Luxembourg Financial Centre Faces Challenges

by Ulrika Lomas, Tax-News.com, Brussels

06 April 2011

Luxembourg's financial sector will continue to face challenges from international efforts to harmonize taxation and enhance transparency, according to the International Monetary Fund (IMF).

In its annual review of the Duchy's economy, the IMF suggested that success in adapting to this new environment "will hinge on fostering a competitive and flexible economy."

"In light of uncertainties on the evolution of the financial sector, regaining competitiveness, including by fostering a flexible labor market, will be key," the Fund stated.

In February, Luxembourg’s Finance Minister Luc Frieden presented details of work carried out by the High Committee responsible for the country’s financial centre, and unveiled details of the key development axes for the financial centre in 2011.

In his analysis, Frieden explained that Luxembourg’s financial centre, which has experienced continuous rapid development over the course of the last ten years thanks to the establishment of an appropriate legislative framework, now finds itself confronted with two major phenomena: firstly, with the recasting of the international financial architecture in the wake of the global financial crisis; and secondly, with the emergence of new actors and increased competition at international level.

According to the Luxembourg finance minister, in view of the current international context, the government’s objective is to firmly anchor in Luxembourg an international, competitive, innovative, and diversified financial centre. The development of the financial centre, the backbone of the country’s economy, is a priority, he emphasized.

Frieden outlined an action plan based on the five pillars which characterize the financial centre: wealth management; asset management and investment funds; international credit operations; insurance; and the financing structure.

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