Why is Luxembourg considered a tax haven?
Luxembourg has been the tax haven of choice of many corporations and mega-rich individuals around the world since the 1970s. It has thrived as a tax haven due to its political and economic stability and huge tax incentives, encouraging foreign companies to move there.
The country's small state government has provided offshore bank holders with top-notch confidentiality and asset protection for years. Luxembourg's tax system allows hundreds of U.S. corporations to store massive chunks of their business outside their home countries, which cuts billions from tax bills.
Favorable Tax Laws
Luxembourg draws the largest corporations from around the world that are seeking asylum from large corporate taxation, specifically in countries such as the United States where the corporate tax rate of 35% was once the third-highest in the world. In comparison, Luxembourg has a corporate tax rate of 21%. Although, as of 2018, that's now the maximum U.S. corporate tax rate as well, Luxembourg offers other tax advantages.
For example, Luxembourg charges foreign corporations an extremely low tax rate to send money into and out of the country. Corporations that funnel profits through Luxembourg are charged around 1%. This is a huge incentive for large corporations that have the opportunity to save billions in corporate tax bills by moving cash to Luxembourg at such low rates.
The Bottom Line
Luxembourg is the most notable tax haven around the world. The country offers secrecy and advantageous tax laws for large corporations. U.S. corporations such as PepsiCo, Inc., American International Group, Inc., and Wal-Mart Stores, Inc. are well-known for creating subsidiaries and branches in offshore tax havens such as Luxembourg to cut taxes.