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Is Luxembourg the Wealthiest Country in Europe?

The Great Duchy of Luxembourg is often considered a dwarf state. This is one of the small jurisdictions that is at the same time considered one of the richest countries in the world. There are about 650,000 people living here, and its area amounts to just 2,586.4 km². Luxembourg borders such rich European countries as Belgium, France, and Germany. It is worth noting that Luxembourg was a co-founding member of the European Union and is currently a member of OECD, NAT, UN, and Benelux.

This small country is one of the world leaders that has a developed economy and is characterized by a high GDP level. In 2022, the GDP level per capita amounted to over 140 thou. dollars. It was one of the largest achievements among the European countries, which confirms the status of a rich state. Luxembourg is also considered to be the first country among EU members not only in terms of GDP but also by purchasing power parity. Luxembourg is characterized by a high current account as a GDP share. 


How to Determine the Country’s Wealth

The national wealth indicators may vary from rating to rating. However, the ratings that evaluate the country’s wealth are based on the following indicators:

  • Country’s GDP (products/services manufactured within one year)
  • GDP per capita (the average amount of assets that each country resident earns per year)
  • Gross National Product (GNP)

GNP per capita is a frequently used parameter that helps to determine whether the country can be considered rich. It helps to rank the countries by their GDP and determine the wealthiest jurisdictions. GDP per capita measures the country’s production level per each citizen. It is calculated by dividing the country’s GDP by the number of its citizens.

It is important to understand that GDP values can be sometimes distorted by international business practices. Some countries are considered rich tax havens thanks to the state taxation rules applied to foreign enterprises. In these countries, a considerable part of GDP can be constituted by the assets that international companies send via this jurisdiction rather than its actual income. Luxemburg is also often called a rich tax haven though its tax rates correspond to the general European rules.

One more peculiarity of the country is high reliance on foreign employees. This factor also influences the GDP per capita indicator. Foreign persons make their contribution to the wealth of Luxembourg, but they are not taken into account when the jurisdiction’s GDP is divided by the number of citizens. Does it mean that Luxembourg should not be considered a rich country? Of course not. The Duchy’s wealth level is based not only on GDP ratios.

Many people think that Luxembourg’s reputation as the world’s financial center is the reason why it has high GDP indicators and it has become the richest country. And we can say that this factor surely had a direct influence on the country’s economic development. However, there are other relatively rich European countries that are also considered favorable tax havens. For example, Malta and Cyprus are also popular destinations for offshore banking and business registration abroad. However, these countries are not as rich as the Great Duchy, and their GDP is considerably lower. It means that Luxembourg has become rich not only due to foreign capital attraction.

What is the secret of this country then? Why is Luxembourg so rich?

Why Luxembourg Has Become Wealthy: Historical Facts

Luxembourg has the reputation of a rich country with a highly-developed financial and banking sector. But this is just one of the reasons why it has become the wealthiest country on the planet. It should be noted that Luxembourg is one of the five richest leaders in the living standards rating. An average salary in Luxembourg is 4,000 euros, which is a high indicator for Europe. However, it has not been like that all the time. If you want to understand how Luxembourg has become one of the world’s richest and most developed economies and increased its GDP level, you will need to take into account the whole context and main historical events that produced the most considerable influence. 

Luxembourg is a parliamentary democratic country with a rich history. It proclaimed its independence in 1815 when it was not a rich state by any parameters. The country was characterized by a low GDP and poor economy back then and mainly relied on agriculture and iron production. Many residents of Luxembourg migrated to wealthier countries with a higher GDP and developed economy in pursuit of higher living standards. At the same time, there were different kingdoms and republics in the territory of present-day Germany that were united to form a confederation. These states freely traded between themselves and created free trade zones called the German Customs Union (Zollverein). In 1942, Luxembourg became a Zollverein member and freely traded with several German republics.

International trade is one of the most important factors that contributed to economic development and increase in Luxembourg’s GDP. It was the time of the industrial revolution, and it turned out that Luxembourg was rich in natural resources. The discovery of considerable iron ore deposits in the mid-1800s changed Luxembourg’s economy and made it possible to increase the GDP by several times. The country became one of the main steel producers in Europe and turned into a large exporter in the 1900s, which made it possible to develop the industrial sector of the economy. Even the present-day ArcelorMittal (a Luxembourg enterprise) occupies the second place in the world by steel production.

This rapid industry development for a country that could not boast considerable wealth and relied on agriculture earlier created favorable conditions for Luxembourg’s economic growth and helped to gradually increase GDP indicators.  

How Luxembourg Became Rich: Engagement of Foreign Capital and GDP Growth

In 1929, the government of Luxembourg adopted the Law on Holding Companies which allowed companies to own several affiliated companies within one holding company. A holding company is an enterprise which performs the function of affiliated companies management. The holding company does not provide products or services as ordinary business (or at least it happens less frequently). Its only goal is the control and management of other companies where it owns controlling shares. Well-known examples of rich holding companies are Meta, Procter & Gamble, Kering, etc. 

