Global rules on foreign direct investment: Luxembourg

On 1 September 2023, the Luxembourg law of 14 July 2023 establishing a mechanism for the national screening of foreign direct investments (the Law) entered into force. Transactions signed on or after that date, as well as transactions that were signed before that date but have not yet closed, will now be subject to a mandatory notification to the Luxembourg Ministry of Economy (the Ministry) if they meet the following notification requirements.

Notification requirements

Prior notification to the Ministry is required for investments of any kind resulting in “foreign investors”’ acquiring “control” over entities established in Luxembourg that carry out “critical activities” in Luxembourg.

A “foreign investor” is broadly defined as a natural or legal person governed by foreign (non-EEA) law.

“Critical activities” include:

• the production, exploitation and sales of dual-use items; and
• ·various activities in the energy, transport, water, health, communications, data processing or storage (including cybersecurity and artificial intelligence technologies), aerospace, defence, finance, media and agri-food sectors.

The following activities are also encompassed in the scope of “critical activities”:

• research and production activities directly related to any of the critical activities; and
• activities likely to provide access to sensitive information directly related to any of the critical activities or to the places where critical activities are carried out.

   

  A foreign investor is deemed to acquire control over a Luxembourg entity where it, directly or indirectly:

• holds the majority of the voting rights in that entity;
• has the right to appoint or remove the majority of the members of the administrative, management or supervisory body of that entity, while being at the same time a shareholder or partner of that entity;
• is a shareholder or partner of that entity and has, by virtue of an agreement entered into with other shareholders or partners of that entity, the majority of the voting rights in that entity; or
• acquires, directly or indirectly, at least 25% of the voting rights in that entity.

Review procedure

Reportable investments must be notified to the Ministry prior to their implementation. As an exception, where the investor reaches the 25% threshold of voting rights due to events modifying the distribution of the capital, the investor has 15 calendar days to notify the Ministry of the event.

The review process by the Ministry consists of two phases:

1. Initial assessment phase: Once notification is submitted, the Ministry has up to two months from acknowledgment of receipt to decide whether to conduct an in-depth screening procedure.
2. Screening phase: Following the opening of the screening procedure, the Ministry has up to 60 calendar days to decide whether the investment is likely to affect Luxembourg’s national security or public order, and, therefore, whether to authorise the investment (possibly subject to conditions) or to prohibit it. If the screening procedure is triggered, the investment cannot be completed prior to receiving authorization.

The above time limits can be prolonged in case of requests for additional information, which suspend the relevant review periods.

The Ministry’s decision may be appealed before the Luxembourg administrative tribunal within one month following notification of the decision.

Sanctions for non-compliance

In case of non-compliance with the Law, the Ministry may impose administrative measures and sanctions. Administrative measures can include, amongst others, a modification order, unwinding, and revocation of the authorization (in case of failure to implement conditions prescribed by the authorization decision). In addition, the Ministry may impose fines of up to EUR 1 million if the foreign investor is a natural person and up to EUR 5 million if the foreign investor is a legal person.