About Luxembourg

Luxembourg has the highest GDP per capita in the world, according to the International Monetary Fund (IMF). Its economy is largely driven by the financial sector, while other key industries include steel, chemicals and rubber. Its centralised location in Europe gives Luxembourg access to more than 500 million consumers, countering its own small domestic market.

Finance remains the largest economic driver, contributing around one third of GDP, with the country specialising in cross-border fund administration business. An internationalised banking sector, skilled labour force and access to other European centres have further propelled Luxembourg's financial sector.

Business-friendly regulatory frameworks, competitive tax rates and RDI incentives have incentivised foreign investment and innovation within the country. The government has offered subsidies to small-to-medium enterprises (SMEs) and tax exemptions for start-ups to increase entrepreneurship in the country. Moreover, due to the small size of the country, public institutions have less bureaucratic structures which enhances the efficiency of administrative procedures.

Luxembourg is one of the biggest financial centres in Europe, with more than 120 banks and USD4 trillion in assets in the custody of financial institutions.

Luxembourg Market Profile Infographic_Small

What solutions are available in Luxembourg?

Solution Description
Treasury Centres A centralised treasury is one way to reduce the tax burden, centralise risk management, improve liquidity and enhance yield on cash.
Interest Optimisation Maximise your interest yield from for your balances held with the bank.
Notional Pooling Cash balances in different accounts are notionally offset to derive the net balance, which is then used to calculate interest.
Sweeping/ Zero Balance Account (ZBA) ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.
Intercompany loans Similar to bank loans, intercompany loans refer to lending between entities within the same group.

Corporate Treasury in Luxembourg

Luxembourg is one of the wealthiest countries in Europe and is a founding member of the European Union. It has a highly developed financial services sector. Here, we highlight some of the key benefits relevant to treasury and cash management in Luxembourg.


Financial Market Development

  • The World Economic Forum ranks Luxembourg 10th in the world for its financial system in The Global Competitiveness Report 2019.
  • The report ranks Luxembourg 7th in the world for the soundness of its banks and 13th for its banks’ regulatory capital ratios, while the country comes 15th for financing to SMEs and 11th for venture capital availability.
  • Luxembourg has excellent business infrastructure, an international and highly skilled labour force, an attractive legal framework and a stable macroeconomic environment.
  • There are no foreign-exchange controls in Luxembourg.


Sophistication of Banking Systems

  • The CSSF (Luxembourg’s financial regulator) has 128 banks registered on its official list, of which the vast majority are foreign-owned, with only eight giving Luxembourg as their country of origin.
  • Luxembourg is a key private banking centre in the eurozone and the second-largest fund management centre in the world.
  • Luxembourg's foreign-exchange market has an average daily turnover of USD57.61 billion (Bank for International Settlements Triennial Central Bank Survey 2019).
  • Luxembourg has a well-developed debt market with both government and corporate bonds available. The government recently issued its first sovereign sustainability bond. Outstanding debt securities stood at USD1,075 billion at the end of the first quarter of 2020.


Regulatory Bodies

  • The banking industry is regulated by the Commission de Surveillance du Secteur Financier. As a eurozone country it is also covered by the Single Supervisory Mechanism. Luxembourg’s central bank is the Banque Centrale du Luxembourg.



  • For businesses with taxable income of less than EUR175,000, the corporate tax rate is 15%. For businesses with taxable income between EUR175,000 to EUR200,001, the corporate tax will be computed as EUR26,250 plus 31% of the taxable income over EUR175,000. For companies with taxable income above EUR200,001, the corporate tax rate is 17%.
  • In addition to the corporate tax above, companies also pay a solidarity surtax of 7% on the corporate income tax rate and a municipal business tax, which varies according to location.
  • Companies are subject to a net wealth tax of 0.5% on their net wealth up to EUR500 million and 0.05% on the component above this amount.
  • Resident companies are subject to tax on their worldwide income whilst non-resident companies are taxed on Luxembourg-sourced income.
  • The standard Value Added Tax (VAT) is 17% with certain goods and services qualifying for lower rates of 14%, 8%, 3%, or are VAT-exempt.
  • Interest income is taxed as corporate income. Interest expenses are generally tax-deductible. Whilst there are no thin capitalisation rules in Luxembourg, in practice the tax authorities apply an 85:15 debt-to-equity ratio on intra-group financing participation. The interest in excess of the prescribed ratio will be disallowed for corporate tax purpose and may be subject to 15% withholding tax.
  • There is no stamp duty in Luxembourg.
  • Tax incentives, usually in the form of investment tax credits, are available for companies in the areas of risk capital, audio-visual activities, environmental protection, R&D, professional training and the recruitment of unemployed people.
  • There is no withholding tax (WHT) on interest in Luxembourg. WHT on dividends is either 0% or 15% for resident companies. Withholding tax of 0% or 15% is charged on dividends paid or payable to non-resident companies where no tax treaty is in place. Rates range from 0% to 15% where a tax treaty is in place and the non-resident can provide a Certificate of Residence.
  • Luxembourg has tax treaties with more than 80 countries and territories.
  • Luxembourg is a signatory to the Organisation for Economic Co-operation and Development's Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.


