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On 1 September 2023, the Luxembourg Act (the Act) of 14 July 2023 enters into force. It establishes a national screening mechanism for foreign direct investments that are likely to affect security or public order.

The purpose of the Act is to implement EU Regulation 2019/452 of the European Parliament and of the Council of 19 March 2019, which establishes a framework for the screening of foreign direct investments entering into the EU/EEA (the 'Regulation'). The Act will affect investors outside the EU/EEA who wish to invest in a Luxembourg entity that conducts activities on Luxembourg territory and is regarded as critical in various sectors (e.g. energy, health, defense, finance, telecoms, data, media as well as agri-food).

In order to comply with the Regulation, the Act provides for:

  • A prior notification process and screening procedure
  • Enforcement in the event of non-compliance with the prior notification obligation or the screening decision

Prior notification process and screening procedure
The Act introduces a national screening mechanism for foreign direct investments, in the form of an ex ante procedure supervised by the Minister for the Economy under the advice of an inter-ministerial committee.

The first step requires a foreign investor to notify the Minister of its intention to invest in a critical activity that falls within the scope of the Act (outlined in article 2 of the Act). According to the Act's explanatory notes, this notification does not have a suspensive effect, which means that the investor may proceed with the preliminary stages of the proposed investment at its own risk.

The Minister assisted by a newly created inter-ministerial committee will then perform a preliminary analysis on a case-by-case basis, which may lead to a screening procedure to assess whether the proposed investment is likely to affect security or public order. If a screening procedure is initiated, it should not exceed 60 calendar days, although this period is suspended if additional information is requested and resumes only once such information has been received.

At the end of the procedure, a decision will be taken to either prohibit or allow the investment (article 8 of the Act). If the screening procedure is initiated, the investors concerned may not proceed with the investment until an affirmative decision is issued.

Enforcement measures
Furthermore, the Act provides for specific enforcement measures and sanctions where a prior notification is not made, or the screening decision is not respected. In particular, the Minister for the Economy may suspend the investor’s voting rights tied to the shares conferring control of the Luxembourg legal entity (i.e., 25% threshold) until the situation is regularised and may also order the investor to modify the transaction or to restore the previous situation; alternatively, the Minister may decide to withdraw the authorisation. The Minister also has the authority to impose a fine of up to EUR 1,000,000 on natural persons and EUR 5,000,000 on legal entities in accordance with article 9 of the Act; fines may be appealed to the administrative tribunal within one month after the notification is made (article 11 of the Act).

Would you like to discuss the implications of this new legislation? Please reach out to our team.

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