New law on the right of establishment in Luxembourg: what you need to know
Matthieu De Donder
Alann Le Guillou
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The Luxembourg Parliament passed on 20 July 2023 a law that reforms the right of establishment in Luxembourg, aiming to adapt the existing law to the changing environment and to enhance the professional integrity of businesses. The law also introduces the principle of a "fresh start" (nouvelle chance) for persons that have been declared bankrupt or have had an involvement in bankruptcy who meet certain criteria, allowing them to start a new activity after bankruptcy.
The Luxembourg Parliament has just passed a law that reforms the right of establishment in Luxembourg (the Law). The Law introduces several changes pertaining to professional integrity, creating the concept of a "fresh start" (nouvelle chance), and strengthening the requirements for executives (dirigeants) under the law of 2 September 2011 regulating access to the professions of craftsman, trader and industrialist as well as certain liberal professions (the Business License Law). The law also changes the way the business licenses are issued and need to be displayed by their holders.
Below, you will find an overview of the main amendments brought about by the Law whose entry into force is planned four days after its publication in the Luxembourg Official Gazette, with publication expected in the next few weeks.
New Law clarifies and extends the professional integrity condition
The Law puts an end to the inconsistencies of the Business License Law by clarifying that the following categories of persons need to display professional integrity:
- executives (dirigeants);
- holders of the majority of the shares in a company (parts sociales); and
- persons able to exercise a significant influence on the management or the administration of a company,
(the Persons Subject to the Professional Integrity Requirement).
It follows that breaches of professional integrity as provided in the Business License Law concern all the Persons Subject to the Professional Integrity Requirement and not only the executives (dirigeants).
The Law adds four new cases to the list of breaches affecting professional integrity. The list is now as follows:
- acting as or using an intermediary in managing a business subject to the Business License Law;
- using false or misleading documents or statements to obtain the business license;
- failing to file and publish required information at least twice in the last three financial years (new);
- failing to register the beneficial owners of the business for at least six months (new);
- having significant debts to public creditors in the context of a bankruptcy or judicial liquidation;
- criminal sentence for a crime or misdemeanor in connection with the activity performed or to be performed;
- failing to provide a guarantee for the reimbursement of all payments made by travellers, as required by the Consumer Code;
- failing to declare direct or indirect taxes for two consecutive years within a period of three years (new); and
- hiding the business' debts or inflating the business' receivables towards a Person Subject to the Professional Integrity Requirement (new).
Persons Subject to the Professional Integrity Requirement can benefit from a "fresh start"(nouvelle chance) if they meet certain criteria
The Law introduces the concept of a "fresh start" (nouvelle chance) to enable a Person Subject to the Professional Integrity Requirement to start, subject to certain conditions, a new activity after bankruptcy.
The Person Subject to the Professional Integrity can benefit from a new opportunity only if their bankruptcy resulted from one of these seven causes:
- a natural disaster recognised as such by the government;
- accidental destruction of the production site or the production tool (outil de production);
- the loss of an important client;
- a large-scale public works project (chantier de travail public d’envergure);
- the partial or total incapacity to work of the executive (dirigeant) as medically certified;
- a pandemic recognised as such by the government; or
- a loss of profitability due to a major market disruption (this last point only applies if the bankruptcy was declared following a self-declaration by the bankrupt person or entity).
Moreover, if any debts remain outstanding in the bankruptcy towards public creditors and the amount of these debts are negligible (i.e. below the thresholds set by the Law), the bankrupt will not be obliged to reach an agreement with the relevant public creditors which he or she is otherwise required to reach.
Business license requirements tightened for executives (dirigeants): presence and qualifications
The Law modifies the conditions that the executives (dirigeants) of a business subject to the Business License Law must meet. The executive (dirigeant) on whose professional reputation and qualifications the business license rests will now have to be physically present in the establishment, in addition to effectively and permanently ensuring the daily management of the business. He or she will also have to be either the owner of the business when the activity is in his or her personal name, or the representative of the business registered at the Luxembourg Company register (RCS) if the business is exercised by a company. The requirement of being a partner, shareholder or employee of the business is on the other hand abolished.
Henceforth, the executive (dirigeant) on whose professional reputation and qualifications the business license rests must meet cumulatively the following conditions:
- he or she must be qualified and honest; and
- he or she must be physically present and run the business daily; and
- he or she must be the owner or the registered representative of the business; and
- he or she must not have avoided paying social and tax dues, including withholding taxes, personally or in respect of a company of which they were an executive (dirigeant).
Non reporting your change of residence can cost you your business license
The Law expands the cases in which the business license can become void by adding, among others, any failure to report the change of the usual residence of the executive (dirigeant) within one month to the Minister responsible for granting business licenses. The failure to use the business license for more than two years from the date of its grant is no longer a condition to void the business license.
Luxembourg digitalises business licenses with online portal and 2D (two-dimensional) barcode
The business license will be issued online only on the dedicated exchange portal of the Luxembourg government and will be available online to the public on the same portal.
Each business license will be assigned a 2D (two-dimensional) barcode (e.g. a QR Code) which must be displayed by its holder (e.g. on a company's site and at each point of sale). Failure to display the 2D barcode will incur a fine.
For further information on the topic, please reach out to your usual A&O contact or any of the relevant contacts above.