The International Trade Council hereby acknowledges the recent adoption by Luxembourg's Chamber of Deputies of bill of law n°7885 on 13 June 2023. This bill puts into practice Regulation (EU) 2019/452, introducing a framework for screening foreign direct investments (FDI) into the EU. The law will be operative from 1 September 2023, joining Luxembourg with numerous countries which have instituted an FDI screening mechanism.
Defining Foreign Direct Investment (FDI):
The bill explicates foreign direct investment as an investment that:
- Is of any nature.
- Originates from a source outside of the EU or the European Economic Area (EEA).
- Seeks to develop or maintain enduring and direct connections with the Luxembourg entity receiving the funds.
- Allows the overseas investor to participate effectively in controlling the entity partaking in a pivotal activity.
Objectives of the FDI Regulation:
The primary goal of the FDI Regulation is to safeguard EU Member States from non-EU investments that might compromise the country's security, public order, or interests. It also fosters a cooperation mechanism among Member States.
Luxembourg's bill brings forward a screening procedure specific to FDIs and outlines the sectors encompassed by this mechanism. Given Luxembourg's economic structure and its reliance on foreign investments, the bill endeavored to strike a balance between the guidelines set by the FDI Regulation and remaining favorable to non-EU investors.
Scope of the Bill:
This law focuses on any investment from non-EU investors aiming to forge or sustain relationships with a Luxembourg-governed entity in a critical sector. Several criteria determine the investment's scope, including the majority of voting rights, board member appointments, and shareholder agreements.
While the Bill offers clarity on numerous aspects, certain uncertainties prevail, particularly concerning which Luxembourg entities fall under its purview.
Critical Activities Highlighted by the Bill:
The bill categorizes several sectors as vital for Luxembourg's security, public order, and interests, including energy, transport, health, communication, data processing, aerospace, defense, financial, and media.
Screening Procedure Insights:
A screening system overseen by the Minister of the Economy is introduced for non-EU investors eyeing specific sectors. Investors are required to notify the Minister about prospective FDIs that fall under the bill's domain. The Minister will then assess the investment's implications and inform the investor within a set timeline.
Non-compliance with the set regulations might result in corrective measures or financial penalties, with fines reaching up to EUR1 million for individuals and EUR5 million for legal entities.
Implications for Luxembourg Transactions:
Prospective non-EU investors in Luxembourg will need to adhere to the above-mentioned procedure. This new system underscores Luxembourg's dedication to being a prime platform for worldwide investors while prioritizing its security and interests.
For those seeking further insights or clarifications on this evolving regulatory terrain, the International Trade Council stands ready to provide guidance.