Chapter 30. Luxembourg

Institutional and regulatory framework

Luxembourg presents relatively favourable framework conditions to business, such as low complexity of procedures, low costs for enforcing contracts and time to comply with taxation. On the other hand, Luxembourg ranks low in terms of strength of insolvency framework, with long procedures and discharge from bankruptcy, and barriers in service and network sectors are relatively high. In recent years several stringent regulations were eased: fixed tariffs for services of architects and engineers were abolished and the procedure for issuing housing permits was simplified. In 2017, a simplified form of société à responsabilité limitée ("S.à r.l.-S"), also dubbed “1-1-1 companies” (one person, one euro, in one day) entered in force to facilitate the start-up and development of new business activities

Market conditions

Luxembourg is a small open economy, whose domestic demand is largely supplied by imports. While 86% of medium-sized enterprises export, only 10% of micro-enterprises and 46% of small firms trade across borders, below the OECD average. SMEs can easily access public markets through an e-procurement portal. Also, big tenders are often divided into smaller lots to give SMEs the opportunity to apply and SMEs can benefit from protective measures regarding late payments.

Infrastructure

Luxembourg performs along the OECD median in terms of transport investment and logistics performance. ICT investments are relatively low, but, on the other hand, Luxembourg is one of the best performing countries in the OECD with respect to digital security. Also, the government has launched a National Strategy for Ultra-High-Speed Networks, with the aim to invest in a dark fibre network and world-leading data centres.

Access to finance

In Luxembourg, new lending to SMEs (defined as lending below EUR 1 million) increased in 2017, after six years of constant decrease, while new loans to all enterprises continued to decline. In recent years, measures were introduced to foster financing to innovative start-ups and SMEs. Since 2015, the Luxembourg Future Fund (LFF), co-funded by the European Investment Fund and the Société Nationale de Crédit et d’Investissement invests in innovative SMEs. In 2016, the public/private Digital Tech Fund was set to support ICT start-ups active in industries such as cybersecurity, financial technology, big data, digital health, telecommunications, satellite services and the internet of things.

Access to skills

Luxembourg’s workforce is highly skilled, reflecting the concentration in the country of sophisticated firms in the financial sector and other top-end international services. Luxembourg however suffers from a relatively high level of skills mismatch. Luxembourg is also investing in digital skills: in 2017 the Cyber Security Competence Centre, was created based on a public-private partnership, with the objective of delivering cybersecurity services and training. In 2018, the government launched Luxembourg Digital Skills Bridge, which provides technical and financial assistance to upskill employees in companies facing major technological disruption.

Access to innovation assets

Over the last decade major reforms have been implemented in Luxembourg vis-à-vis the steering and funding of public research: notably the introduction of performance contracts for research funding and research performing organisations. The recently-created university has already built strong research bases and a growing international reputation, while the public research centres have expanded their activities considerably. The R&D intensity of SMEs is below the OECD median, but innovation by smaller firms is relatively high.

The full country profile is available at https://doi.org/10.1787/34907e9c-en