Benefits for Regional Treasury Centres

  • Luxembourg's stable tax, legal and regulatory regimes make it a highly popular location for companies to base their regional and worldwide treasury operations and shared service centres.
  • It offers access to a wide range of banking services and flexible structuring solutions, as well as an attractive tax regime, including the lowest VAT rate in Europe.
  • Cash concentration is available in Luxembourg. Different legal entities can participate in a notional cash-pooling structure in Luxembourg. There are no regulatory restrictions on cross-border sweeping, but there are central bank reporting requirements.
  • Notional pooling is available in Luxembourg on a domestic and cross-border basis. Multiple legal entities can participate in a notional cash-pooling structure.
  • Luxembourg is a member of the pan-European TARGET2 real-time gross settlement system.
  • It has an extensive tax treaty network.
  • Luxembourg is a eurozone country with trading hours that overlap with Asia, Europe and North America.




Banking System

  • There are 128 banks operating in Luxembourg, of which the vast majority are foreign-owned. Among these, 85 are incorporated under Luxembourg law and 42 are branches of foreign banks.
  • Seven of Luxembourg's largest banks take up 35% of total banking assets. The largest bank in terms of assets is Deutsche Bank, followed by Banque et Caisse d'Épargne de L'État (BCEE) and CACEIS Bank Luxembourg.
  • German banks have the largest presence in Luxembourg’s banking sector with 13 banks located there, followed by China, France and Switzerland. China’s growing presence – eight banks now operate in Luxembourg – underscores the increased diversification of global banking.
  • Luxembourg provides a wide range of banking services, particularly in private, asset-servicing, corporate and retail banking, and although it serves its domestic market, the vast majority of services are geared towards the international market through its foreign banks. It also provides services for country segments, such as asset servicing for US and UK banks, and asset servicing and private banking for Swiss banks.
  • Luxembourg operates two types of banks: universal banks (the majority) and mortgage-bond banks. Three of its largest banks are universal banks.


Bank Accounts

  • Residents may hold foreign-exchange and domestic-currency accounts both domestically and overseas, whereby domestic-currency accounts are freely convertible to foreign currency.
  • Non-residents may hold foreign- and domestic-currency accounts, whereby domestic-currency accounts may be held overseas and are freely convertible to foreign currency.
  • Interest is available on current accounts.


Legal and Regulatory

  • Banque Centrale du Luxembourg (BCL) is an autonomous institution and a member of the European System of Central Banks (ESCB).
  • Commission de Surveillance du Secteur Financier (CSSF) regulates the banking sector.
  • The European Central Bank (ECB) supervises banks within the eurozone that are regarded as 'significant' through the Single Supervisory Mechanism (SSM), and other 'less significant' banks are supervised by the national central bank. In the case of Luxembourg, it is the banking regulator, CSSF.
  • There are no foreign-exchange controls in place.
  • Luxembourg is one of the founding members of the European Union (EU).
  • A company is resident if it has its head office in Luxembourg.
  • Luxembourg has anti-money laundering and counterterrorism financing legislation in place, and follows EU anti-money laundering directives.
  • Luxembourg has set up a financial intelligence unit, the Financial Cellule de Renseignement Financier (FIU-LUX), which is a member of the Egmont Group.
  • Individuals entering or leaving the EU are required to declare currency of EUR10,000 to customs.




On 13 January 2018, the revised Payment Services Directive (PSD2) became law across all EU Member States. A revision of the initial PSD adopted in 2007, PSD2 updates and enhances the legal framework for payment systems across the European Economic Area (EEA) single market, to be supervised by the European Banking Authority. Supplemental regulatory technical standards are also being rolled out, from March 2018 to September 2019, to address issues of authentication, monitoring and API (application programming interface) standardisation.

The main objective of PSD2 is to provide enhanced consumer security in the developing financial technology (fintech) environment i.e. for electronic payments such as mobile payments, credit transfers, online payments and direct debits.

Measures include:

  • Prohibition of surcharges on credit/debit card payments.
  • Imposition of strict security requirements including the protection of financial data.
  • Increased competition between European payment service providers.
  • Greater consumer rights such as ‘no questions asked’ refunds on direct debits in euros.


