Luxembourg Act to establish national screening mechanism for foreign direct investments – Commentary
Introduction
Prior notification process and screening procedure
Enforcement measures
On 1 September 2023, the Luxembourg Act (the Act) of 14 July 2023 will enter into force. The Act will establish 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 the European Union and European Economic Area (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 (eg, energy, health, defence, finance, telecoms, data, media and agri-food).
To comply with the Regulation, the Act provides for the following:
- a prior notification process and screening procedure; and
- 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.(1) 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 , 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.(2) If the screening procedure is initiated, the investors concerned may not proceed with the investment until an affirmative decision is issued.
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 (ie, 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 €1,000,000 on natural persons and €5,000,000 on legal entities.(3) Fines may be appealed to the administrative tribunal within one month after the notification is made.(4)
For further information on this topic please contact Margaretha Wilkenhuysen, Romain Sabatier or Vincent Wellens at NautaDutilh Avocats Luxembourg by telephone (+352 26 12 29 1) or email ([email protected], [email protected] or [email protected]). The NautaDutilh Avocats Luxembourg website can be accessed at www.nautadutilh.com.
Endnotes
