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Looking back, looking forward.
Luxembourg Law Year in Review 2017 and Year to Come 2018 January 2018
[1] Please note that paragraphs marked with an asterisk are relating to EU law or to other public EU documents
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Year in Review - Luxembourg Law in 2017
* [1] 2017 corporate tax reform: In addition to a decrease in the aggregate income tax rate for corporations, initially to 27.08% and to 26.01% from 1 January 2018, and an increase in the flat minimum net wealth tax for Soparfis to EUR 4,815, Luxembourg introduced a limitation on the ability to carry forward tax losses to 17 years. Read more…
Revisiting the Luxembourg transfer pricing framework: The Luxembourg transfer pricing legislation has been modernised by the adoption of a new article 56bis, in line with recent OECD BEPS guidelines emphasising the importance of the comparability analysis. Read more…
Law on mortgage credit agreements: In January, the law of 23 December 2016 on mortgage credit agreeements, transposing Directive 2014/17/EU entered into force. Read more…
Remuneration policies for UCITS management companies: In January, ESMA guidelines on sound remuneration policies similar to those which already exist under the Alternative Investment Fund Managers Directive became applicable.
Law on non-financial reporting: Implementing Directive 2014/95/EU, the law of 23 July 2016 came into force on 1 January. It applies to large undertakings qualifying as public-interest companies (“PIEs”) which must include in their annual report a non-financial statement containing information relating to, among others, environmental, social, employee, respect for human rights, and anti-bribery matters.
Increase of the minimum wage and new salary index from 1 January 2017: Following the increase of the minimum wage by 1.4% and the consumer price index, wages were raised by 3.9% in total. Hence, the minimum monthly wage was set at 1,998.59 € (index 794.54) for unskilled employees and at 2,392.19 € (794.54) for skilled employees. Read more…
Simplified private limited liability company: On 16 January, the law of 23 July 2016 creating the société à responsabilité limitée simplifiée (“SARL-S”) came into force. It aims to stimulate entrepreneurship in particular by reducing the costs and procedures linked to incorporation.
*EAPO Regulation: On 18 January, the European Preservation Order Regulation (EU) 655/2014 (“EAPO Regulation”) came into force. This enables creditors to prevent the transfer or withdrawal of debtors’ assets from any bank account located in the European Union. Read more…
*ESMA opinion on UCITS share classes: On 30 January, ESMA released its opinion on UCITS share classes. The aim is to develop a common framework for UCITS share classes throughout the European Union and determine the extent to which different types of share classes of the same UCITS can differ from one another. Read more here and here.
Criminal records: As from 1 February, the new provisions relating to the access to criminal records entered into force. The right of an employer to request criminal records is clarified, in particular in the context of pre-hiring checks. Read more…
Posting of workers: The law of 14 March 2017 updated provisions on posted workers in relation to the supply of services, especially by increasing the obligations of employers and the recipients of the services. The provisions also strengthen the cooperation between the competent authorities.
VAT / Independent group of persons: On 4 May, in the case Commission v. Luxembourg (C-274/15), the CJEU ruled that Luxembourg’s regime on independent groups of persons was contrary to EU legislation. The favourable conditions of the contentious regime were abolished as from 1 December 2017 (with grandfathering for existing structures until 1 January 2018). It remains to be seen whether the decision of the CJEU has paved the way for the adoption of a VAT group in Luxembourg.
*MMF Regulation: In mid-2017, the EU finally adopted its Money Market Funds (“MMF”) Regulation (EU) 2017/1131. The Regulation will apply both to UCITS and AIFs that invest in short-term assets with the objective of achieving returns in line with money market rates or preserving the value of the investment. Most of the Regulation’s provisions will not start to apply until July 2018.
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BEPS / MLI: On 7 June, the Multilateral Convention to Implement Tax Treaty Related Measures (“MLI”) was entered into as part of a global effort to prevent base erosion and profit shifting (“BEPS”). MLI, once in force, will amend the interpretation of existing double tax treaties without any need to formally amend them one by one. Luxembourg decided to apply the MLI to all of its bilateral double tax treaties and has opted to apply the principal purpose test (“PPT”) in order to prevent treaty abuse. Read more…
*EU Shareholder Rights Directive: Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement came into force on 9 June. All Member States will have to implement the new rules regarding shareholder intermediaries, investors, asset managers and proxy advisors as well as related party transactions and “say on pay” provisions by 10 June 2019.
*EU Regulation on insolvency proceedings : Regulation (EU) 2015/848 applies to insolvency proceedings opened since 26 June 2017. It repeals and recasts Regulation (EC) 1346/2000 which shall continue to apply to existing insolvency proceedings opened before 26 June 2017. The provisions on national insolvency registers and a decentralised system for their interconnection will however not apply before 2018 and 2019. Read more on significant changes.
