Below we have listed some - from a corporate law perspective - important changes to the Business Licence Law introduced by the New Law:
- Amended general definition of relevant activities subject to a business licence
The New Law now clarifies that the covered independent activities in the field of commerce, crafts, industry or the liberal professions only require a business licence if they are actually exercised on a regular basis (de manière habituelle), on a principal or accessory basis, for the purpose of making a profit.
- Adjusted requirements for the issuance of a business licence
- Requirement of the business licence holder's management of the company through a physical presence
Under the Business Licence Law, a company carrying out an activity covered by this law had to designate at least one natural person, the manager, who is effectively and continuously responsible for the day-to-day management of the business. Pursuant to the New Law, such management shall now be carried out through a physical presence on the premises. While it remains to be seen how this criterion will be applied in practice, the initial proposal of the Bill that the manager must reside in the European Economic Area and have a regular and demonstrable presence in the company has been dropped.
- Change of the real link criterion between the business licence holder and the company
The previously required real link of the designated manager to hold the business licence with the company as an owner, partner, shareholder or employee has been amended insofar as it will henceforth be sufficient for such designated manager to be entered in the Luxembourg Trade and Companies Register (the "RCSL") as the company's representative.
- Clarification on payment of social security contributions and taxes
The business licence holder must not have evaded social security contributions and taxes including withholding taxes (clarification added by the New Law) , either in his own name or through a company he manages or has managed.
- Amended framework regarding good professional repute (honorabilité professionnelle)
The rules on good professional repute have been redrafted under the New Law and additional disqualifying criteria to the assessment of professional good repute have been added:
- All of the designated managers the company’s majority shareholder(s) and any other person in a position to significantly influence the company must be of good professional repute;
- Any behaviour or action contrary to a law, regulation or administrative measure which so seriously affects the professional integrity of the aforesaid persons that it is unacceptable for them to engage or continue to engage in the activity authorised or to be authorised, constitutes a breach of professional honourability;
- In addition, inter alia the following shall automatically constitute a breach affecting the good professional repute of such persons:
- the use of an interposed person or acting as an interposed person in the management of a company subject to this law;
- use of falsified or misleading documents or declarations in connection with the application for authorisation;
- repeated failure to make the legal publications required by the legal provisions relating to the RCSL, or failure to keep accounts in accordance with legal requirements;
- the accumulation of substantial debts to public creditors in the event of bankruptcy or compulsory liquidation (but please see below on the concept of a “new chance”);
- any final, serious or repeated conviction in connection with the business activity in question.
- Introduction of the concept of a "new chance"
Pursuant to the New Law, it is possible to obtain a new business licence under certain conditions even if one underwent a bankruptcy by introducing a "new chance".
The minister responsible for the business licences (the “Minister”) shall grant a new business licence to an enterprise that calls upon a former manager, or a person who has been able to exercise a significant influence on the management or administration of an enterprise, or who has held a majority of the shares in an enterprise declared bankrupt, if that person is able to establish that the bankruptcy was directly caused by e.g.:
- a natural disaster or a pandemic recognised as such by the Government;
- an involuntary destruction of the place of production or the production tool;
- the loss of a pre-eminent customer;
- a major public works project; or
- a loss of profitability following a major market disruption.
- Requirements for a new application after a change of manager
Without prejudice to the general requirements, in the event of a new application from a company after a change of manager (and after the expiry of any provisional authorisation granted), the competent authority shall issue a business licence only if the company:
- has no social security or tax debts (in excess of certain thresholds);
- is up to date with its tax declarations; and
is up to date with its filing and publication obligations under the amended law of 19 December 2022 on the register of commerce and companies and the accounting and annual accounts of companies, and with its registration obligations under the amended law of 13 January 2019 establishing a register of beneficial owners.
Required notification of specific changes
Amongst other things, the following must be notified within one month to the public authority in charge via the State exchange portal:
- any new branch;
- any change in the habitual residence (résidence habituelle) of the managers;
- a change in the company's fixed place of business (exploitation fixe de l'entreprise).
- Adjusted rules on loss of validity of a business licence
Pursuant to the New Law, the business licence is no longer valid in the event of failure to declare a change in the manager's habitual residence within one month. On the other hand, the previous ground for loss of validity in case the business licence was not used for more than two years from the grant date has been deleted.
The New Law further provides that, in the event of bankruptcy of the company, the business licence continues to be valid or becomes valid again if and so long as the continuation of the company’s business is authorised by a decision of the competent court.
- Automatic exchange of information between the public authorities
The New Law introduces an exchange of relevant information between, on the one hand, the Social Security Centre (Centre Commun de la Sécurité Sociale) (the “CCSS”), the Direct Tax Administration (Administration des Contributions Directes), the Registration Duties, Estates and VAT Authority (Administration de l'Enregistrement, des Domaines et de la TVA), the Public Prosecutor and the RCSL, and, on the other hand, the Minister.
In this context:
- the Registration Duties, Estates and VAT Authority shall inform the Minister if it finds that a company holding an establishment permit has failed to file value-added tax returns for two subsequent financial years within a three-year period, or has failed to pay value-added tax;
- the Direct Tax Administration shall inform the Minister of any failure to file direct tax declarations, including withholding tax declarations, for two subsequent financial years within a three-year period, or any failure to pay direct taxes by managers or companies holding a business licence.
- the CCSS shall inform the Minister if it finds that collection has failed as a result of late payment of social security contributions by a company holding a business licence or by the directors of the company holding the business licence.
- at least once a week, the Minister shall request information from the RCSL concerning e.g. any change or extension to the company's object, a change in the company's representatives, a change in the company's name, legal form or registered office, a change of residence of managers living abroad, failure to file annual financial statements, voluntary or judicial liquidation, and declaration of bankruptcy.
All business licence holders will have two years, i.e. until 1 September 2025, to comply with the amendments to the Business Licence Law as introduced by the New Law.
In conclusion, the reform under review marks a major step towards modernising the Luxembourg rules on business licences. In particular, it adds clarity to the assessment of professional good repute, regulates the granting of a new establishment permit after bankruptcy and facilitates administrative procedures by automating inter-administrative exchanges.