Luxembourg as a hub for crypto-asset service providers (CASPs)

Luxembourg has long been recognised as a leading financial center, particularly in the investment fund sector, and is now positioning itself as a prime location for registering Crypto-Asset Service Providers (CASPs). The country's business-friendly environment, advanced technological infrastructure, and comprehensive regulatory framework make it an attractive jurisdiction for CASPs.

Regulatory framework

The European Union's Markets in Crypto-Assets Regulation (MiCA) provides a harmonised regulatory framework for crypto-assets, which Luxembourg is set to implement. MiCA aims to bring legal certainty to the crypto-asset ecosystem, support innovation, and ensure market integrity and financial stability. By meeting specific requirements, CASPs can benefit from a regulated status, allowing them to operate across the EU market. 

Luxembourg's proactive approach to implementing MiCA, along with its existing financial regulations, creates a predictable and secure environment for CASPs.

Leading hub for investment funds

Luxembourg's reputation as the number one jurisdiction for investment funds in Europe is a testament to its global appeal and financial expertise. According to the Association of the Luxembourg Fund Industry (ALFI), Luxembourg is the largest fund domicile in Europe and the second largest in the world. This prominence in the investment fund sector translates into a deep understanding of financial services, asset management, and cross-border distribution, making it an ideal ecosystem for CASPs.

The country's expertise in fund management and its extensive network of financial professionals offer unparalleled opportunities for synergy and growth in the crypto asset space.

Tax benefits

Luxembourg offers a favorable tax environment, with various incentives that could be advantageous for CASPs. For instance, gifts for scientific, charitable, or public purposes to institutions of general interest are deductible, subject to certain conditions. Additionally, the country has provisions for tax optimisation through life insurance policies and other financial products. While the specifics of tax benefits for CASPs would depend on the nature of their operations, Luxembourg's overall tax framework is designed to support business growth and innovation.

Investment funds

As the number one jurisdiction for investment funds in Europe, Luxembourg provides a sophisticated ecosystem for fund management and structuring. The country's "investment toolbox" offers a broad array of options for fund regimes, which could be leveraged by CASPs looking to diversify their services or engage with investment funds. 

The expertise and infrastructure already in place for investment funds can be a significant advantage for CASPs operating in or with Luxembourg.

Data centers and cybersecurity

Luxembourg is home to numerous state-of-the-art data centers, offering secure and reliable services for businesses. The presence of these data centers, along with Luxembourg's commitment to cybersecurity, as evidenced by the requirements of the Digital Operations Resilience Act (DORA), provides a robust infrastructure for CASPs to manage and protect their digital assets.

Strategic geographical location

Luxembourg's strategic location in the heart of Europe offers logistical advantages and easy access to major European markets. This central positioning facilitates cross-border operations and enhances Luxembourg's appeal as a hub for international finance and crypto asset services. The country's multilingual workforce and multicultural environment further enhance its attractiveness, offering a welcoming and inclusive atmosphere for businesses and professionals from around the globe.

The advantages of registering a CASP in Luxembourg

Registering a Crypto-Asset Service Provider (CASP) in Luxembourg offers several advantages:

1. EU Passporting: The Markets in Crypto-Assets Regulation (MiCAR) provides a harmonised framework for CASPs, which includes authorisation, supervision, and conduct rules. Once authorised, CASPs can extend their services across the EU without acquiring additional national licenses, which is a significant advantage introduced by MiCAR

2. Regulatory Certainty: Luxembourg has implemented certain rules and standards applicable to the blockchain sector, providing a reputable and attractive jurisdiction for blockchain and crypto-related activities. The adoption of MiCA by the EU aims to bring legal certainty to the crypto-asset ecosystem, supporting innovation while ensuring market integrity and financial stability.

3. Innovation-Friendly Environment: Luxembourg has shown a willingness to innovate and promote blockchain technology. Many associations and initiatives, partially backed by the government, support research, education, and development of blockchain technology in Luxembourg.

4. AML and CTF Measures: CASPs are subject to specific Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) obligations under MiCAR, which enhances market integrity and customer protection.

5. Prudential and Organisational Requirements: CASPs are subject to prudential and organisational requirements, as well as rules of conduct, similar to the requirements applicable to investment firms under MiFID II.

6. Transitional Regime: Existing CASPs that provided their services in accordance with the applicable law before 30 December 2024 may benefit from a transition period, although the implementation of this regime may vary among member states.

7. Attractive for Investment: Luxembourg has modernised its legal framework to attract and retain investment fund managers and investors, reinforcing its status as a prominent player in the global investment fund industry.

Luxembourg's crypto-asset regulation compared to other countries

Luxembourg's approach to crypto-asset regulation is characterised by a progressive stance, with a focus on anti-money laundering (AML) and countering the financing of terrorism (CFT) measures. Crypto-assets are not considered legal tender in Luxembourg, but they are recognised as intangible assets for tax purposes. 

The country does not have a specific regulatory framework for all digital assets, but several specific rules and regulations apply depending on the types of services and activities involved.

Crypto-asset exchanges in Luxembourg are regulated by the Commission de Surveillance du Secteur Financier (CSSF) and are deemed electronic money institutions. These exchanges must comply with AML/CFT laws, and new crypto businesses must meet registration requirements under Luxembourg's "electronic money" statutes. The first crypto license in Luxembourg was granted in 2016 to Bitstamp.

Luxembourg's regulation of crypto-assets is primarily under the law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (AML Law). This law implements the Fifth Money Laundering Directive (5MLD) into Luxembourg law, going beyond the provisions thereof.

In terms of taxation, there is no specific Luxembourg legislation for the taxation of crypto-assets. Therefore, the general tax rules and principles apply.Comparatively, the regulatory landscape for crypto-assets varies significantly across different countries.

In the context of the European Union, the Markets in Crypto-Assets Regulation (MiCA) was adopted to provide a harmonised regulatory framework for crypto-assets across the EU. MiCA will come into full application from 30 December 2024. As an EU member state, Luxembourg is subject to these harmonised rules and standards.