Luxembourg outperforms Europe on foreign direct investment

Foreign direct investment (FDI) in Europe fell 7% in 2025, but Luxembourg recorded 35 cross-border projects — a 6% increase. The fifth edition of the EY Luxembourg Attractiveness Survey, based on interviews with 150 international decision-makers, explains why: in an increasingly selective market, investors value Luxembourg's regulatory credibility, political stability and connectivity.

European FDI landscape: a structural decline in 2025

The wider context is unmistakably challenging. According to UNCTAD, global cross-border greenfield investment (investment projects creating new operations rather than acquiring existing ones) fell 16% in 2025, but Europe contracted even more sharply at 25%, against a 13% decline in North America. Europe recorded 5,026 cross-border FDI projects across 47 countries last year, down 7% on 2024 and 24% below 2017, confirming a structural rather than purely cyclical downturn.

Western Europe has been hit hardest. France and the UK both posted double-digit declines, while Southern and Eastern Europe are reallocating capital towards strategic, longer-term priorities such as artificial intelligence (AI), digital infrastructure, defence and low-carbon energy. Traditional manufacturing, logistics and research and development (R&D) projects are under sustained pressure.

Luxembourg's FDI performance: 40% growth over five years

Against this backdrop, Luxembourg's trajectory stands out. The country recorded 35 cross-border FDI projects in 2025, up from 33 in 2024 — and from 25 in 2021, a 40% increase over five years while most European economies declined.

What matters as much as the headline number is the profile of these projects. Luxembourg's FDI is service-oriented, technology-enabled and highly specialised, rather than driven by large greenfield manufacturing or logistics platforms. That profile aligns closely with where European capital is still flowing in 2026: knowledge-intensive, regulation-heavy and trust-based activities.

FDI sectors driving Luxembourg's growth

Financial services FDI: 50% rise in projects

Finance is the engine behind Luxembourg's divergence. Finance projects rose 50% in 2025, from 12 to 18, and now account for 51% of national FDI projects — a striking result at a time when financial-sector FDI is declining across Europe. These investments fall into three clusters:

• regulated banking and fund servicing platforms
• fintech and digital asset firms
• specialist investment, research and innovation hubs spanning private equity, venture capital, environmental, social and governance (ESG) strategies and AI

Software, IT and AI: a rising FDI sector

Software and information technology (IT) services is now one of Luxembourg's top three FDI sectors, with seven projects in 2025, a 40% year-on-year increase. The country also recorded six AI-related projects, supported by top-secure Tier IV data centres, the MeluXina supercomputer and the Luxembourg AI Factory — a meaningful number relative to the country's size.

Headquarters investment rebounds 120% in Luxembourg

Headquarters (HQ) activities were the fastest-growing category year on year, jumping from 5 projects in 2024 to 11 in 2025, an increase of 120%. Recent HQ setups are primarily linked to financial services, asset and fund management platforms, fintech-adjacent firms and technology-enabled service groups using Luxembourg as a regional or functional headquarters. In a European environment where several traditional HQ locations are under pressure, this rebound reflects renewed confidence in Luxembourg's governance and EU market access.

Business services, R&D and space: steady anchors

Business services remain a stable anchor with 16 projects in 2025, representing 46% of the national total, tied to Luxembourg's financial and regulatory ecosystem rather than cost arbitrage. R&D held steady at three projects, concentrated in applied finance, fintech and cybersecurity — a relatively resilient performance against Europe's sharper decline. Space-related projects continue to reinforce a sector ecosystem of more than 80 companies built around satellite services, secure data, downstream applications and dual-use technologies.

Geographic origins of Luxembourg FDI projects

Luxembourg's FDI inflows are firmly anchored in Europe, but not dependent on a single source. In 2025, 46% of projects originated from continental Europe (excluding the UK), confirming the country's role as a trusted intra-European hub at a time when cross-border investment within Europe has become more selective. North America accounted for 23% of projects and the Asia-Pacific (APAC) region for 17%, evidence of Luxembourg's continued ability to attract transatlantic and Asian investors despite the sharp contraction in US-led FDI across Europe. The UK share remained limited at 6%, reflecting ongoing post-Brexit recalibration and Luxembourg's alignment with the EU27 framework.

Investor confidence in Luxembourg: 2026 outlook

Investor sentiment is moderating, but in line with the wider European cooling rather than any deterioration in Luxembourg's fundamentals. In 2026, 54% of executives plan to establish or expand operations in Luxembourg, down from 57% in 2025 and from a 72% peak in 2024. Long-term confidence is holding firm: 56% still expect Luxembourg's attractiveness to improve over the next three years, broadly stable versus 2025.

Just as importantly, 71% of respondents have not postponed, cancelled or scaled back investment plans in Luxembourg, with postponement (rather than cancellation) the dominant response where plans have changed. For many investors, Luxembourg continues to function as a safe anchoring point — a place to access Europe, manage cross-border complexity and deploy capital prudently while volatility plays out elsewhere.

What investors value most about Luxembourg

When asked what makes Luxembourg attractive, executives consistently cite tax competitiveness, political stability and quality of infrastructure as the top differentiators. For financial services investors specifically, legal and regulatory stability — fostering a strong culture of investor protection — ranks first, followed by the liquidity of financial markets and the tax environment.

This is the first year in which stability and trust have come through so consistently across multiple survey dimensions, supported by Luxembourg's AAA rating (the highest sovereign credit rating), long-standing political continuity and a highly regarded financial regulator. Perceptions of access to skills have also improved markedly, particularly in compliance, risk, data and technology-adjacent roles, repositioning talent from a risk to a strategic enabler.

The honest picture: perceived constraints

The survey is candid about Luxembourg's structural constraints. The two dominant perceived risks are the cost of doing business and energy dependence — both difficult to shift given the country's small size and reliance on energy imports. These factors are not without nuance: high labour costs reflect a highly skilled workforce, and the country's small market size can also be reframed as a test-bed environment for innovation before scaling across Europe.

On talent, the pressure is easing. Clearer expatriate tax rules, wider cross-border and remote talent access and the continued maturation of Luxembourg's financial ecosystem have deepened the local and regional talent pool.

Why Luxembourg remains a top FDI destination in Europe

Taken together, the 2026 findings confirm that Luxembourg's FDI profile is closely aligned with where European capital continues to flow: service-oriented, regulation-heavy, knowledge-intensive activities anchored in trust and stability.

In a more cautious Europe, Luxembourg is consolidating its role as a stable platform for targeted, high-value investment — a safe entry point combining trust, agility and connectivity for international companies looking to build or expand their European footprint.

International companies exploring Luxembourg as a base for their European operations can contact Luxembourg Trade & Invest for personalised guidance.