The 1929 Luxembourg Law on Holding Companies provided a lot of tax benefits for rich holding companies. Under this law, the holding companies could pay a tax amounting to just 1% or benefit from zero rate. It should be noted that Luxembourg’s economy was not prosperous in the mid-1900s as there were not many large and rich companies in Europe which could contribute to GDP growth.


The situation changed in the 1970s as large American holding conglomerates were expanding to the European markets and looking for places to locate their headquarters in Europe. Many giants and rich holdings made a decision to register a company in Luxembourg. The reason why the country was so popular was not just about tax benefits: there were a lot of large banks, law firms and accountants in Luxembourg at that time that helped these large conglomerates establish their business and gain a foothold on European markets. It was at this time that the country was characterized by economic growth and considerable GDP growth.

One more key event that accelerated GDP growth was adoption of the first law on mutual investment funds (SICAV) in 1983. SICAV (Société d’Investissement à Capital Variable) is literally translated as an “investment company with a variable capital.” This is an open structure of the Luxembourg investment fund that is especially popular in rich Western European countries. Following that, Luxembourg also became a capital of mutual investment funds. These conditions also contributed to its development as a rich and prospering state with high GDP indicators.

How Rich is Luxembourg?

In the 2000s, Luxembourg’s economic growth and GDP figures were on the increase as a lot of large conglomerates came to the country. Luxembourg’s economy almost doubled in just five years, which is a striking growth. GDP indicators increased considerably as well. Luxembourg is a center of financial institutions, such as large banks and investment companies. The financial sector accounts for about 28% of GDP. Luxembourg is known for a large number of investment funds with the assets of several trillions of dollars kept by financial institutions. Rich entrepreneurs and investors from all over the world choose Luxembourg as a place where they keep their assets.

Luxembourg’s economy is characterized by a good fiscal system and a large degree of international transparency. The financial sector is the main driver of the country’s economy as it accounts for about one third of the country’s GDP, making the country vulnerable for external shocks. Luxembourg’s GDP started growing in 2021 after some recession connected with COVID-19 pandemic. Luxembourg is no longer a steel-based economy but a developed country focused on international trade and banking. 

Luxembourg’s GDP showed some decline in the first half of 2022 along with slowdown of investments and export of goods. However, the real GDP grew in the first quarter thanks to stable private consumption and a reliable financial sector. 

Why is Luxembourg’s Population So Rich?

Following the 1973 oil crises and ensuing GDP decrease, Luxembourg’s economy was focused on service industry development. The country’s high GDP indicators are currently influenced by the financial sector and real estate services. Luxembourg is one of the largest financial markets with the world’s second largest managing investment fund. Luxembourg is considered one of the main centers for private banks in the European zone and a popular country for reinsurance companies registration.

Luxembourg’s economy

In 2021, the country’s GDP went up by 5.5% as compared to 2020, when the GDP level fell by 1.3%. In terms of GDP, the country exceeded the mark of 100,000 dollars in 2014. After that, Luxembourg’s GDP mainly showed growth – even during the COVID-19 crisis. This is proved by the following GDP indicators over a few years:

  • In 2018, Luxembourg’s GDP amounted to 71 billion dollars, which is 8.05% more than the previous year figure
  • The country’s GDP in 2019 reached 69.83 billion, which is 1.65% less than the 2018 indicators
  • The 2020’s GDP rose to 73.99 billion dollars, which is 5.97% more than Luxembourg’s GDP level a year earlier
  • The GDP in 2021 rose even more to 85.51 billion, which exceeds the 2020 GDP by 15.56%

2023 is expected to be the year of the economy and GDP recession in Luxembourg as geopolitical events in Europe have a considerable influence on all countries. Experts predict that many rich and successful countries will be subject to risks.

The economic position of Luxembourg’s main wealthy trade partners will deteriorate, resulting in export slowdown. However, according to industry specialists, the current operations in 2023 will mainly show GDP surplus thanks to the services (32% GDP in 2022 mainly due to banking and financial services). At the same time, the country’s trade balance makes up only 0.3% of GDP in 2022. It will compensate the considerable profit balance deficit due to cross-border transfers (16% GDP) and repatriation of dividends from large portfolio investments made in the country (13% of GDP). Thus, we can make a conclusion that Luxembourg will not lose its reputation as a rich European jurisdiction. 

You can find not only ratings of the richest countries but also of the wealthiest cities. Which European cities are considered the richest and the most promising ones?

Read our article The Wealthiest Cities in Europe: GDP per Capita Rating

How Does Luxembourg Support the Status of a Wealthy Country?

Luxembourg is striving to diversify its economy and GDP that currently depend too much on the financial sector. The authorities of this rich country are trying to develop other spheres to position themselves as the center of media and new information and communication technologies and attract companies that provide fintech services, etc. These sectors of the economy are expected to bring more profit to the country’s GDP in a few years.

