Why is Luxembourg so rich: steel, taxes, billionaires

Luxembourg economic system

Photo by Karolina Grabowska, Pexels

What does it mean to say a country is rich, particularly at a time of growing income inequality between the super-rich and everyone else? GDP (Gross Domestic Product) measures the value of all the goods and services produced in a country and divides it by the number of full-time residents. 

Iron and steel

Many people think that Luxembourg is wealthy because of its past iron and steel industries. At the beginning of the nineteenth century, about 80% of Luxembourg's population was employed in agriculture, living a hard and labor-intensive life. With the appearance of steel much changed.

This led to the construction of new steel mills and the expansion of existing ones, as Luxembourg became a major producer of steel in the world. The Luxembourg steel industry reached its peak in the early 20th century when it employed over 50,000 people.

However, the industry began to decline in the second half of the century, due to the rise of new steel producers in other countries and the increasing cost of energy. The last blast furnace closed in 1997. The industry has undergone a restructuring, and it is now focused on the production of high-value steel products.

Tax regimes in Luxembourg

Taxation in Luxembourg is characterized by its favorable tax regime, which has contributed to the country's reputation as a ‘tax heaven’ and a desirable location for businesses and high-net-worth individuals.

Here are some of the tax regimes and incentives that bring money and people into the country:

Companies and technologies

Luxembourg became home to many gigantic companies that decided to open offices in one of the smallest countries in the European Union.

Here are just a few examples of big corporations with headquarters in the Grand Duchy:

These are just a few of the many large companies that have offices in Luxembourg. The country also became a home to other corporations, including Microsoft, Facebook, and HSBC.

Start-ups and businesses

Luxembourg is very committed to the development of start-ups and businesses. The government and different organizations team up to make sure entrepreneurs get the support they need to grow their start-ups and expand globally.

For example, Luxembourg has a special agency called Luxinnovation. One of their popular programs is Fit 4 Start, where selected start-ups receive money, coaching, and connections to experts and mentors. This program helps start-ups grow faster and prepares them to go global.

To get into the competition, you need to prepare a pitch and answer questions about your business that the organizers will ask. That’s it. You will only need other documents much later — if your start-up is selected

Official European offices

The Court of Justice of the European Union, based in Luxembourg City, is the highest court in the European Union. Its main role is to interpret EU law and ensure that it is applied consistently across the EU.

Luxembourg is also home to the European Investment Bank, which contributes to EU objectives by offering loans to support projects that advance areas such as infrastructure development, innovation and sustainable growth.

In addition, the European Investment Fund is a body set up by the European Union. Its purpose is to support small and medium-sized enterprises, encourage entrepreneurship and promote innovation across Europe.

These are just a few examples of the EU organizations and institutions located in Luxembourg. That makes the country even more important for European affairs and decision-making and richer with opportunities for expats.

Tourism industry in Luxembourg

Luxembourg's tourism sector is experiencing remarkable growth, attracting travelers from all over the world. This charming country captivates visitors with its idyllic scenery, rich cultural heritage, fascinating historical sites, and bustling urban centers.

Tourism generates direct economic activity through the spending of tourists on accommodation, food, transport, activities, and souvenirs. This spending creates jobs and generates income for businesses in the tourism sector.

"The Easter weekend has also proved to be a success, with more than 2,000 people visiting the country. Most of them were from neighboring Germany, France, and Belgium. However, Internet hotel searches have already increased by 24% and are approaching the figures for 2019 according to the Directorate General of Tourism". — Luxembourg aims to beat the tourist record this year at Luxtoday.

How many billionaires are there in Luxembourg

Rich people may not live in Luxembourg, but their money is definitely here. Luxembourg has over 4 trillion dollars in assets under management.

One of the reasons why rich people keep their money in Luxembourg is because of the nice tax regime. The country has a low corporate tax rate of 24%, and there is no capital gains tax. This makes Luxembourg an attractive destination for billionaires and businesses looking to minimize their tax liability.

How much money does Luxembourg have

The state of Luxembourg has a budget of around 500 million euros. The budget is managed by the Ministry of Finance and divided into two main categories: ordinary and extraordinary.

Ordinary expenses refer to costs that are recurrent in nature, such as salaries, pensions and healthcare costs. These are ongoing expenses that are part of an entity's routine operations and obligations.

Extraordinary expenses, on the other hand, are less frequent and are typically associated with significant events or projects. Examples of extraordinary expenses are large-scale infrastructure projects, emergency responses and recovery operations following natural disasters, or unexpected financial burdens that are not part of regular operating expenses.

As for the expenses, the main areas of expenditure for the government are social security, health care, education, and public administration.

Investments in and out of Luxembourg

Luxembourg boasts an impressive 16,777 investment funds, covering a wide range of sectors from venture capital to asset management and hedge funds. Together, these funds manage an impressive 4.5 trillion euros. This demonstrates Luxembourg's position as a hub for financial and investment activities.

Notably, the Luxembourg government has extended its investment efforts beyond its own borders, particularly in the Grand Est region. Investments have been made in the expansion and improvement of roads and railways with France. The government believes that these strategic investments will encourage cross-border cooperation and contribute to economic growth in the region.

Through these investments, Luxembourg aims to strengthen its economic performance, improve the quality of life of its citizens and keep the status of one of the wealthiest nations in the world.