Luxembourg: Championing Islamic Finance in the Eurozone

The Grand Duchy of Luxembourg has a long-standing reputation as being one of the foremost financial centres for the international community and building on its solid repertoire, enabling regulations and strong political will, also made a name for itself in the Islamic finance universe. Vineeta Tan provides an overview of the country’s Shariah finance terrain.

Regulatory landscape

Luxembourg has a favourable tax and operating environment for Islamic finance transactions. The regulations pertinent to Islamic finance in Luxemburg include the Investment Funds Law of 2002, the Luxembourg Law of the 22nd March 2004 (securitisation law) and regulations set by the country’s financial supervisory authority, Commission de Surveillance du Secteur Financier. In 2010, the equal tax treatment (including VAT) of Islamic transactions was clarified, due to the publication of circulars by the Luxembourg Tax Authority detailing the tax treatment of Ijarah, Murabahah and Sukuk transactions both in general and in the specific case of real estate transfer tax. As there are no specific definitions or legal requirements in setting up Islamic funds under Luxembourg law, such an endeavour would not be any more complicated or cumbersome as compared to launching a conventional fund.

The country’s network of double taxation treaties with many Islamic finance markets (including Malaysia, Bahrain, the UAE, Morocco and Oman among others) is a significant advantage to the industry and its tax law, which is based on the economic approach and substance over form principles, allows Luxembourg to easily accommodate Shariah compliant investments.

Asset management

Luxembourg is the world’s leading non-Muslim domicile for Islamic investment funds, with 111 Shariah funds and over 16 Sukuk listed on the Luxembourg Stock Exchange. According to EY, the country has over EUR5 billion (US$5.31 billion) of Shariah compliant assets under management and Luxembourg For Finance noted that the country is the world’s third-largest Islamic fund domicile after Malaysia and Saudi Arabia. Luxembourg also achieved many Islamic finance milestones including being the first European member of International Islamic Liquidity Management, first eurozone country to tap the sovereign Sukuk market and its stock exchange being the first European bourse to enter the Sukuk market.

A driving reason behind its Islamic funds success is its flexible and broad range of product structures including the Undertaking for Collective Investment in Transferable Securities, Alternative Investment Funds, Specialised Investment Funds and Investment Company in Risk Capital.


Apart from being the first eurozone sovereign Sukuk issuer, the Grand Duchy’s maiden Sukuk was also the first sovereign euro denominated Sukuk. Issued on the 30th September 2014 at the tight end of initial price guidance of 0-2bps over mid-swaps, the EUR200 million (US$212.49 million) Ijarah paper was twice oversubscribed.

The Grand Duchy had phenomenal success with its debut Sukuk and while the country is contemplating a second issuance, as an ‘AAA’ sovereign the sovereign has relatively limited financing needs. IFN has learned that Luxembourg is considering different options with regard to a possible issuance, which would not happen this year, but perhaps in 2016. However, no final decision on this (specifically with regard to volume, conditions, etc) has been made yet.

Banking and finance

Although Islamic banking institutions are not present in continental Europe, however the latent potential is significant as the potential customer base of the region is approximately 20 million Muslims — and Luxembourg could be pivotal in facilitating the industry in tapping this market. Speaking to IFN, finance minister Pierre Gragmena affirmed that with a Luxembourg universal banking license and a European passport, an Islamic bank established in Luxembourg could develop its activities on a purely cross-border basis or by establishing branches in the target countries out of their Luxembourg subsidiary.

Plans are currently underway for Luxembourg’s first fully-fledged Islamic bank — Eurisbank. Proposed by private stakeholders from the Gulf including one of the royal families of the UAE and a bank from the UAE, is expected to have a presence in Brussels, Paris, Frankfurt and the Netherlands. With an initial capital of EUR60 million (US$63.75 million), the proposed bank will offer retail, corporate and private banking services.


The first European Shariah compliant insurance company — Bahraini Solidarity Group — was established in Luxembourg in 1983 which paved the way for the FWU Group to offer Islamic products in the Middle East out of its Luxembourg base and regulated subsidiaries.


Luxembourg and the UK have been vying for the title of Islamic finance hub for the Western world and that race to the top has become more pronounced over the last two years. While Luxembourg leads in respect of asset management, however in terms of Islamic banking and Takaful, the UK has an advantage.

Nonetheless, the Grand Duchy is firm in its commitment to Shariah finance and beyond its inaugural Sukuk, has been looking outward to build more linkages with the Islamic finance world. For example, minister Gramegna in March 2015 signed an MoU with his UAE counterpart agreeing to create Islamic finance/banking synergies and exchange best practices and another minister François Bausch in his 2015 visit to Oman also highlighted that Islamic finance is one of the main potential areas for cooperation.


This article first appeared in Islamic Finance News (25 November 2015, Volume 12, Issue 47, Page 12). For more information, please visit the website at