Why Is Luxembourg So Rich? Inside the World's Wealthiest Country

Luxembourg is the richest country in the world by GDP per capita, and has been for years. At the end of 2025, that figure stood at roughly €146,820 per resident — comfortably ahead of Switzerland, Ireland, Singapore and Norway. For a country of just 2,586 km² and 681,973 inhabitants (STATEC, 1 January 2025), that is a striking concentration of wealth. It also raises one of the most-Googled questions about the Grand Duchy: how did Luxembourg get so rich, and why does it stay that way?

It started with steel

For most of the 19th and 20th centuries, Luxembourg's wealth came from iron ore. The southern Minett region sat on top of one of Europe's richest seams, and from the 1870s onwards Luxembourg built a steel industry that, at its peak, made it one of the world's largest steel producers per capita. ArcelorMittal — today the world's second-largest steelmaker — still has its global headquarters in Luxembourg City. Steel laid the financial and industrial groundwork on which the modern economy was built.

The pivot to finance

Steel declined in the 1970s and 1980s. What replaced it is the reason Luxembourg is so rich today: the investment-fund industry. Luxembourg is now the largest fund domicile in Europe and the second-largest in the world after the United States, with more than €5 trillion in assets under management.

Why did global finance choose Luxembourg? Several factors compound:

Early-mover regulation. Luxembourg implemented the EU's UCITS investment-fund directive in 1988, before most member states, becoming the default European hub for cross-border funds.

Political stability and a triple-A sovereign credit rating from all three major agencies.

A multilingual workforce fluent in French, German, English and Luxembourgish.

Geographic position at the intersection of Germany, France and Belgium, with Frankfurt, Paris, Brussels and Zurich all within a few hours.

A favourable tax framework for holding companies, fund vehicles and intellectual property.

Tax: the controversial part

Luxembourg's headline corporate tax rate is around 24%, which is not in itself unusually low. The advantage lies in the vehicles and rulings: holding companies (SOPARFI), specialised investment funds (SIFs), reserved alternative investment funds (RAIFs), and historic tax rulings that allowed multinationals to channel profits through Luxembourg subsidiaries. The 2014 LuxLeaks disclosures put this practice under intense scrutiny, and EU-driven reforms since then have narrowed the most aggressive structures — but the country remains a preferred jurisdiction for fund domiciliation and corporate holdings.

The cross-border workforce

One of the most important — and least appreciated — drivers of Luxembourg's wealth is its commuter labour market. Roughly 220,000 cross-border workers commute in daily from France, Belgium and Germany. They produce a large share of Luxembourg's GDP without being counted in its resident population, which mechanically inflates GDP per capita. Strip the commuters out and the country is still extremely wealthy — but the headline figure is partly a statistical artefact of how GDP is measured against resident population.

Wealth, but not without trade-offs

High GDP per capita translates into high wages, generous public services and free nationwide public transport (a 2020 world first). It also translates into some of Europe's highest housing costs, with the average price of a home in Luxembourg City exceeding €1 million. Inequality is rising, and a growing share of the workforce can no longer afford to live in the country they work in — a tension Prime Minister Luc Frieden's CSV-DP coalition has flagged repeatedly since taking office in November 2023.

The short answer

Luxembourg is rich because it sequenced its economy well: steel built the capital, finance compounded it, EU membership amplified it, and a favourable tax and regulatory environment kept the money there. The result is a small country with an outsized financial footprint — and the highest GDP per capita on the planet.

Sources: Economy of Luxembourg — Wikipedia; Why is Luxembourg so rich — Luxtoday; IMF World Economic Outlook 2025; DataReportal Digital 2026: Luxembourg; STATEC, 2025 population release.