At present, the main spheres of Luxembourg that are actively developing and making it wealthy include the following ones:

  • trade
  • transport
  • hotel and gastronomic sectors
  • information and communication technologies
  • logistics
  • electronic commerce and biotechnologies

The number of foreign citizens on the labor market exceeds the number of Luxembourg citizens. The main export goods in Luxembourg are: 

  • steel products (ores and metals)
  • machines and equipment
  • food products
  • diamonds
  • chemicals

The main export partners of Luxembourg include France, Germany, and Belgium, and these are also rich countries with a high level of GDP. Luxembourg has practically no agricultural sector as the arable lands in the country have a limited area of 61,860 hectares. Its contribution to the country’s GDP is just 0.2%. The industrial sector (10.7% of GDP) was historically dominated by cast iron and steel production. This sector has been diversified in recent years due to an increase in the number of chemical plants, production of plastic products and light machinery, but their share in the GDP is still not very high. 

What Makes Luxembourg Rich Today?

Practice shows that many rich entrepreneurs are considering company registration in Luxembourg today despite the fact that the country has lost some of its advantages as a tax haven due to OECD and EU pressure. The situation was exacerbated by LuxLeaks, the financial scandal which revealed the tax benefits provided to rich foreign corporations by governmental authorities back in 2014.

Luxembourg modified its laws in accordance with the requirements of the European Union eight years ago. These rules are applicable to all member countries rather than separate rich states. These changes touched upon implementation of automatic tax information exchange between the countries and tightening of laws on bank secrecy. 

Despite this fact, Luxembourg is still actively developing its economy, showing GDP growth, and attracting a lot of foreign companies. The government is currently focused on innovative industry development and pays special attention to startups.

Luxembourg offers a lot of opportunities for business, making it a popular jurisdiction for entrepreneurs.


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Friendly Business Environment

Luxembourg is well-known for its healthy economic environment. The country’s political structure is relatively stable, and the public debt is quite low as compared to other European countries. It means that the country deserves to be considered wealthy. It has an AAA rating (outlook stable), which shows that Luxembourg can withstand the economic consequences of the crisis and remain a rich country. 

Double Taxation Avoidance

Luxembourg’s favorable taxation system is one of the main advantages of this rich country. Luxembourg participates in 86 double taxation treaties, including some really prosperous states:

  • USA
  • China
  • All EU and OECD member countries

It allows the companies to build an efficient business process in Luxembourg in terms of taxation.

Reliable Financial System

Luxembourg occupies leading positions among the world’s most developed and wealthiest financial centers. It allows the country to attract large-scale investments and capital by bonds placement on the Luxembourg Stock Exchange, increases Luxembourg’s assets and makes it rich. The state is a good platform for investment funds. It not only helps to stimulate the economy and increase Luxembourg’s GDP but also creates beneficial conditions for wealthy international companies that work in the field of finances and financial technologies.

Stable Banking

Luxembourg has the reputation of a country with a stable banking system. This is a part of the financial system that also makes considerable contributions to the GDP and makes Luxembourg a wealthy state. The country has a diversified banking sphere which encompasses the whole range of services:

  • Corporate and investment banking services
  • Private banking services
  • Depository and trust services
  • Funds management
  • Listing and post-trading services

The country is a European banking center for a number of key wealthy international banks. Multi-currency accounts that are usually available in Luxembourg considerably simplify the process of making business with foreign countries.

Country’s Living Standards

Luxembourg is one of top ten popular immigration destinations as the Duchy provides a high quality of life and is recognized as the wealthiest country. Good healthcare system and developed infrastructure make Luxembourg an ideal place for expats and business activities. Luxembourg’s workforce comprises a large number of foreign citizens, which makes the country open and multi-cultural. The level of GDP and the amount of minimum salaries testifies to the fact that the country’s citizens have good living standards. The level of remuneration is much higher than in many rich European countries. 

Thinking of relocation to Luxembourg? Read about advantages and disadvantages of this decision.


Luxembourg is the wealthiest country in Europe. Despite its size, the country shows high GDP indicators not only among the wealthy countries of the European Union but also compared to other continents. Favorable business environment, comfortable tax rates, developed economy and high living standards are the main reasons why Luxembourg has become wealthy and is considered one of the main directions for foreign capital. Efficient country management, industry development and creation of conditions for international business made Luxembourg rich. Luxembourg’s financial sector forms a considerable share of the country’s GDP. 

Luxembourg’s economic success, high GDP values and the status of a wealthy jurisdiction are mainly explained by the innovative policy, tax benefits, open borders, qualified workforce, and strategic location in the heart of Europe. Luxembourg’s rich economy is one of the most open and dynamic ones in the world, which is proved by the constant GDP increase. It always occupies a place in the top 10 global ratings of territorial competitiveness, digitization and innovations.

Besides Luxembourg, rich countries with high GDP figures also include:

  • Singapore (with GDP per capita exceeding 131,000 dollars)
  • Republic of Ireland (GDP exceeds 130,000 dollars per capita)
  • Qatar (GDP amounts to 113,000 dollars)
  • The Swiss Confederation (the GDP of this wealthy country reaches 84,000 dollars), etc. 

And if we look globally, the USA and China still remain the world’s richest and the strongest economies.

You may be interested to find out about Singapore, the world’s best tax haven.

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