LUXEMBOURG Law and Practice Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
25% of voting rights in a Luxembourg-law entity as a result of events that modify the distribution of the capital, the foreign investor has a period of 15 calen - dar days to notify the Ministry of the Economy. The authorities then have a two-month period to assess whether the transaction falls within the scope of the screening regime. If a formal review is initiated, a decision is generally taken within 60 days (sub - ject to certain exceptions) to determine whether the investment poses a risk to public security or order, and whether it should consequently be blocked or be authorised subject to conditions. Failure to comply with the notification requirement or with any conditions imposed may lead to sanctions. These may include the suspension of voting rights, the amendment or unwinding of the transaction, revoca - tion of the authorisation, and financial penalties of up to EUR1 million for individuals and EUR5 million for legal entities. Sanctions can be appealed in front of the Administrative Tribunal. The appeal must be filed within one month from the date of the notification of the challenged decision. 2.3 Commitments Required From Foreign Investors Under the Law of 14 July 2023, the Luxembourg authorities may authorise a foreign direct investment subject to conditions where necessary to ensure that the transaction does not undermine public security or public order. Although the law does not provide a detailed list of possible commitments, it gives the Ministry of the Economy broad discretion to impose mitigation measures tailored to the identified risks. The commitments that may be required typically aim to preserve strategic assets, sensitive information and operational resilience. These may include the follow - ing. • Governance and control safeguards – (a) limiting the investor’s decision-making powers in sensitive areas; (b) ensuring that certain key decisions remain subject to approval by Luxembourg-based management or authorities; and (c) appointment of independent or approved
board members. • Protection of sensitive information – (a) restrictions on access to confidential, strategic or security-related data; (b) implementation of data localisation or cyberse - curity measures; and (c) segregation of IT systems or information flows. • Operational and continuity commitments – (a) maintaining critical activities, infrastructure or know-how in Luxembourg; (b) commitments to ensure continuity of supply or services in strategic sectors (eg, energy, telecoms, finance); and (c) restrictions on transferring key assets or tech - nologies abroad. • Ownership and structural undertakings – (a) caps on shareholding or voting rights beyond certain thresholds; (b) prohibition of subsequent transfers to third parties without approval; and (c) ring-fencing of sensitive business units. • Reporting and compliance obligations – (a) regular reporting to the authorities on compli - ance with commitments; and (b) acceptance of monitoring mechanisms or audits. 2.4 Right to Appeal A decision by the Luxembourg authorities prohibiting (or conditioning) a foreign direct investment consti - tutes an administrative act and can therefore be chal - lenged before the Administrative Courts. An investor may bring an action before the Administrative Tribunal ( Tribunal administratif ), typically seeking annulment of the decision (the standard form of review in adminis - trative law). The Tribunal will not reassess the transaction from a pure economic or policy standpoint, but will examine: • the legality of the decision (compliance with the FDI law of 14 July 2023 and general administrative law principles); • its procedural correctness (respect of due process, rights of defence, reasoning); and • manifest errors of assessment or misuse of pow - ers, including whether the risk to public security or public order has been properly justified.
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