Luxembourg foreign investment control regime for aerospace and communication industry

Introduction

Draft bill n°7885 submitted in Luxembourg Parliament in September 2021 and aiming to establish a foreign investment control regime in Luxembourg is expected to come into force in early 2023. The foreign investment control regime will apply to “foreign investors” acquiring “control” over “critical activities” in Luxembourg.

Time to zoom in on its application.

Foreign Investors

The Luxembourg regime will apply to the following types of foreign investors (each a “Foreign Investor”):

• nationals of non-EEA Member States;
• entities established outside the EEA; and
• entities whose ultimate beneficial owner is a non-EEA entity or national.

Acquiring “control”

The law has specified that a Foreign Investor acquires control when such investor:

• acquires (on its own or in collaboration with other shareholders) a majority of the voting rights in the Luxembourg entity; or
• has the right to appoint or dismiss the majority of the members of the administrative, management or supervisory body of the Luxembourg company and is a shareholder of this company; or
• acquires a share interest exceeding 25% in the Luxembourg company.

The above means that investments in a non-Luxembourg entity can also trigger a filing if the target has a subsidiary established in Luxembourg, however the regime explicitly excludes portfolio investments, i.e. the acquisition of securities with the intention of making a financial investment without taking control of the Luxembourg entity, as well as holding companies without critical activities in the Grand Duchy of Luxembourg (regardless as to whether they may be linked to investments in critical sectors in other EU jurisdictions).

Aerospace and communications sector labelled as “critical activities”

The foreign investment control regime only applies to Luxembourg law governed companies carrying out “critical activities” in Luxembourg. The draft bill clarifies which sectors are to be understood as performing critical activities and lists, amongst others, the following sectors:

• the aerospace sector: space operations and the exploitation of space resources;
• the communications sector: wire, wireless, satellite, postal and courier services; and
• the media sector.

Research activities and production activities related to critical activities are also covered by the regime, as well as related activities that may allow access to the premises where critical activities are carried out (such as a cleaning or security company that has access to the premises of a company that itself has a critical activity) or to sensitive information related to the critical activities.

Filing Obligations

The new regime creates a mandatory filing obligation to the Luxembourg Ministry of Economy for investments that meet the filing thresholds. The elaborate filing process can consist of one or two stages (an initial notification phase which is, depending on the circumstances, followed by an assessment phase).

Enforcement

The regime provides for a series of administrative measures and sanctions in case of non-compliance with the law.

In particular, where Foreign Investors implement an investment without prior notification or without having received authorisation from the authorities despite the screening phase having been opened, they may be ordered to modify their involvement or restore the previous situation at their own expense.

In addition, fines of up to EUR 5 million for legal persons and EUR 1 million for natural persons may be imposed in the event of non-compliance. In reality, these caps are quite low when compared to other jurisdictions which impose fines up to 10% of the investor’s annual global turnover or a percentage of the transaction value may be imposed. As such, the actual impact of the fine on large companies is likely to be limited in practice.

Practical advice

We advise Foreign Investors contemplating investments in Luxembourg to:

• assess at an early stage whether a filing is required for any investments with links to Luxembourg. If so, conduct a careful assessment of whether the deal may potentially impact national security or public order in Luxembourg.
• anticipate potential delays in the implementation of a deal that triggers a filing, especially when national security or public order in Luxembourg is at stake.
• cover appropriate FI condition precedents, risk allocation, and co-operation mechanisms in the deal strategy and documentation.