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Economy and Banking Sector of Luxembourg

Luxembourg
Location
Western Europe
Population  (2016)
576 249  (+0.02%)
EU Status
member since 1952
Currency
EUR (Euro)
Nominal GDP (2015)
52.1 bln EUR  (+0.05%)
Credit Ratings (as of Sep 2016)
AAA/Aaa/AAA
Consolidated Banking Assets (2015)
811.24 bln EUR  (+0.09%)
Deposit Guarantee
100 000 EUR
Number of Banks
147

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.

List of Banks in Luxembourg

National Currency

Euro (EUR)

Luxembourg joined the Euro Area on 1 January 1999.

GDP

Nominal GDP (2015)Nominal GDP per Capita (2015)Real GDP Growth (2015)
52.1 bln EUR  (+0.05%)91 600 EUR  (+0.03%)4.8 %  (2014: 5.6 %)

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.

Inflation Rate

CPI, MoM (Dec 2016)CPI, YoY (Dec 2016)CPI, Year Average (2016)
0.4 %  (Nov 2016: 0.0 %)1.6 %  (Nov 2016: 0.6 %)0.0 %  (2015: 0.1 %)

According to Eurostat, inflation rate in Luxembourg in 2016 expressed as annual percentages of average consumer prices was 0.0% which was below the Euro Area average (0.2%) and below the European Union average (0.3%). Inflation rates in 2017 - 2021 are IMF's estimates.

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

Unemployment Rate

Unemployment Rate (2015)
6.4 %  (2014: 6.0 %)

Government Bond Yield

Government Bond Yield (Dec 2016)
0.39 %  (Nov 2016: 0.28 %)

Credit Ratings (as of Sep 2016)

Fitch Moody's S&P
AAA (highest credit quality), outlook stable Aaa (prime), outlook stable AAA (prime)

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 in Luxembourg: 0.0 - 15.0%

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

Dividends Interest
Natural person, resident 0.0 %10.0 %
Natural person, non-resident 15.0 %0.0 %
Table 1. Withholding tax rates in Luxembourg.

Double Taxation Agreements

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

DTAs of Luxembourg: 79 Signed Agreements

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

Information Exchange

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

  • spontaneously;
  • on request;
  • automatically.

Spontaneous exchange of information is provision of information that is forseeably relevant to another party without a request being previously sent.

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.

Automatic Exchange: Starts in September 2017

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

Further Information

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).

FATCA Status in Luxembourg
IGA in effect since 28 March 2014, Model 1

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

Financial Market Development

Financial Market Development
5.0 (max 7.0), 14th out of 138 countries
Banks' Soundness
6.1 (max 7.0), 12th out of 138 countries

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.

Deposit Guarantee Scheme

Maximum Protected Amount
100 000 EUR

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 2.

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 2. Deposit guarantee scheme in Luxembourg.

Further Information

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) Foreign Currency
Aaa (prime) Aaa (prime)

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

Deposit Rates

Average Deposit Rate (Feb 2017, EUR)
0.32 %  (Jan 2017: 0.37 %)
In Feb 2017, 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 0.32% which was below the Euro Area average (0.43%).
Deposit Rates in Luxembourg. Chart 5. Deposit Rates in Luxembourg. Source: ECB.

Banking Sector Structure

Number of Banks
147
Consolidated Assets (2015)
811.24 bln EUR  (+0.09%)
Recent Changes (2016)
new banks: 3, closed banks: 6

Currently there are 147 credit institutions operating in Luxembourg.

Recent structural changes (2013 - 2016) of the banking sector of Luxembourg are summarised in Table 3.

2013201420152016
Number of Opened Banks7923
Number of Closed Banks1966

Table 3. Recent structural changes in the banking sector of Luxembourg.

The list of the most recently opened banks in Luxembourg is provided in Table 4.

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
Banks100
Branches of foreign banks46
Central banks1

Table 5. Number of banks by category in Luxembourg.

There are 46 branches of foreign banks from 15 different countries in Luxembourg. Table 6 shows 10 countries having the biggest number of branches in Luxembourg.

Country of OriginNumber of Branches
 Germany15
 China6
 United Kingdom5
 France4
 Switzerland3
 Portugal2
 Sweden2
 Brazil2
 Jersey1
 Netherlands1

Table 6. Number of branches of foreign banks in Luxembourg grouped by country of origin.

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