Luxembourg FDI screening regime entered into force

Since 1 September 2023, the Luxembourg Law establishing a mechanism for the national screening of foreign direct investments likely to undermine security or public order ("Law" – for a link to the text as currently available (in French) see here) is fully applicable. The Law implements Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union, which contains essential elements of the framework for the screening of such investments by Member States and introduces co-operation at EU level in the field.

The Law has a significant impact on the timing and proceedings of in-scope M&A transactions.

Main features

The screening mechanism applies to foreign direct investments ("FDI"), excluding portfolio investments (i.e., acquisitions of securities with the intention of making a financial investment and not allowing for the exercise of control), which could undermine security or public order, in a Luxembourg entity carrying out in Luxembourg "critical activities" as defined by the Law (Article 2 of the Law).

An FDI is defined as an investment of any kind by a foreign investor, i.e., a natural person or an undertaking of a country outside the EEA, aiming to establish or maintain lasting and direct links with a Luxembourg entity, thus allowing the foreign investor to participate, acting alone, in concert or through an intermediary, in the control of this entity, with a view to exercising a critical activity in Luxembourg.

If a Luxembourg FDI notification is required, the foreign investor must submit such a notification to the Minister of the Economy before the FDI is made ("avant la realisation"), i.e., before completion, or within 15 calendar days in the event that the threshold of 25% voting rights in the Luxembourg target entity is exceeded as a result of events modifying the distribution of the capital (Article 3 of the Law).

The Minister decides whether the FDI must be subject to the screening procedure within 2 months of receipt of the notification. The Law defines certain criteria to assess whether the FDI may pose a threat to security or public order in Luxembourg. The duration of the screening procedure (phase II) cannot exceed 60 calendar days after it is triggered. The review period may be suspended in case of an incomplete notification or supplementary information requests by the Ministry. The FDI cannot be completed before the authorisation decision is adopted.

Regulatory guidance

The Ministry of the Economy has issued a Q&A addressing some substantive and procedural questions about the regime (see link here – in French).

For more details on the scope and procedures of the new regime, please read  here.