*SFTR: In July, all the provisions of EU Regulation 2015/2365 on transparency of securities financing transactions and of reuse (“SFTR”) became applicable. Furthermore, draft law 7194 implements certain provisions of SFTR and notably empowers the Commission de surveillance du secteur financier (“CSSF”) (for management/investment companies) and the Commissariat aux assurances (for insurance companies) as the competent authorities to impose administrative fines for breaches of the Regulation. Read more here and here…
*New Prospectus Regulation published: In July, the EU Prospectus Regulation came into force. The majority of the Regulation’s provisions will apply from July 2019 but key changes to two exemptions from the need to produce a prospectus came into effect immediately. Read more...
Exploration and use of space resources: On 1 August, the law on the exploration and use of space resources came into force. This grants property rights to private companies over extracted space resources. Asteroids, comets and celestial bodies are excluded from appropriation as they are protected under the 1967 Outer Space Treaty. The law further establishes the conditions and procedures for authorising and supervising space exploration missions.
*Review of the European Supervisory Authorities: On 20 September 2017, the European Commission published a package of four legislative proposals to review the European System of Financial Supervision and ensure it remains fit for purpose with the Capital Markets Union, the Banking Union and the development of FinTech. Once adopted, this package is expected to come into force in March 2019. Read more…
*EuVECAs and EuSEFs: In November, Regulation (EU) 2017/1991 amending Regulations (EU) 345/2013 on European Venture Capital Funds and (EU) 346/2013 on European Social Entrepreneurship Funds became applicable in all Member States. It aimed to improve the legal framework of these funds.
Buy-back of shares: A decision (39193C) of the Administrative Court of Appeal of 23 November 2017 confirmed that the buy-back by a company of all or part of the shares held by one of its shareholders – without a subsequent reduction of its share capital – will be considered as a disposal of shares (and not as a distribution of profits) and therefore will not trigger the application of a withholding tax in Luxembourg.
Renumbering of the Luxembourg company law: Published on 15 December and effective as of 19 December, the Grand-Ducal regulation of 5 December 2017 on the coordination of the law of 15 August 1915 on commercial companies implements the renumbering of the company law. Read more…
*Legal Entity Identifier (LEI): To fulfil their reporting obligations under financial regulations and directives such as EMIR, MAR, MIFID II, MIFIR, SFTR, legal entities must obtain a LEI from a Local Operating Unit (“LOU”). A smooth introduction is however contemplated. The LEI, is a 20-digit, alpha numeric code which enables clear and unique identification of legal entities participating in financial transactions. Read more here and here…
*EMIR: The phase-in of mandatory initial and variation margin requirements for uncleared derivatives began from February and counterparties within the scope of the margin rules had to negotiate compliant agreements. Mandatory variation margin requirements for physically-settled FX transactions will apply from January 2018 but may be deferred for FX forward transactions entered into by non-financial institutions. 2017 also saw the deferral of the clearing obligation for smaller financial counterparties until June 2019 and the introduction of enhanced reporting requirements from November. Read more…
[1] Please note that paragraphs marked with an asterisk are relating to EU law or to other public EU documents
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Year to come - Luxembourg Law in 2018 and subsequent years
*[1] Stock options: The value of (non-listed) freely transferrable stock options was set at 17.5% of the value of the underlying shares at grant. A new Circular 104/2 dated 29 November 2017 raised this rate to 30% from 1 January. Otherwise, the tax regime has not changed significantly as the Circular merely codifies existing practice.
Anti-Money Laundering measures: Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“AMLD IV”) is in the process of implementation by three different draft laws: 7128 (introducing among others the new definition of (ultimate) beneficial owners (“UBO”)), 7216 (establishing a register for fiducies) and 7217 (establishing a UBO register). At the same time, AMLD IV is already under review at the EU level. Read more…
Amendments to Part II fund, SIF and SICAR laws: Draft law 6936 aims to (i) allow the Commission de surveillance du secteur financier (“CSSF”) to issue a regulation that would restrict the eligible assets of a SIF which offers its units/shares to investors who do not qualify as professionals under MiFID II, (ii) allow Part II funds, under certain conditions, to issue units/shares at a different price than their net asset value, and (iii) update the SICAR law to align it with the SIF law.
CSD: Draft law 7165 implements Regulation 909/2014/EU on improving securities settlement and on central securities depositories (“CSDs”). It lays down uniform obligations on the settlement cycle and discipline and provides common requirements for CSDs operating securities settlement systems. It (i) designates the CSSF as the responsible competent authority and (ii) empowers it to impose administrative fines and other measures.
*PRIIPs: The PRIIPs Regulation which creates the obligation to publish a two-to-three-page key information document for retail investors for numerous financial (repackaged) and insurance products applies from 1 January. Draft law 7199 implements Regulation 1286/2014/EU and notably (i) designates the CSSF (for management/investment companies) and the Commissariat aux assurances (for insurance companies) as the competent authorities to ensure proper application of the provisions of this Regulation and (ii) empowers them to impose administrative fines for breaches of the Regulation. Read more…
*MiFID II/MiFIR: The MiFID II package takes effect from 3 January 2018. In 2017, the European Commission adopted delegated acts and technical standards and made amendments to the level 1 legislation. ESMA issued various level 3 guidelines and thematic questions and answers. Draft law 7157 was filed with the Luxembourg Parliament aiming at implementing the provisions of MiFID II/MiFIR.
