Luxembourg has emerged as the leader in the integration of blockchain and distributed ledger technologies (DLT) into the financial sector. The country’s legal framework for DLT-based financial instruments is among the most advanced in Europe, providing clarity and legal certainty for companies looking to issue, trade, or hold digital assets.
This leadership was solidified by recent milestones, such as the EIB choosing Luxembourg for the issuance of its first sterling-denominated digital bond or the world’s first digital climate awareness bonds. Building on the legal clarity provided by Luxembourg’s advanced legislative framework, major international financial institutions have chosen the country for their digital asset issuance. This includes, notably, HSBC which has established its global digital asset platform, Orion in the Grand Duchy.
Additionally, as the world’s leading cross-border fund distribution center, Luxembourg is at the forefront of tokenising funds, a move that will undoubtedly shape the future of the asset management industry by enabling greater efficiency, transparency, and accessibility.
Moreover, Luxembourg is home to the first EU bank-backed stablecoin, a significant achievement that reinforces its position as the hub for digital finance innovation.
Luxembourg’s approach to Digital Assets and Tokenisation
Luxembourg adheres to a principle of “same assets, same rules,” meaning that a financial instrument issued on a DLT platform is subject to the same regulations as a traditional financial security. This approach as made Luxembourg a prime destination for firms looking to issue digital securities or tokenise assets while maintaining full compliance with European financial laws.
Key legislation on Blockchain and DLT
2019 Blockchain Law I
Established that DLT systems can be used for the transfer or securities.
2021 Blockchain Law II
Expanded the legal framework to cover the issuance of securities using DLT.
2023 Blockchain Law III
Implemented the EU’s DLT pilot regime and provided further legal certainty for the use of DLT-based securities as financial collateral.
Blockchain Law IV (in parliament)
Expected to expand the range of securities eligible under the DLT framework and introduce a “control agent” role. This role will enable fully digital, on-chain issuance of securities without relying on the two-tier system involving a central account keeper. By removing this intermediary, the law is expected to simplify the issuance of digital fund shares and other DLT-based securities.
This progressive regulatory environment has attracted leading firms to establish DLT platforms in the country, cementing its role as a key player in the digital assets space.
"The Blockchain Bill IV makes it easier to issue, hold and reconcile dematerialized securities using DLT."
Crypto and the MiCA Regulation
The introduction of the Markets in Crypto-Assets (MiCA) Regulation marks a significant milestone in the EU’s approach to regulating the burgeoning crypto-assets sector. MiCA provides a comprehensive legal framework for crypto-asset service provides (CASPs), covering everything from stablecoin issuance to crypto trading platforms.
The regulation will allow crypto firms to operate across the enture EU, providing seamless access to a market of over 450 million consumers. For Luxembourg-based crypto firms MiCA will simplify cross-border operations, allowing them to scale more rapidly without having to navigate a myriad of complex national regulatory requirements.
Luxembourg’s regulator, the CSSF, has been proactive in preparing for MiCA’s implementation, encouraging firms to engage in pre-application discussions, offering a crucial head start in navigating the new regulatory landscape. Additionally, the CSSF provides an 18-month grandfathering period of the previous AML-drive Virtual Asset Service Provider regime, allowing firms registered as VASPs in Luxembourg to continue their operations while ensuring a smooth migration to the new framework.
Why crypto firms establish in Luxembourg?
Luxembourg offers one of the most proactive, well-defined, and established regulatory environments for firms looking to establish operations. Key advantages include:
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1. Institutional trust and reputation
Luxembourg’s reputation as the premier finance hub for DLT and blockchain-based finance lends credibility to crypto businesses. Its robust regulatory environment, recognised globally, enhances trust with institutional clients, partners, and investors, making it easier to secure long-term business relationships. The CSSF has long been ahead of the curve being the first EU regulator to license the operations of a crypto exchange in 2014, and thus regulating crypto firms since 2014. Additionally, the CSSF remains highly proactive in this regard, engaging closely with crypto firms to provide clear guidance and early-stage support.
2. EU passporting rights
Following the implementation of MiCA, a crypto firm that is regulated in Luxembourg will be able to passport its services across the EU, proving seamless access to 27 member states. This simplifies cross-border operations and supports rapid scaling without navigating multiple regulatory regimes.
3. Business-friendly environment
Luxembourg offers attractive corporate tax rates, with the general corporate income tax set at 16% for companies, resulting in an overall tax rate of approximately 23.87% for Luxembourg City. Additionally, the country provides investment tax credits, with rates ranging from 12% to 18% for companies investing in digital transformation. Luxembourg also offers an 80% tax exemption on eligible income from intellectual property under its IP regime. This environment, combined with targeted incentives and initiatives such as the LHoFT, helps these firms integrate quickly and benefit from local resources and networks.
4. Access to institutional clients and capital
The country is a major hub for institutional investors and financial services. This proximity allows crypto businesses to access institutional capital and clients which are crucial for managing fiat operations.
5. Skilled, multilingual workforce
The country’s workforce is highly skilled in finance, technology, and compliance, with proficiency in multiple languages. This is crucial for crypto firms looking to scale across Europe and handle complex cross-border operations efficiently.
How to set up a crypto firm in Luxembourg
During this period of transition to the MiCA regime, firms looking to set up a crypto service offering or a stablecoin out of Luxembourg can contact the regulator, the CSSF, for an initial dialogue and pre-application. Firms looking to provide on/off ramp services can also discuss licensing both CASP and EMI activity with the same team at the CSSF, who take a holistic approach to such applications.
