Being a founding member of the European Union and home to some of its institutions, Luxembourg is one of the largest European Union centres for finance activities and investment, and a well-formed and regulated portal into the European Union.
Since the foundation of diplomatic relations in 1972, Luxembourg and China have forged very close ties in a category of areas including finance. In 1979, Luxembourg became the first country in the world to host a bank from the People’s Republic of China. Today, six of China’s biggest banks have selected Luxembourg as their European center to accompany their clients across the continent.
Chinese investor’s attraction to Luxembourg
For years, Luxembourg and China have enjoyed an ideal and strong relationship. Thanks to this, Luxembourg has brought in more and more capital from China investors over the years.
- Being a small country has also given the Grand Duchy a degree of political and economic impartiality, which is the main factor in opening the country to Chinese authorities. And Luxembourg is highly respected for its open financial environment.
- Being a leading EU center of expertise in the area of cross-border wealth management, Luxembourg provides financial actors access to a large market infrastructure of essential services such as the Luxembourg Stock Exchange (LuxSE).
- Over many years, Luxembourg has formulated an entire ecosystem dedicated to cross-border financial services, and building on this expertise, the financial centre has become a deluxe European hub for the internationalisation of the Chinese currency.
- Its relaxed immigration systems have also resulted in a significant percentage of the financial sector being occupied by non-natives, enabling organizations to speak to clients in different languages and be sensitive to cultural differences.
- In 2008, a Memorandum of Understanding was signed between the Luxembourg and China, which allows qualified domestic institutional investors (QDII) to invest in Luxembourg-registered investment vehicles.
As stated above, not only is the relationship between the two countries stronger than ever, but Luxembourg goes on providing adequate opportunities for growth of the Renminbi business.
Strong ties between Luxembourg and China
Luxembourg’s ties with the People’s Republic of China have become increasingly strong as Chinese top-tier banks, fund management companies and international companies have inaugurated their European domicile’s and headquarters in Luxembourg in order to gain from its business-friendly environment, hence contributing to Luxembourg becoming one of the biggest Renminbi centres outside the People’s Republic of China.
In conclusion, it is likely that Luxembourg will continue to be the favorite among Chinese investors.
Are you looking a China investor to set up your business or investment platforms in Luxembourg? Let’s go ahead and contact your Damalion experts now and let us help.
Luxembourg: a practical hub for Chinese companies to do business in Europe — market access, company setup, funds, taxation, banking, and governance.
For founders, investors, family offices, and cross-border groups • Damalion structures entities and funds, prepares banking files, and keeps governance simple and compliant.
Last updated:Why is Luxembourg a practical hub for Chinese companies entering Europe?
Luxembourg offers EU-single-market access, a stable AAA environment, a broad tax-treaty network, world-class fund platforms (RAIF, SCSp), and multilingual talent. Holding and treasury centers (SOPARFI, S.à r.l.) sit alongside capital-markets and private-banking capabilities. In 2025, the combined corporate income tax rate is ~23.87% in Luxembourg City, with participation-exemption rules for qualifying dividends and gains, and 17% VAT. With clear substance, banking files move smoothly and group flows remain efficient.
What business models from China work well in Luxembourg?
- Regional headquarters and SOPARFI holding platforms for EU investments.
- RAIF or SCSp fund vehicles for private equity, real assets, or credit strategies.
- Trading and distribution via S.à r.l. with EU VAT registration and compliant invoicing.
- Group treasury and intragroup financing with documented transfer pricing.
- IP and licensing with robust governance and substance.
- Fintech, e-money, or capital-markets listings using Luxembourg’s seasoned ecosystem.
Which legal vehicles are commonly used?
| Vehicle | Typical use | Notes |
|---|---|---|
| SOPARFI (S.à r.l. / S.A.) | Equity holdings, dividends, exits | Participation exemption if conditions met; board-driven substance |
| S.à r.l. (operating) | Sales, services, distribution | VAT 17%; staff and premises aligned with activity |
| RAIF | Institutional/qualified investor fund | AIFM model; quick-to-market; 0.01–0.05% subscription tax tiers |
| SCSp | Carry and co-investment partnerships | Contractual flexibility; widely used with RAIF/PE deals |
| S.A. | Capital-markets, larger groups | Optional two-tier governance; audit thresholds apply |
What are the 2025 tax and regulatory highlights?
- CIT 2025: ~23.87% combined in Luxembourg City (corporate income tax, municipal business tax, solidarity surcharge).
- Participation exemption: qualifying dividends/capital gains may be exempt when statutory conditions are met.
- Withholding: domestic 15% on dividends, often reduced via treaties or EU directives; no WHT on arm’s-length interest in many cases.
- VAT: standard rate 17% with intra-EU rules for goods/services.
- Substance & TP: board decisions, documentation, and pricing support are expected for financing flows.
- Regulatory: CSSF oversight for supervised sectors (funds, e-money, investment firms).
What do banks expect from non-EU beneficial owners?
- Clear organigram and UBO identification, certified KYC, and explanation of source of funds.
- Use-case narrative: currencies, countries, monthly volumes, counterparties, and payment controls.
- Sanctions/PEP screening readiness and responsive compliance process.
What steps should you follow to set up and operate smoothly?
- Choose the model. Holding (SOPARFI), operating (S.à r.l.), or fund (RAIF/SCSp).
- Draft documents. Articles, shareholder terms, AIFM/AOA where relevant.
- Prepare banking file. UBO KYC, origin-of-funds, expected flows, signatories.
- Register tax/VAT. Align invoicing and intra-EU rules.
- Substance setup. Board cadence, local representation, premises as needed.
- Operate and report. Maintain minutes, TP files, and timely filings.
