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Western EuropeAugust 1 2004

Grand Duchy strikes back

Facing competition from other centres, Luxembourg has found ways to innovate, writes Jan F Wagner. Despite the perceptions of many in western Europe, Luxembourg’s success as a financial centre is not down to its private banking industry alone. In fact, it has more to do with a financial activity that is a lot more mundane: the domiciling and administering of investment funds.
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In 1988, Luxembourg recognised the enormous potential of these products – still a relatively new concept in Europe – and set up a tax and regulatory regime allowing them to flourish there.

This meant low taxes, flexible investment rules for the funds and quick product approval. Since Luxembourg was already making a name for itself in private banking, there was plenty of “seed money” to grow its fund industry.

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