Francis Hoogewerf examines developments in Luxembourg’s financial industry and considers why the jurisdiction is such a success.
Having a Prime Minister who is also head of the Euro keeps Luxembourg very much in the picture. Jean Claude Juncker must be one of the longest serving Prime Ministers in the EU. Prime Ministers from countries around the world like to keep in touch with the Euro so they visit Luxembourg and friendships are made.
The Euro is slowly finding its way but not without sacrifices and problems. The next problem to face will no doubt be inflation.
Luxembourg’s banking, finance and fund industry is doing well, all things considered. Unemployment remains at around six per cent while private banking is still consolidating. The net job losses in this sector in 2010 were around 600 persons which is reasonable in the circumstances and means that the salary costs have not increased over the last year. Some banks are growing, such as a Brazilian bank (which intends to double its staff in 2011) and Chinese banks in Luxembourg.
The tail end of the UBS-Madoff situation still needs to be sorted out (one problem leads to other problems).
Clearstream, the clearing house, remains a world leader for the global market place, with its state of the art facilities being constantly developed.
Islamic Finance is taking root in Luxembourg, being promoted by the Luxembourg for Finance Agency.
ALFI (the Association of the Luxembourg Fund Industry) has recently and logically opened an office in Hong Kong covering the areas of HK, Japan, Thailand, Singapore and mainland China. This office will be the eyes, ears and voice for both Europe and Asia, especially in relation to new European directives.
Luxembourg had a Pavilion at the Shanghai World Expo and by October 2010 over seven million visitors had visited the Luxembourg Pavilion.
On the practical side at last ‘they’ are talking about a fast train service from Brussels to Bâle via Luxembourg and Strasbourg. The Luxembourg to Strasbourg route is moving forward and Paris to Luxembourg is already an easy two hours.
Property prices continue to rise in Luxembourg.
Some weak points still exist - there is a need for staff from outside the EU and the work permits are very slow indeed. Also the need to obtain authorisation for commercial businesses remains a barrier to doing business from Luxembourg and improving the unemployment position.
The life insurance industry has been growing fast. The latest figures, which cover 2009 to 2010, show nearly a 100 per cent growth in premium income in the area of ‘guaranteed’ products. It is felt that some of this growth is due to the possibility of a new EU Savings Directive.
The 1929 Holding Company legislation came to an end on 31 December 2010. To some extent the 1929 Holding Company law was replaced by the more restrictive but tax advantageous Family Holding Company (SPF).
On the other hand the Luxembourg SOPARFI with its parent subsidiary tax exemptions is going to be hit by a minimum annual tax of €1500, whether or not there are profits to be taxed. This tax is expected to raise €50 million per annum to help cover the crisis costs. In addition there is to be a €350 per annum charge for the Luxembourg Chamber of Commerce and other extra smaller taxes of plus or minus €70.
It is felt that the Luxembourg SOPARFI will be at a disadvantage compared to Malta, Cyprus and other EU locations. It is common knowledge that Luxembourg is often considered to be the ‘Rolls Royce’ of EU holding companies, but not everyone can afford to pay the price of a Rolls Royce. This tax will no doubt lead to a consolidation of the firms providing SOPARFI services in Luxembourg.
The one advantage of this corporation tax is that vis à vis other countries not being happy with Luxembourg’s positive approach, at least corporate tax will have been paid (even at an effective rate of 100 per cent when there are no profits).
Shipping Luxembourg celebrates 20 years
Towards the end of the 1980s some people were surprised to see that Luxembourg intended to become a shipping nation. Luxembourg surrounded by France, Germany and Belgium had no sea. However, more or less at the suggestion of Belgium, a ship register came into being and Luxembourg became a sea-faring nation. Luxembourg became known for its mega yachts and is now becoming known for dredgers and the like.
The Luxembourg flag is well respected and is on the list of the 22 most respected flags globally. It follows that Luxembourg, known as a centre for transport by road, by air, by rail, is now celebrated as a centre for transport by sea.
The onshore world needs tax treaties. Luxembourg being a finance and holding company hub is much in need of good tax treaties and has over 76 tax treaties. As one of the biggest worldwide investors in Russia, Luxembourg needs to sign a good treaty with the Federation and is expected to conclude the Treaty before May 2011.
Both Hong Kong and China are important. Luxembourg has a particularity good treaty with Hong Kong and a treaty with China as well as India and Brazil. Monaco and Liechtenstein are also likely to be interesting tax treaties.
Luxembourg remains high on the world map both for investment funds and for banking. We must not forget Arcelor-Mittal, the world’s biggest steel group headquartered in Luxembourg. If one looks at the size of Luxembourg compared with its population, it is relatively under populated and therefore has considerable room for growth in the future.
Francis Hoogewerf FCA, Hoogewerf & CIE, Luxembourg