Luxembourg’s new business licensing law encourages entrepreneurship | Hogan Lovells

We have listed below some of the important changes – from a corporate law perspective – to the Business Licensing Act introduced by the new law:

• The general definition of relevant activities subject to commercial licensing has been amended

The new law now clarifies that covered independent activities in the field of trade, craft, industry or liberal professions only require a business license if they are actually carried out on a regular basis (de maniere the usual) on an original or subsidiary basis for the purpose of making a profit.

• Amended requirements for issuing a commercial license
  • Requiring the commercial license holder to manage the company through physical presence

Under the Business Licensing Law, a company carrying on an activity covered by this law must appoint at least one natural person, a director, who is effectively and continuously responsible for the day-to-day management of the company. Under the new law, this management will now be carried out through a physical presence in the building. While it remains to be seen how this standard will be applied in practice, the initial proposal of the draft law stipulating that a director must reside in the European Economic Area and have a regular and visible presence in the company has been dropped.

• Changing the standard for the real connection between the commercial license holder and the company

The previously required genuine link for a designated director to hold a license to operate with a company as owner, partner, shareholder or employee has been amended, so that from now on it will be sufficient for this designated director to be entered into the Luxembourg Trade and Corporate Register (the “RCSL) as a representative of the company.

• Clarification regarding payment of social security contributions and taxes

The business license holder must not have evaded social security contributions and taxes, including withholding taxes (clarification added by the new law), whether in his own name or through a company he or she manages.

• Revised framework in relation to good professional reputation (Professional honor)

The rules for good professional reputation have been reformulated under the new law and additional non-qualifying criteria for assessing good professional reputation have been added:

• All appointed directors, majority shareholders of the company and any other person in a position to significantly influence the company must have a good professional reputation;
• Any conduct or action contrary to law, regulation or administrative action that seriously affects the professional integrity of the named persons such that it is unacceptable for them to engage or continue to engage in the authorized or authorized activity constitutes a violation of the professional rules. Honour;
• In addition, among others, the following automatically constitutes a breach affecting the good professional reputation of these persons:
  • Seeking assistance from an intervening person or acting as an interfering person in the management of a company subject to this law.
  • use false or misleading documents or representations in connection with the license application;
  • Repeated failure to issue legal publications required by legal provisions relating to the RCSL, or failure to maintain accounts in accordance with legal requirements;
  • The accumulation of significant debts owed to public creditors in the event of bankruptcy or compulsory liquidation (but please see below the concept of “new opportunity”);
  • Any final, serious or repeated conviction in connection with the business in question.

• Introduction to the concept of “new opportunity”

Under the new law, it is possible to obtain a new business license under certain circumstances even if one goes bankrupt by presenting a “new opportunity.”

The Minister Responsible for Commercial Licenses (“minister“) grants a new business license to an enterprise that employs a former director, or a person who was able to exercise significant influence over the management or administration of an enterprise, or who owns a majority of the shares in a corporation. The enterprise is declared bankrupt, if that person is able to prove that the bankruptcy was a direct cause, on for example:

• a natural disaster or pandemic recognized as such by the government;
• involuntary destruction of a place of production or a production tool;
• loss of a significant client;
• a major public works project; or
• Loss of profitability after a major market turmoil.

• Requirements for submitting a new application after changing the manager

Without prejudice to general requirements, in the event of a new application being submitted by a company after a change in director (and after the expiration of any temporary license granted), the competent authority may only issue a commercial license if the company:

• Has no Social Security or tax debts (exceeding certain limits);
• updated with his tax returns; And

• is informed of its filing and publication obligations under the amended law of 19 December 2022 on the commercial and corporate registry, accounting and annual accounts of companies, and with its registration obligations under the amended law of 13 January 2019 on the establishment of a register of beneficial owners.

Notification of specific changes is required

Among others, the following must be notified within one month to the responsible public authority via the State Exchange Portal:

• Any new branch;
• Any change in the usual place of residence (Usual residence) of managers;
• A change in the company’s fixed place of business (Reform of exploitation in the enterprise).

• The amended rules regarding the loss of validity of the trade license

Under the new law, the business license is no longer valid if the change of the manager’s usual residence is not announced within one month. On the other hand, the previous reason for loss of validity in the event that the business license is not used for more than two years from the date of grant has been deleted.

The new law also stipulates that in the event of a company’s bankruptcy, the business license remains valid or becomes valid again if the company’s continued operation is authorized by a decision of the competent court.

• Automatic exchange of information between public authorities

The new law provides for the exchange of relevant information between the Social Security Center (on the one hand)Commune de la Sécurité Sociale Centre) (the “CCSS“), Direct Tax Administration (Manage subscription directions), Registration Fees, Real Estate and Value Added Tax Authority (Registration management, domains And others from TVA), the Public Prosecutor and the RCSL and, on the other hand, the Minister.

in this context:

• The Registration Fees, Real Estate and Value-Added Tax Authority will inform the Minister if it finds that a company holding an establishment permit has failed to file value-added tax returns for two consecutive financial years within a three-year period, or has failed to pay value-added tax;
• The Direct Tax Department shall inform the Minister of any failure to file direct tax returns, including withholding tax returns, for two consecutive fiscal years within a three-year period, or any failure to pay direct taxes by managers or companies with a commercial license.
• CCSS must notify the Minister if it finds a failure to collect as a result of late payment of social security contributions by a company holding a trade license or by directors of a company holding a trade license.
• At least once a week, the Minister shall request information from the RCSL in connection with, for example, any change or extension of the subject matter of the company, a change in the company’s representatives, a change in the name of the company, its legal form or its registered office, or a change of domicile Company. Directors living abroad, failure to file annual financial statements, voluntary or judicial liquidation, and declaration of bankruptcy.

All commercial license holders will have two years, i.e. until September 1, 2025, to comply with the amendments to the Business Licenses Law as introduced by the new law.

In conclusion, the reform under review represents a major step towards modernizing Luxembourg’s rules on business licences. In particular, it adds clarity to the assessment of good professional reputation, regulates the granting of a new incorporation permit after bankruptcy and facilitates administrative procedures by automating administrative exchanges.