Luxembourg Economy

Luxembourg Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

Luxembourg is a stable, developed and high income economy, annual gross salary 51,000 and net salary 38,000 euros). The country has consistently low unemployment (4.7%), solid growth of around 7% (after a dip due to the 2020 pandemic) and an optimal rating/AAA. It ranks first in terms of GDP/population. The exception is the increase in inflation in 2022, which rose to 7% in the spring months of 2022 due to the economic effects of the war in Ukraine. The amount of public debt is 24.3% of GDP. Check ebizdir for economical facts of Luxembourg.

Due to the small size and favorable location, the economy is open, oriented towards foreign trade, integration into larger economies. units (EU; OECD, WTO). The economy is relatively vulnerable due to dependence on the financial sector and cross-border workers (47.9% of the workforce/210,000 people, ex. from neighboring BE, FR and DE).

Industry: 7.2% of GDP: least in the EU (originally steel industry, now also chemical, engineering, glass, rubber and processing industries, food processing, biotechnology, transport/logistics, telecommunications/media, ICT, construction and trade real estate, architectural and engineering services, insurance, accounting and tax experts, advertising agencies, consultants, real estate agencies, tourism).

Agriculture: 0.2% of GDP (e.g. viticulture, grain growing, fruit growing, cattle breeding).

Services: 88.7% (e.g. financial/27% of LU GDP, including the 2nd largest global center for investment funds, after New York/ua legal and advisory offices).

After a dip in 2020, the balance of payments is again in a significant surplus, mainly thanks to the strengthening of financial services.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 2.3 -3.5 6.9 3.9 2.9
GDP/population (USD/PPP) 122,063.70 119,603.20 130,230.00 139,340.00 145,470.0
Inflation (%) 1.7 0 3.5 5.8 2.8
Unemployment (%) 5.6 6.6 5.6 5.4 5.2
Export of goods (billion USD) 14.8 12.5 17.5 18.4 18.3
Import of goods (billion USD) 22.9 20.8 28.4 29.3 29.6
Trade Balance (Billion USD) -1.2 2.4 1 1.6 1
Industrial production (% change) -1.3 -6.1 10.3 1.4 1.8
Population (millions) 0.6 0.6 0.6 0.6 0.7
Competitiveness XII.63 15/63 XII.64 ON ON
OECD export risk ON ON ON ON ON


Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -1
Public debt (% of GDP) 24.3
Current account balance (billion USD) 4.1
Taxes 2022

The government’s economic policy priorities will focus on the national recovery plan, submitted to the EU under the Recovery and Resilience Instrument. The total amount that Luxembourg will receive is €93 million. The government has already received the first tranche of funds amounting to EUR 1million (13% of the allocated funds). The plan is divided into three basic pillars: 1/ cohesion and social resilience (7%), 2/ green transition (61%), 3/ digitization, innovation, governance (32%). The priorities that are important for the country in overcoming the pandemic crisis are mainly: maintaining a high level of public investment, ensuring solidarity, supporting affordable housing, strengthening competitiveness and supporting a sustainable economy. As part of the recovery and resilience plan, it is assumed that that 61% of the plan will support climate goals and 32% of measures will support the digital transition. The financial sector (which accounts for approximately 30% of GDP) will remain the driving force behind economic growth. However, the total amount for projects within the PRR is around €180 million and its financing is also planned from the state budget, or from other EU policy sources and tools (e.g. Next Generation, IMF).

In the last years before the pandemic, the public finance budget was in surplus, thanks mainly to healthy social security finances. The budget deficit is estimated to have narrowed to 1% of GDP in 2021 as fiscal support programs were phased out and growth recovered. Taxes rose significantly in 2021 thanks to a strong economic recovery and growth in household tax revenues. The state budget for 2022 assumes a deficit of €330 million. However, total revenues can be expected to increase further to 43.1% of GDP in 2022, depending on how the economic recovery takes hold. Government debt remains broadly stable, with the debt-to-GDP ratio estimated at 24.3% in 2021, down from 24.8% at the end of 2020. It is expected to fall to around 21% of GDP at the end of 2023.

Banking system

Luxembourg, as one of the important financial centers of the EU, is home to more than 120 banks, most of which are branches and subsidiaries of foreign banks. The country’s financial sector is the largest contributor to the domestic economy, accounting for between 25-30% of GDP and contributing more than 35% of tax revenue, making the system very investor-friendly. In terms of geographical representation in the Luxembourg financial center, German banks still form the largest group (17.2%), followed by Chinese banks and French banks, both with 10.9%, and Swiss banks with 10.2%. The development of interest rates is stable in the long term and hovers around 1.5% depending on the type of loan.

The most important banks in the country are: Banque et Caisse d’Épargne de l’Etat (Spuerkeess, 1856) – the original savings bank, now a bank with a single shareholder – the state. The bank offers a wide range of commercial and corporate banking services, including asset management, project financing and specialized private banking. Deutsche Bank Luxembourg SA – German banking giant Deutsche Bank established a subsidiary in Luxembourg in the summer of 1970, its first foreign subsidiary since World War II. The bank provides private wealth management services, international loans and mediation, corporate and investment banking services and retail investment services. BGL BNP Paribas(The LU part of Fortis was renamed BGL and taken over by FR bank BNP Paribas (65.96%) in 2009, the transaction created the largest LU bank today); The bank offers products and services related to retail banking, personal wealth management and corporate and institutional investment banking and management. Banque Internationale à Luxembour g (BIL) was founded in 1856 and is the oldest private banking group in the country. BIL offers retail, private and corporate banking services. ING Luxembourg – the bank provides retail, private and corporate banking products and services.

Tax system

Luxembourg’s tax system is stable and advantageous, considering the fact that the economic orientation of the country is largely focused on the financial sphere.

Rates: VAT and excise duty: 17% (reduced by 3%, 8%, 14%). PO turnover tax: 21% if the income does not exceed €15,000, 21% in other cases (+ 9% contribution to the employment fund). FO tax: 0-4(+ 9% contribution to the employment fund); top rate of 38.9% for annual incomes above €150,000; Average taxation: 38% (vs. EU 40.7%; FR 45.3%, DE 40.0%, BE 47.4%). Corporate tax: 21%. For financial and electrical services by way (e-shopping, telecommunications, etc.)

Significant changes in the area of ​​taxes are not expected in the foreseeable future, however, the Ministry of Finance expects to revise and apply ecological criteria in the future.

Luxembourg Economy