Omnibus law on the financial sector: Draft law 7024 introduces national measures in relation to EU Regulation 2015/751 on interchange fees for card-based payment transactions. It also amends article 41 of the law on the financial sector to (a) expand the definition of professional secrecy in the context of resolution, reorganisation and winding up measures and (b) alleviate the professional secrecy requirements in the context of outsourcing. It also amends (i) the law on financial collateral arrangements to clarify the priority of resolution or write down measures taken in compliance with the law of 18 December 2015 or similar laws implementing Directive 2014/59/EU (BRRD) over financial collateral arrangements and (ii) article 83(3) of the law on Undertaking for Collective Investments to clarify the depositary regime of Part II funds.
Patrimonial foundations: Draft law 6595 intends to introduce a new wealth management vehicle in the form of a private foundation with an attractive tax regime.
Non-profit associations and foundations: Draft law 6054 on non-profit associations and foundations aims to modernise the current legal framework, which dates back to 1928.
Protection of enterprises and modernisation of bankruptcy law: Draft law 6539 aims to reform the current legal framework by (i) providing conservatory measures and legal instruments to prevent financially distressed companies from being declared bankrupt should their financial problems be detected at an early stage and (ii) favouring turnaround options rather than liquidation of distressed companies.
*Benchmarks EU Regulation (2016/1011): The Benchmark Regulation applies in its entirety from January. The Regulation’s delegated acts will be discussed and finalised during 2018. The market expects further clarifications in the form of Questions and Answers. In Luxembourg, draft law 7164 implements certain
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provisions of the Regulation on indices used as benchmarks in financial instruments and financial contracts and notably empowers the CSSF (for management/investment companies) and the Commissariat aux assurances (for insurance companies) as the competent authorities to impose administrative fines for breaches of the Regulation.
*A Pan-European Personal Pension Product (PEPP): As part of its Capital Market Union initiative, the European Commission has released a proposal which aims to create a new personal pension product that can be offered to EU citizens as an alternative to the products that are currently available at national level. Read more...
*Mandatory margin for uncleared derivatives under EMIR: The European Commission’s proposals for the revision of EMIR are expected to continue during 2018.
*UCITS and AIFMD review: A European legislative proposal to facilitate the cross-border distribution and supervision of UCITS and AIFs is expected by Q1 2018. Furthermore, there are plans to review the EU Alternative Investment Funds Managers Directive (AIFMD) in Q4 2018. In connection with the AIFMD review, some specific and limited aspects of the UCITS Directive (e.g. reporting issues) could be amended but timing for a legislative proposal to review the UCITS directive remains unclear.
*GDPR Regulation: May 2018 marks the transition from preparation to implementation for the EU General Data Protection Regulation. In Luxembourg, draft bills 7184 and 7049 aim to complete this framework. Read more...
Family leaves: The law of 15 December 2017 which comes into force on 1 January aims to modernise existing family leave by amending provisions on parental leave, postnatal leave and leave for family reasons.
Protection of employee’s rights: Draft law 7086 aims to provide better protection of employee’s rights and improve re-employment measures through financial incentives.
Redundancy on economic grounds: Draft law 6086 introduces various provisions to prevent wrongful dismissal on economic grounds.
Supplementary pension rights: Draft law 7119 implements Directive 2014/50/UE and aims to facilitate worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights of members of those supplementary pension schemes.
Social elections: Draft law 7138 aims to postpone the date of the social elections of staff representatives (initially scheduled for November 2018) to February or March 2019.
*ATAD: The EU Ecofin Council reached agreement in July 2016 on the Anti-Tax Avoidance Directive. The ATAD aims to set a minimum standard on anti-abuse rules in five areas: interest deduction, exit taxation, a general anti-avoidance rule, controlled foreign companies and hybrid mismatches. Member States are required to implement the measures by 31 December 2018.
IP box regime: Draft bill 7163 introduces a new IP box regime in line with the BEPS reports. Whilst 80% of the qualifying net IP income will continue to benefit from a corporate income tax exemption, the assets within the scope of the new IP box regime are limited to patents or software (to the exclusion of trademarks).
Exchange of information / Berlioz: Following the CJEU’s decision in the case Berlioz Investment Fund S.A. v. Directeur de l’Administration des Contributions Directes (C-682/15), draft bill 7223 proposes to amend the domestic procedure for an exchange of information.
*PSD II: The Payment Services Directive (EU) 2015/2366 will apply from January except for the security measures on Strong Customer Authentication and Secure Communication, which will apply between September 2018 and Q1 2019. Draft law 7195 aims to implement PSD II and to amend the law of 10 November 2009 on payment services.
Insurance: Directive 2016/97 on insurance distribution (recast) (“IDD”) will repeal and replace Directive 2002/92/EC on insurance mediation (IMD) and is intended to improve the way insurance products are sold, updating or clarifying IMD for changes in the marketplace and introducing a level playing field among those involved in the sale of insurance products. The European Commission proposed to delay the application date of the IDD until 1 October 2018. Draft law 7215 aims to implement IDD into Luxembourg law.
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