Top Challenges of Doing Business in Luxembourg

Top Challenges of Doing Business in Luxembourg

07 March 2019

Nestled among Europe’s most highly developed and affluent markets, Luxembourg is an ideal logistics hub for expanding businesses. But complex laws and regulations make day-to-day operations difficult without the right help on board.

Disclaimer: This article was accurate at the time of publishing. To obtain the most up-to-date information, please get in touch with our local experts.

Thanks to its central position and quick access to neighbouring markets, Luxembourg has successfully established itself as a strategic centre for businesses looking to expand in Europe. The central airport is the seventh-largest air cargo hub in Europe and home to some of the biggest freight carriers. Efficient railway connections give good access to the ports of the North Sea, making Luxembourg a hinterland port of Antwerp, Zeebrugge, Amsterdam, Rotterdam and Hamburg.

The domestic economy is certainly worth shouting about too. Despite being one of the smallest countries in the world, it is also one of the wealthiest, and tops the Global Innovation Survey (Insead) and the Global Competitiveness Index (IMD) thanks to its healthy business environment and modern finance sector. Private banking in Luxembourg forms one of the main pillars of the financial industry; it is the largest in the eurozone and is ranked sixth in the world.

But despite its strong economic credentials, doing business in Luxembourg can be a difficult task without prior knowledge of the corporate landscape.

Starting a Business
The World Bank and International Finance Corporation (IFC) rank Luxembourg in 93rd position in the world for ease of starting a business - a drop of nine places on 2012. Filing and processing of the business licence takes over two weeks to complete, and capital requirements must be completed before the business can be established.

Dealing with Construction Permits
It takes an average of 157 days to receive construction permits, with 12 procedures to complete. Several inter-governmental departments must be consulted during the process, such as the Cadastre Administration, the Environment Department, the Urban Department (service de l'urbanisme) of the Commune and the Ministry of Works.

Getting Electricity
Getting an electrical connection is also a time consuming ordeal, taking 120 days on average to complete. Creos Luxembourg S.A are to be consulted first to obtain a certificate on the availability of electrical capacity, before a private unite substation for the external works can be carried out and an excavation permit is sought from the local government control. Companies must get an application for final development in order for external works to be carried out.

Registering Property
A notary carries out the lion’s share of the work when it comes to registering property. They are required to draft and authenticate the sale agreement, conduct a full search at the property registry and at the Administration du Cadastre and notify tax administration of the transfer. Later on in the process, the notary will also register the transfer deed at the Administration de l'Enregistrement et des Domaines.

Getting Credit
Getting credit can be a difficult task in Luxembourg, with little credit information through public credit registries or private credit bureaus. Collateral and bankruptcy laws are also limited, which constrains the lending cycle.

Protecting Investors
The World Bank and IFC rank Luxembourg in the bottom 50 countries in the world for investor protection, largely due to the shareholder suits index and director liability index being rather weak.

Paying Taxes
There are 23 tax payments to be made each year by businesses operating in Luxembourg, taking less than 60 hours a year to process. Corporate tax rates are very competitive, although certain levies - such as property tax and net wealth tax - can take a bite out of personal and company earnings.

Trading Across Borders
The cost of trading across borders is very expensive; almost US$400 per container more than the OECD average. Exporting requires five documents to be filed taking seven days to complete, and importing takes the same time but with fewer documents.

Enforcing Contracts and Resolving Insolvency
Enforcing contracts takes less than a year to complete and involves only 26 procedures compared to the OECD average of 31. Resolving insolvency takes two years and has quite a low recovery rate.

Business is a very formal ordeal in Luxembourg, and there is a distinct segregation between personal and corporate life. Small talk is important in building rapport but be sure not ask personal questions. Luxembourgish is the national language, although French, German and English are widely spoken.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Luxembourg or just want to streamline your Luxembourger operations, talk to us.

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