country of OriginNumber of Branches
 Germany14
 United Kingdom5
 China5
 Switzerland3
 France3
 Portugal2
 Sweden2
 Brazil2
 Netherlands1
 Turkey1

Table 7. Number of branches of foreign banks in Luxembourg grouped by country of origin.

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