Bill of law No. 7885 (the "Bill") aims at establishing a screening mechanism for foreign direct investments (FDIs) that may adversely affect national security or public order in the Grand Duchy of Luxembourg. The Bill was first presented on September 15, 2021 and is currently being discussed before the Luxembourg Parliament.

Recent updates

There were no major changes in 2022.

Who files

The Bill requires Foreign Investors contemplating an FDI covered by the Bill to make a notification to the Luxembourg Ministry of Economy prior to closing of the FDI.

A "Foreign Investor" is an individual or a legal entity who is not a national of a Member State of the European Union or of a state party to the European Economic Area, and who intends to complete or has completed an FDI.

Types of deals reviewed

The screening mechanism contemplated in the Bill applies to (i) FDIs (ii) made by Foreign Investors (iii) that may adversely affect national security or public order (iv) in Luxembourg entities carrying out critical activities in Luxembourg.

A "foreign direct investment" (FDI) is defined by the Bill as an investment of any kind made by a Foreign Investor, acting alone, in concert or through interposition, and is designed to create or maintain long-term and direct relationships between the Foreign Investor and the Luxembourg entity in which the Foreign Investor invests, thus allowing the Foreign Investor to effectively participate in the control of that entity for the purpose of exercising a critical activity in the Grand Duchy of Luxembourg.

According to the Bill, the following activities are deemed critical (the "Controlled Activities"):

• Dual-use goods
• Energy
• Transport
• Water
• Healthcare
• Telecommunications
• Data storage
• Aeronautics Defense
• Finance and
• Media

The Bill further deems critical:

• Research activities related to the activities listed above
• Production activities related to the activities listed above
• Ancillary activities that may grant access to sensitive information directly connected to the activities listed above and
• Ancillary activities that may grant access to places where the activities listed above are carried out

It should, however, be noted that portfolio investments are expressly excluded from the scope of the Bill.

Scope of the review

The Bill requires Foreign Investors intending to make FDIs in relation to Controlled Activities to notify the Luxembourg Minister of Finance. Any such notification must be made prior to the completion of the FDI.

The Bill also provides that, by derogation to the above, if a Foreign Investment exceeds 25 percent of the shareholding of a Luxembourg entity following a corporate event amending the allocation of the share capital of that entity, then the Foreign Investor should make a notification within fifteen (15) calendar days.

The notification must include information regarding the proposed transaction and the Foreign Investor as set out in the Bill.

In case the screening mechanism is activated, the following factors will be considered in order to determine whether the FDI adversely affects national security or public order:

• The integrity, security and continuity of supply of critical infrastructure;
• The sustainability of activities related to critical technologies and dual-use goods;
• The supply of essential inputs including raw materials and food safety;
• Access to sensitive information, including personal data, or the ability to control such information; and
• Media freedom and pluralism.

The following factors may also be considered:

• Whether the foreign investor is directly or indirectly controlled by the government of a third country, including public bodies or the armed forces
• Whether the Foreign Investor has already participated in activities that infringe the security or public order of a Member State and
• Whether there is a serious risk that the Foreign Investor carries out illegal or criminal activities

Whether the FDI is approved or not is then presented to the Foreign Investor.

Approval may be subject to conditions taking into account the screening factors listed above.

Review process timeline

Under the Bill, following notification of the FDI by the Foreign Investor, the Minister of Finance would ordinarily acknowledge receipt.

Within two (2) months following the acknowledgment of receipt, the Minister of Finance will notify the Foreign Investor whether the screening mechanism is activated. If the information to be provided as part of the notification made by the Foreign Investor is incomplete (or in case additional information is required), the procedure is suspended until the relevant information is provided.

The screening procedure cannot exceed sixty (60) days. The decision to approve (as the case may be, subject to conditions) or reject the FDI is announced before the end of the sixty (60)-day period. The Minister of Finance may also request additional information, which would suspend the timelines until the additional information is furnished.

How foreign investors can protect themselves

Foreign Investors must carefully assess whether or not the FDI is likely to be subject to the Luxembourg screening mechanism.

Investors may also try to restructure their investment(s) such that they qualify for the portfolio investment exemption. According to the Bill, a portfolio investment is an acquisition of securities made for the purpose of completing a financial investment without acquiring control of the entity. Thus, investing in an investment fund managed by an asset manager alongside other investors should exempt investors from the requirements under the Bill.

Alternatively, the Foreign Investor may seek to ensure that it will not control the relevant entity, as control is one of the triggers for FDI notification.

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