Payment Systems


The Eurozone's Real-time Gross Settlement (RTGS) system

  • Operates on behalf of the Eurosystem.
  • Three Eurosystem central banks – Banca d'Italia, Banque de France and Deutsche Bundesbank – provide the Single Shared Platform (SSP) of TARGET2.
  • Processes high-value and urgent EUR-denominated domestic and cross-border credit transfers.
  • Activates final settlement of participants' net balances from STEP2 (pan-European Automated Clearing House).
  • Settles transactions in real time and with immediate finality.
  • Transactions are processed electronically using SWIFT.
  • Final settlement is done across participant banks' correspondent accounts held at the SSP.
  • Luxembourg has 48 direct and 25 indirect participants.
  • TARGET Instant Payment Settlement (TIPS) service was launched on 30 November 2018 and offers instant fund transfers 24/7, 365 days a year.


Pan-European RTGS-equivalent net settlement system

  • Operated by the Euro Banking Authority (EBA) Clearings.
  • Processes high-value (no maximum value threshold) and urgent Euro-denominated domestic and cross-border payments.
  • Payments processed with immediate finality and are irrevocable.
  • 52 participant banks.


Pan-European net settlement system

  • Operated by EBA Clearings.
  • Processes low-value (no minimum value threshold) and non-urgent Euro-denominated commercial payments.
  • STEP1 is open to all banks in the EU and has access to EURO1 platform.


Pan-European Automated Clearing House (ACH)

  • Operated by EBA Clearings.
  • Processes low-value, non-urgent and bulk Euro-denominated retail payments.
  • Provides straight-through processing for interbank transactions.
  • Settlement done same or next day, depending on time of submission.
  • A pan-European real-time infrastructure for EUR-denominated transactions is under development by EBA Clearing and Italy’s SIA Group (one of the operators of STEP2).
  • Cross-border transactions can be processed through SWIFT and overseas correspondent banks.
  • Luxembourg has eight participant banks.


Single Euro Payments Area

Pan-European payment infrastructure 

  • Initiated by the European Payments Council.
  • Operates a common set of payment instruments, infrastructures, procedures and standards for euro transactions within Europe.
  • Electronic retail payments within SEPA are regarded as domestic payments.
  • SEPA is not applicable to urgent, high-priority payments or cheques.
  • SEPA countries include 28 European Union (EU) member states and four European Free Trade Association member states (Iceland, Liechtenstein, Norway and Switzerland).
  • A Europe-wide legal framework for payments, PSD2, was launched in 2016, which essentially provides security for electronic payments inside and outside of the EEA.
  • In Luxembourg SEPA is implemented by the Luxembourg Bankers Association (Association des Banques et Banquiers, Luxembourg [ABBL]).
  • There are two SEPA payment instruments: SCT Inst and SDD (see below).

SCT Inst

SEPA Instant Credit Transfers
Pan-European instant payments system
  • Operated by the European Payments Council (EPC).
  • 585 participants.
  • Launched in November 2017, this scheme provides EUR-denominated credit transfers up to a maximum of EUR 15,000 within 10 seconds. Available 24/7, year round.
  • Currently there are eight participating countries: Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. The network will progressively cover all 34 European countries with access to SEPA.
  • Corresponding national systems were phased out in 2016.


SEPA Direct Debits
Pan-European direct debit system
  • Operated by the European Payments Council (EPC).
  • 585 participants.
  • There are two types of SDD: SDD Core for consumers and SDD B2B for businesses.
  • Operates whereby the payer has to give approval via a mandate provided by the biller electronically or on paper. Otherwise known as creditor-driven mandate flow.
  • Corresponding national systems were phased out in 2016.
RT1 Pan-European real-time EUR credit transfer system
  • Operated by EBA Clearing, which also operates EURO1, STEP1, STEP2 and Italy's SIA Group (one of the STEP2 operators).
  • Launched in 2017.
  • 28 participants.
  • A pan-European real-time infrastructure for EUR-denominated SEPA transactions.
  • Supports transactions compliant with SCT Inst scheme.
  • Messaging is in line with ISO 20022 or SWIFT FIN standard.



Payment Instruments


Credit Transfers

  • All credit transfers are automated. They accounted for only 24.3% of payment transactions in terms of volume, but 98.8% in terms of value (European Central Bank, 2019).
  • High-value and urgent credit transfers are settled through TARGET2 in real time.
  • Low-value and non-urgent SEPA credit transfers are cleared through STEP2 same day.
  • Credit transfers are used for payroll, supplier and third-party transactions.
  • The SEPA Instant Credit Transfers (SCT Inst) scheme is used for retail transactions and is available for urgent and high-priority payments (no maximum threshold) within the SEPA.


