Guide: Open With an Online Broker in Luxembourg

Well, opening with an online broker in Luxembourg just got more interesting…

There’s a huge wave of account closures happening at Interactive Brokers (or “IB”) right now, the largest electronic trading platform in the US. And it’s sending shockwaves through the investing world.

The trigger? Fast and loose AML practices.

US regulators claimed that IB was onboarding high-risk accounts, ignoring suspicious trades, and basically had horrible compliance. So, they slapped IB with US $38mm in fines and told them to terminate thousands of customer accounts.

Unfortunately, for those customers (and their companies, trusts, and foundations), this could be a very expensive predicament.

You see, in addition to being one of the largest online brokerage platforms, IB was also being used as a bank account by individuals and companies that struggled to open accounts elsewhere. Yup, the online community knew about IB’s easy to navigate the onboarding process. And they used it to facilitate their banking needs.

But unfortunately, for many customers, the decision to use IB (without a bank account elsewhere) is now causing a lot of problems…

If IB’s terminating your account, here’s what you can expect:

Your account is immediately frozen
Positions will be liquidated in 30 days
Your account balance will then be transferred

But where will IB be transferring the funds?

Well, if you have a bank account with a financial institution in the same name as your IB account, you’re fine. You can just have IB send the balance of your account there.

Note: If the name of your other account is off by even one letter, you could be facing some serious issues. So be sure the account information at IB matches your other account perfectly.

If you’re like many others who have been using IB for trading and as a primary bank account, you could be in trouble and you’ll need to act fast…

You have 30 days from the time of closure to find and open a bank account
You’ll also need to open a new brokerage account if you want to continue investing
And, receiving your remaining balance as a check is not an option (due to compliance)

No matter how you look at it, this is a tough situation for a lot of innocent people.

And, it’s especially nerve-wracking for anyone who has accounts with IB for trusts or foundations. If they’re unable to open an account in time, their positions will be liquidated, funds could be released to the owners directly, which could cause massive tax triggers and ruin the integrity of their estate planning structures.

So, how do online brokers in Luxembourg fit into the equation?

Are they an option for you, your company, or estate planning structure in the middle of all this chaos?

Read on to find out…

Is An Online Broker in Luxembourg the Solution?

Yes, Luxembourg is a private banking powerhouse. We wrote about opening a bank account in Luxembourg in a recent article, which you can read more about here.

But unlike other private banking hubs, such as Switzerland, Austria, or Liechtenstein, Luxembourg is also the second-largest investment fund hub in the world, only second to the US.

If you ask any banker or investment broker from Europe where they’re investing, odds are it’s in Luxembourg funds. For context, over 40% of all deposits made into Swiss banks end up in Luxembourg-based investments…

In fact, most Europeans already invest in Luxembourg, they just don’t know it yet.

But Do You Need a Broker in Luxembourg?

If you had an account closed with IB, you’re probably not one of the hedge funds, NYC money managers, or Swiss advisors using Luxembourg on a regular basis for structuring and tax efficiency.

But, that’s okay, because opening an account with an online broker in Luxembourg (or a private bank) can offer benefits to certain individuals and companies too.

In this next section, we’ll explore which groups benefit from having an online broker in Luxembourg…

Who Should Use an Online Broker in Luxembourg?

First and foremost, Luxembourg is a private banking and investment hub. So that should tell you something about investing (and banking) here.

If you open an account with a broker or bank in Luxembourg, it’s expected that you’ll be investing.

People and companies come here for wealth creation, tax structuring, asset protection, and corporate tax efficiency.

So, as we mentioned in our last article, if you’re a freelancer making $100,000 per year, Luxembourg probably isn’t going to be accessible for you.

Likewise, if you’re looking to open a brokerage or bank account for a foreign company with low annual turnover (or a small opening deposit), Luxembourg probably won’t work for you either.

But, there are a lot of people (and wealth management structures) that can benefit from having an account with an online broker in Luxembourg, which we’ll take a look at now.

Groups That Can Benefit From a Broker in Luxembourg:

Individuals that want an affordable online brokerage account
Anyone trading securities, funds, or ETFs listed in London, Ireland, Luxembourg (e.g. for tax efficiency purposes)
Residents of countries without US tax treaties trading on non-US exchanges (e.g. Panama, UAE, etc.)
Non-US citizens worried about triggering US estate tax by holding securities on US exchanges
Anyone wanting a larger selection of European listed ETFs, funds, and investments
Anyone who had their Interactive Brokers (IB) terminated & needs a new online broker
Trusts, foundations, and companies looking for investment accounts
Companies and private clients looking for investment & asset management solutions
Anyone looking for stable private banking & wealth management (with at least $500,000+ to invest)

Of course, the question of whether or not you should open an account with an online broker in Luxembourg depends on a wide range of factors.

Not the least of which include the benefits and key considerations of actually opening an account here. We’ll tackle both of these in the next few sections.

Benefits of an Online Broker in Luxembourg

There are a few core benefits that make Luxembourg a good place to open a brokerage account for the groups listed above, including openness to non-residents and foreign entities, tax efficiency, and a large selection of investment products.

