• Henrik

Running a small business in Luxembourg: key findings

Updated: Nov 2, 2020

Luxembourg is one of the world´s richest countries measured by GDP per capita and much of this is due to the financial sector which has steadily been growing rapidly for the past century. A connected factor is also its close alliance with the European Union, of which it was a founding member. Luxembourg is ranked one of the top performers in Europe when it comes to implementing the Single Market, one of the core tenets of the EU, and Luxembourg has a long history of engaging in trade alliances with its neighbouring countries, for example the Zollverein (basically a customs union) which Luxembourg entered into in 1842 with what came to be today´s Germany. According to the Heritage Foundation, which annually publishes the Economic Freedom Index that includes a wide range of factors determining the overall ease-of-doing-business comprising regulations, taxation, administration and related sources, Luxembourg ranks 19th in the world. They place Luxembourg in the “Mostly Free” category with the main point holding it back being the unsustainable increase in government spending on large infrastructure projects.

Source: Heritage Foundation, Economic Freedom Index As highlighted in the 2019 EU Small Business Act review, there is still some work to be done to promote entrepreneurship in Luxembourg however. In that report, which reviews whether a country is on track to promote entrepreneurship and small businesses, Luxembourg attracts criticism for a number of reasons:

  • Willingness of banks to provide loans to small businesses, where Luxembourg is the third weakest performer in the EU. This trend has also worsened in recent years.

  • Cost of starting a business, where the report indicates that Luxembourg is the second worst performer in the EU. 

  • Spirit of entrepreneurship in the population, where only 49% of the population indicate that entrepreneurship is a desirable career choice – the second lowest score among EU Member States. 

  • “Second chances”, which refers to ensuring that honest entrepreneurs who have gone bankrupt get another chance quickly. In this category, Luxembourg is one of the three worst performers in the EU. 

The above paints a rather poor picture of the small business environment in Luxembourg. But there are good things out there, too, and the Government has implemented many policies that seek to make Luxembourg a friendly place to do small business in. Some of the more positive examples raised in the report:

  • The amount of time it takes to pay taxes is one of the lowest in the EU

  • Cost of enforcing contracts is low compared to other Member States of the EU

  • Luxembourg has a calm and structured regulatory environment

  • The competence and effectiveness of government staff in supporting new and growing businesses is seen as high

The report concludes that Luxembourg has made substantial improvements in this area since 2008 and continually works to reduce administrative burden for small businesses as well as supporting them from beginning to end. The SARL-S company form is a very good example of this. 

At Yoba we want to assist small businesses in overcoming these challenges and look forward to seeing the benefits of the Government´s policies in this area. Luxembourg will improve! Read more about the importance of small business in our previous post here. Information regarding corporate taxation in Luxembourg can be found here.

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