In September 2021, a Bill was submitted to the Luxembourg Chamber of Deputies to establish a national screening mechanism to supervise direct foreign investment (FDI) likely to undermine security or public order.
However, the Bill, which followed the EU’s establishment of a European screening mechanism for FDI in March 2019, is still under discussion in the Luxembourg Parliament, and there is no clear timetable for when it will be enacted. The national screening mechanism will apply to FDI that targets critical sectors and that is carried out by foreign investors that are neither EU members nor entities registered in the European economic area.
Read more from our 2023 foreign direct investment report
- Foreign direct investment in Australia
- Foreign direct investment in China
- Foreign direct investment in Germany
- Foreign direct investment in India
- Foreign direct investment in Ireland
- Foreign direct investment in Japan
- Foreign direct investment in the Netherlands
- Foreign direct investment in Singapore
- Foreign direct investment in Spain
- Foreign direct investment in the UAE
- Foreign direct investment in the UK
- Foreign direct investment in the US
For the provisions of the Bill to be triggered, a foreign investor will have to obtain at least a majority stake in a Luxembourg entity, without it having to acquire the full ownership of that Luxembourg company. Therefore, the investment made by a foreign investor in a Luxembourg entity that carries out critical activities would lead to the takeover of that entity. These critical activities are set out in article 2 of the Bill.
| Sector | Activities |
|---|---|
| the development, exploitation and trade of dual-use items within the meaning of Article 2 (1) of the 2009 Council Regulation 428/2009, setting up a community regime for the control of exports, transfers, brokering and transit of dual-use items. | |
| energy | electricity generation and distribution, gas conditioning and distribution and the storage and trading of oil; quantum and nuclear technologies. |
| transport | land, water and air transport. |
| water | the collection, treatment and distribution of water, the collection and treatment of wastewater, as well as the collection, treatment and disposal of waste. |
| health | healthcare activities and medical analysis laboratories; nanotechnologies and biotechnologies. |
| communications | wireline telecommunications, wireless telecommunications, satellite telecommunications and postal and courier services. |
| data processing and storage | computer facilities for data processing, hosting of data processing, hosting of information services and internet portals; technologies relating to artificial intelligence, semiconductors and cybersecurity |
| aerospace | space operations and resource exploitation. |
| defence | activities related to national defence; production and trade of weapons, ammunition, powder and explosive substances for military purposes or war materials. |
| financial | central bank activities as well as infrastructure and systems for the exchange, payment and settlement of financial instruments. |
| media | publishing, audio-visual and broadcasting activities. |
The definition of a critical activity is also designed to include any research and production activities directly related to these activities, as well as any related activities that may allow access to sensitive information directly related to them. It also includes related activities that may allow access to the premises which carry out critical activities.
Procedure
A foreign investor will be required to notify the minister of the economy prior to closing the deal if they intend to achieve an FDI falling within the scope of the Bill, and must communicate the following:
- the ownership structure of the foreign investor and the Luxembourg entity prior to the realisation of the FDI;
- the approximate value of the FDI;
- the products, services and business operations of the foreign investor and the Luxembourg entity;
- the countries in which the foreign investor and the Luxembourg entity conduct business activities;
- details on the financing of the FDI and the source of the financing;
- the date on which the FDI is planned or has been made.
Following the receipt of the notification, an inter-ministerial committee will provide guidance and determine whether a screening process is necessary. Using the information provided by the investor, the committee will attempt to verify that the investor is who they claim to be and that they are the final beneficiary of the investment. The project will be assessed on the basis of the investor's profile, reputation or past experience. The authorities will have two months to decide, on the basis of this first analysis, whether or not to initiate a screening procedure.
This notification has no suspensive effect on the proposed investment. It is only when the investor receives the information that a screening procedure has been triggered that they can know that their investment could present a risk to security or public order.
If an FDI in Luxembourg is subject to a screening process, the Ministry of Foreign and European Affairs will notify the European Commission, as well as the other EU member states, along with information and details contained in the initial notification. Finally, the minister of the economy will make a decision which can be a conditional approval or a refusal.
Sanctions
If an FDI has been made without a notification, or following a refusal under the screening decision, the minister of the economy can order the foreign investor to modify the transaction or restore the transaction to its previous condition at the foreign investor’s expense.
If the foreign investor does not comply with the conditions of the approval, ministers can require them to comply with the conditions of the authorisation within a time limit. They can also require the foreign investor to perform prescriptions in lieu of the replacement of the unfulfilled obligation. These prescriptions could include the restoration of the situation prior to the non-fulfilment of this obligation, or the transfer of all or part of the activities. As a last resort, ministers can withdraw the authorisation altogether.
If a foreign investor refused to comply with these injunctions, ministers can impose a fine of up to €1,000,000 on an individual, and up to €5m for legal entities.
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