And while there are a lot of other benefits that can draw people (and their corporate structures) to a particular jurisdiction, these three make Luxembourg an interesting option.

We’ll be going into much more detail in an upcoming report for GlobalBanks Insiders, covering specific opportunities for different client types and situations, as well as account opening strategies for private banking in Luxembourg and Luxembourg brokerage accounts.

For now, here are these three benefits in greater detail…

Accept non-residents & foreign companies

Private banks here accept (and are very familiar with) non-residents and foreign companies. So, it’s entirely possible to open a bank account to access online trading in Luxembourg… as long as you choose the right broker or bank.

In other words, you can either use a Luxembourg-based online broker, a self-directed trading platform via a Luxembourg bank or have a private banker or asset manager do it for you.

This makes Luxembourg an attractive option for companies, foundations, and trusts that might be struggling to open accounts elsewhere or who just want to invest in a safe, first-world jurisdiction with good product selection.

Tax efficiency

Where you invest, what you invest in, and what country your broker is located can dramatically impact your tax bill. Of course, your tax residency matters too. That said, when compared to many jurisdictions, Luxembourg can sometimes be more tax-efficient for certain types of investment products.

Compare that to buying ETFs listed on a US exchange (or using a US broker) which could result in high taxes if you’re a non-US citizen with residency in a country without a US tax treaty. On top of that, if you die before liquidating, your holdings will be hit with a 40% US estate tax… yes, even if you never set foot in the US and aren’t a US-resident or citizen.

Obviously, before making any decisions about how and where to invest you should consult with a tax advisor to make sure you don’t accidentally create expensive headaches later on.

Large Selection of Investment Options

Luxembourg brokerage accounts have a good selection of EU and UK listed ETFs, securities, funds, and much more. And, fees are usually decent.

By contrast, brokers in Singapore, Mauritius, UAE, or other non-EU countries may have a weak selection of European investment options or higher fees for the same products (if they even have them available).

Make sure whichever Luxembourg brokerage (or bank) you choose has the specific products you want and a fee structure you’re comfortable with. For example, if you need to build a portfolio of specific index funds and ETFs, you don’t want to open an account and then discover they’re not even accessible (or have such insane fees, it no longer makes financial sense to buy them).

Opening With an Online Broker in Luxembourg

At this point, you’re probably wondering “How can I open with an online broker in Luxembourg?”

Well, you have a few options…

First, you can choose to open an online Luxembourg brokerage account with one of the available platforms that have lower requirements and will accept individuals and companies from a range of countries… though as we saw in the case of IB, this can come with its own issues.

Your second option is to open a Luxembourg brokerage account is via a private bank. In other words, you can open up an investment account with a bank… though the requirements can be tougher and you’ll need enough money to get in.

So, if you’ve found yourself caught up in the IB shutdown, fit into one of the categories listed above, or are interested in the benefits shared above, then Luxembourg might be a great fit for you.

We outline all the steps that you’ll need to take (and the important considerations) when opening an account in Luxembourg in our recent article, which you can read here.

But before moving on, it’s also worth sharing some of the important considerations that you’ll need to sort through before opening accounts in Luxembourg.

Key Considerations Before Opening a Brokerage Account

Luxembourg isn’t a retail banking hub. Banks here cater to wealth management and private banking clients. So before making any decisions about account opening, you need to look closely at the fee structure and investment proposals (if applicable).

Some private banks can have painfully high fees compared to brokers for self-directed execution. Sometimes, fees can come down if you talk to the right banker, other times not. It all depends on the bank you choose, the banker you’re dealing with, your profile, and a number of other factors.

On the other hand, if you are looking for wealth management solutions, what added value are you most interested in? And which banks are best positioned to meet those needs?

For example, will you have a private banker available around the clock? Will they help solve that tax problem you’ve been worried about?

Here are a few other considerations that you should dig into before opening an account…

Not all Luxembourg banks open for non-EU citizens and companies, so selection is critical to avoid wasting time or money – the same is true for a Luxembourg brokerage account.
It can be hard to know which fees are fixed and which are flexible, and how to bring them down. To do this effectively you need to make sure you’re working with a responsive banker or account manager.
Not all private banks have self-directed online trading platforms in Luxembourg. Some may require you to place orders via phone with your private banker or use discretionary managed solutions
Bank account opening and onboarding can sometimes be stressful, expensive, and a bit overwhelming if you don’t know what you’re doing (and don’t have a good banker walking you through the process).
In Luxembourg, what’s considered an acceptable minimum deposit varies from bank-to-bank and often from banker-to-banker, make sure you know what you’re getting yourself into before starting the process.

Want to Open With an Online Broker in Luxembourg?

As mentioned, you can either use an online Luxembourg brokerage account, a self-directed trading platform via a Luxembourg bank (there’s 130+ of them), or have a private banker or asset manager invest for you.

If you need help sorting out your banking options, are struggling with account opening, or just aren’t sure where to turn, we can help.

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