Luxembourg: International style

Second-tier international law firms are joining the top players in Luxembourg as its stability and global outlook continue to attract big business

Situated at the geographical and political heart of Europe, Luxembourg has become a major international financial centre over the years and is now the largest hub for investment funds in the EU. It has not been hit hard by the financial crisis, with the government maintaining incentives such as a low VAT rate, political stability and swift updates to legislation. 

“The main factors that attract foreign investors haven’t changed much over the past few years,” says Wildgen tax partner David Maria.


“Luxembourg has a stable political system and a strong economy that enables it to maintain and even reinforce the attractiveness of its tax regime for foreign investors. It also has an important financial centre, making it convenient for the funds industry and financing transactions. 

“Another factor is that Luxembourg is highly international, both politically – as a member of international organisations – and economically, with an educated, multicultural and multilingual workforce.” 

Stable door to Europe

Luxembourg’s success as a location for foreign investors is partly down to the Grand Duchy’s government. There were elections last October following the departure of prime minister Jean-Claude Juncker – the longest-serving EU head of government – over a wiretapping scandal. Juncker’s Christian Social People’s Party won most seats, but three other parties formed a coalition that ousted Juncker and his followers and made Xavier Bettel of the Democratic party prime minister.

Despite this, the strategic aims of government have not changed much when it comes to investment and the financial markets.

“The Luxembourg government has always pursued a proactive economic development policy, making it possible for it to become an international financial centre and a prime business location,” says Loyens & Loeff Luxembourg partner Véronique Hoffeld. “Luxembourg presents good opportunities for multinational groups to centralise their holding and financing activities. Its central position in Europe allows banks to start operations in Luxembourg or companies to use it as their HQ. Also, the recently implemented AIFM [alternative investment fund managers] Directive creates a favourable environment. 

“The government is pursuing the diversification of Luxembourg’s economy while putting the country on the map for new financial products and attracting skilled labour. The political debate initiated by the OECD and the G20 on ‘aggressive structuring’ can be seen as a challenge for Luxembourg but also an opportunity. As the financial industry is a pillar of Luxembourg’s economy, it requires the country to respond to these developments in a way that is in line with political demands and the expectations of the business community.”

There are plenty of opportunities for law firms.

“The Luxembourg legal market is internationally oriented,” says Maria. “The main opportunities are in line with this. The AIFMD is probably the biggest, as it affects the whole funds industry in Luxembourg except Ucits [undertakings for collective investment in transferable securities]. The number of securitisation transactions is also increasing.

“IP is also a growing area, partly because of the favourable tax regime for certain IP rights, which is easy to understand and implement.”

Global magnet

The opportunities that arise from Luxembourg’s appeal to foreign investors has captured the imagination of foreign law firms. Last year the likes of Hogan Lovells and legacy SJ Berwin opened up, joining other international firms such as Baker & McKenzie.

“The first wave coming into the country was the top law firms such as Clifford Chance and Allen & Overy, along with US firms such as Dechert and Bakers,” says Molitor partner, Michel Molitor. “They brought a high level of expertise. Now there’s a wave of second-tier firms moving in, with rumours of DLA, Norton Rose Fulbright and French firms coming. Whether they are bringing added value or trying to get a share of the cake, I’m not sure.”

He adds: “The booming investment funds industry is an attraction. It’s the most stable sector we have.”

The arrival of new firms has made the market more competitive.

“The arrival of firms requires both traditional law firms and new arrivals to invest more in delivering a high-quality service,” says Hoffeld. “Luxembourg can compete with other top treasury or financial locations for several reasons and the arrival of new firms confirms its position.” 

Foreign firms are posing problems for locals when it comes to recruiting lawyers.


“It’s safe to say this has increased competition and the market has become more fragmented,” says OPF Partners managing partner and head of tax practice, Frédéric Feyten. “As more firms are setting up they’re cherry-picking from existing firms.”

“These new law firms must hire experienced local lawyers from existing firms,” adds Maria. “There have been whole teams moving from existing firms to join or found the Luxembourg office of a foreign firm.” 

Despite the increased competition, lawyers believe foreign firms entering the country is positive and that the trend is likely to continue.

“With firms like Hogan Lovells coming to Luxembourg, it shows that it remains attractive, which can only enhance the legal market,” says Feyten. “There will be more firms coming to Luxembourg. “Firms that are similar in size and practice will need to consider it.”

“In our analysis, what is happening is helping to put Luxembourg on the map and selling us to clients,” says Arendt & Medernach founding partner and co-chairman Guy Harles. “Foreign firms are making the cake bigger.” 

“The setting up of foreign firms should be interpreted as a sign of confidence in the Luxembourg market, and as that becomes more widely known, it will result in new opportunities,” says Maria.

“The newly established foreign firms are an asset,” says Hoffeld. “Luxembourg has encouraged business co-operation with non-European countries and firms, especially in the Middle East and Asia. This trend is part of Luxembourg’s dyn-amic and highlights its position as an international exchange platform. With its rewarding tax environment and business-friendly legal and regulatory framework, it is an established jurisdiction for holding companies.”

Lawyers don’t get bored

Luxembourg’s appeal to investors and firms means lawyers’ pipelines are fairly full.

“Workload is good,” says Feyten. “All firms are quite busy. We don’t get bored, we have sufficient work. It’s not booming and we’re not hiring every day but there’s steady and slow growth.” 

The main activities of many of Luxembourg’s firms relate to finance, corporate, tax and investment management services, but other areas are developing, including litigation and technology. Nevertheless, the jurisdiction’s main business proposition as a financial centre continues to drive the legal and business markets.

“Without banking and finance the country wouldn’t be what it is today,” says Molitor.

“The banking and financial sector keeps leading the Grand Duchy’s economy, and it is growing as we speak,” says Hoffeld. “With over 150 banks from 24 countries and more than 42,000 employees, Luxembourg’s a key financial centre for all European investment funds, private banking activities, banks, life insurance and reinsurance companies. It’s also getting to be known as a centre of expertise for Islamic finance.”

The investment funds industry is a main field of work, both on the regulated and non-regulated side, with the opportunities of the AIFMD being explored. 

Best of Lux

With growing interest from foreign firms and a strong financial sector, Luxembourg has many reasons to be confident.

“On the practice side there will be more and more work in investment, while on the market side I expect more firms coming to Luxembourg,” predicts Feyten. “Perhaps there’ll be some domestic mergers too, due to the fragmented market. Some independent firms may merge.” 

“As far as we’re concerned, the work is more diversified than before – partly because of the financial crisis,” says Maria. 

“Matters in relation to bankruptcy law or enforcement of securities aren’t rare anymore. Another niche is the legal work in relation to exchange of tax information with other countries as many unsophisticated taxpayers simply don’t know how to deal with this new element.” 

If Luxembourg maintains its appeal to foreign investors there seems little chance of its legal market slowing down.

Key figures: Luxembourg 

GDP: $55bn

Inflation: 1.5%

Population: 538,000

Life expectancy at birth: 81

Unemployment rate: 7.1%

Source: World Bank, Grand Duchy of Luxembourg Statistics Portal