Direct Debits (auto debits)

  • Used for low-value, regular payments such as utility bills.
  • Direct debits made up 6.6% of payment transactions in terms of volume and only 0.6% in terms of value (European Central Bank, 2019).
  • The SEPA Direct Debit (SDD) scheme is used for urgent and high-priority retail payments (no maximum threshold) within the SEPA. It is mandatory for all banks in the eurozone to offer SDD facilities and banks outside of the eurozone are required to accept SDD transactions.
  • SEPA SDD transactions are cleared same day through STEP2.


Card Payments

  • Payment cards are most commonly used for low-value transactions. Payment card transactions accounted for 69% of the volume of cashless payments (excluding electronic money payments), but only 0.62% of total value.
  • The main payment card brands are Visa and MasterCard, although American Express and Diners Club credit cards also have a presence. All payment cards are SEPA- and Europay, MasterCard and Visa (EMV)-compliant.
  • Card payments are mainly processed through SIX Payment Services (a card-processing company with major operations in Switzerland, Austria and Luxembourg), except American Express and Diners Club, which use their international card schemes.
  • Card transaction volume was equally split between debit and credit cards in 2018, with credit cards usage accounting for 62% of card transaction value.
  • Credit card penetration is high with 3.05 cards per capita, in comparison with 1.3 per capita for debit cards.


Online Payments

  • As one of the EU’s leading financial centres, Luxembourg has initiated measures within government and industry to create a conducive environment for innovation in the financial technology (fintech) sector. The government launched the Digital Lëtzebuerg Strategy in 2014 which earmarked fintech as one of the six key areas for development to turn Luxembourg into a digital nation.
  • Association des Banques et Banquiers, Luxembourg (The Luxembourg Bankers' Association or ABBL) has launched a ‘fintech ecosystem map’ which provides essential information for fintech companies, such as listings of all fintech companies, relevant government institutions and regulators, research and development facilities and financing bodies.
  • Regulation around fintech is still in its early stages, with startups and fintech companies falling under the scope of existing laws and regulations and all applications being made to the Commission de Surveillance du Secteur Financier (CSSF).
  • The EU launched an ‘action plan on Fintech’ in 2018 that broadly sets out its approach, to be rolled out in due course. The areas of focus are: to encourage innovative business models; to support technological development in blockchain, artificial intelligence and cloud services; and to increase cybersecurity and protect the integrity of the financial system.
  • Digital transactions continue to grow in popularity, with 39% of consumers making online payments as their preferred method of cashless payment (, 2017) and an estimated 25% of consumers using mobile banking and/or mobile payments. Luxembourg has the third-highest use of mobile banking in Europe.
  • Ecommerce payments in 2018 were mainly made using bank transfers (51%), cards (27%) and digital wallets (10%).
  • Local digital wallet, Digicash, was launched initially as a government-sponsored scheme, and has been widely adopted, being the third-most preferred method of payment (www.statista, 2017).
  • All the major banks as well as online e-payment providers (such as PayPal, Cashcloud and Saferpay) offer online and mobile payment services.
  • There are also reloadable prepaid cards available such as Easy card offered by Visa and Neteller.
  • MultiLine is the electronic banking application used to settle payments before they are processed through SIX Payment Services. It supports EBICS (Electronic Banking Internet Communication Standard) which is a SEPA-compliant transfer protocol.


Digital Currencies

  • There is an active market in cryptocurrencies, with one in ten people owning a cryptocurrency. The CSSF has adopted a cautious approach to virtual currency and does not have any specific regulations in place, despite growing interest in initial coin offerings (ICOs).
  • The EU’s overall view of bitcoin is that “no member state can introduce its own currency”. Cryptocurrency exchanges are legal, depending on the country, and should be operated under the Anti-Money Laundering Directive, according to the European Commission.


Cash, Cheques and Money Orders

  • Cash is still a common form of payment, especially for low-value retail transactions.
  • Cheques, an increasingly rare form of payment in Luxembourg, are settled bilaterally by banks.
  • Western Union is the main service provider for international remittances.



Luxembourg Market Profile Diagram

1 (Main) reduced and zero-rated VAT for certain goods and services

2 Additional solidarity surtax of 7% and variable business tax also charged

3 (Progressive) max rate on incomes over EUR200,004



This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Luxembourg and take advantage of our innovative solutions to empower your business. Click here to find out more.



Sources: IMF, World Economic Forum, PwC, Bank for International Settlements, Commission de Surveillance du Secteur Financier, Association of the Luxembourg Fund Industry, OECD, DBS, European Central Bank, TheBanks.EU, Banque centrale du Luxembourg (BCL), J.P. Morgan.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. The information is assembled based on information available and accurate as at Dec 2019.

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