Grand Duchy is Europe's high-flier

Just like Hong Kong, which plays a vital role as the gateway to the mainland, the Grand Duchy of Luxembourg acts as a major portal to the European Union. Bordered by France, Germany and Belgium, Luxembourg - like Hong Kong - is multicultural, multilingual and multiskilled. It also shares a significant financial clout that is sharply at odds with its size - some 2,500 square kilometres - and a population of just below 500,000. It is especially significant that Luxembourg's per capita income is US$81,000, making it the third highest in the world after Liechtenstein and Qatar. 'Luxembourg may be a small country, but everything is happening there,' said Jean-Paul Cuvelier, chairman of the Belgium-Luxembourg Chamber of Commerce in Hong Kong. 'There are numerous fiscal advantages in doing business there, most importantly the signing in November 2007 of the double taxation agreement with Hong Kong, so companies, such as Deloitte and KPMG, can make themselves very attractive to mainland corporations. Taxation on profits is very low, Cargolux is among the most profitable airlines in Europe and one should not forget that there is a very good standard of living in Luxembourg.' Luxembourg's stable, high-income economy has historically featured steady growth coupled with low inflation and low unemployment. The industrial sector, which was once dominated by steel, has swiftly diversified to include chemicals, rubber and other products, while growth in the financial sector, which now accounts for almost one-third of GDP, has balanced out the decline in steel. While many banks are foreign-owned, with extensive international dealings, by contrast agriculture is concentrated on small family-owned farms. The economy relies heavily on foreign and cross-border workers for about 60 per cent of its labour force. Although Luxembourg, like all EU members, has suffered the effects of the global economic slump, it did experience two years of strong economic growth in 2006 and 2007. While turmoil in the world financial markets slowed Luxembourg's economy last year, growth has remained above the European average and is likely to remain so this year. Despite being a minor anachronism as the world's last existing Grand Duchy, Luxembourg enjoys a modern and sophisticated infrastructure, and its multiparty system provides both political independence and stability that is reflected in favourable government policies. To stimulate growth and employment, the government has introduced a proactive development plan, which is boosting the country's restructuring into an internationally recognised financial centre and premier business location. Foreign trade and investment is strengthening economic growth and Luxembourg is diversifying its trade on an international level, encouraging a global interest for business partnerships with the EU and the rest of the world. In the space of the past four decades, Luxembourg has successfully managed to become recognised as one of the world's leading financial centres. It is now home to more than 200 financial service providers with a highly experienced workforce drawn from all over the world. Apart from its fiscal pre-eminence, Luxembourg has joined the information technology (IT) revolution and become an active participant in the development of IT in Europe. An inherent culture of trust and security, that is reflected in the legal framework, makes Luxembourg a perfect global hub for the distribution of digital audio-visual content. Its location and infrastructure have made the country a natural choice for such leading IT firms as Amazon, Skype and iTunes, that have all chosen to set up their European headquarters there. Luxembourg is also well regarded as a key location for first-tier and second-tier suppliers in the automotive industry, particularly for component suppliers with a large customer base. The increase in global production has led to a need for more speedy and cost-efficient methods of transport. Thanks to its location, Luxembourg has continuously improved its position as a global hub for contract, air-freight-based and added-value logistics. The Duchy has also paid due heed to preserving the environment. 'Eco-innovation' has been given top priority, with many companies profiting from environmentally friendly activities and products. Unlike some other European countries, Luxembourg enjoys a significant degree of labour stability, as an efficient mediation system takes care of labour relations issues in the event of a dispute or structural economic problems. Even in the event of changes in the government coalition, policy programmes are maintained and the country plays an active role in the construction of the EU. Additionally, Luxembourg has a very low crime rate and is judged to be one of the world's safest cities. The Duchy's fiscal climate continues to be among the most favourable in Europe, with the lowest VAT rate of 15 per cent, moderate corporate income tax and a very reasonable rate of personal income tax. Companies that decide to invest in Luxembourg tend to enjoy numerous tax exemption measures, including an allowance to finance their investments. Finally, and perhaps surprisingly, Guinness World Records cited Luxembourg last year as having the highest alcohol consumption in the world, with an average of 12.6 litres of pure alcohol per person every year. However, the statistics are heavily influenced by the country's thirsty neighbours, who drive over the border to take advantage of low taxation on beers, wines and spirits.