On 20 July 2023, the Luxembourg Parliament adopted a new law that reforms the right of establishment in Luxembourg (the New Law). It amends the law of 2 September 2011 regulating the access to the professions of craftsman, merchant, manufacturer and certain liberal professions, as amended (the 2011 Law). The amendment aims to clarify some parts of the 2011 Law and stimulate entrepreneurship.
The New Law will enter into force four days after publication in the Official Gazette. People performing the activities mentioned in the section “New activities falling within the scope of the 2011 Law” below will have, as from 1 September 2023, two years to comply with its provisions.
Who does the 2011 law apply to?
The 2011 Law states that any person who wants to pursue commercial, handicraft and certain independent activities through a permanent establishment in Luxembourg will have to first obtain a business license. The legislator has clarified that the repeated exercise (de manière habituelle) of an activity requires a business license, regardless of whether it’s the person’s main activity. The legislator hasn’t provided a threshold as to what will be considered “habituelle”, leaving room for interpretation.
New requirements for the business license holder
The requirements applicants have to meet are:
- They must be qualified and have professional integrity.
- They must carry out the daily management of the company in an effective and permanent manner and will now have to be physically present in the establishment.
- The former law provided that the applicant had to a be a partner, a shareholder or employee of the company. It now makes a difference between a situation where the activities are carried out by an applicant in their own name, in which case, the applicant will have to be the owner of the business, and where the activities are carried out by a company registered with the Luxembourg Register of Commerce and Companies, in which case the applicant will have a mandate in the company (eg manager, daily manager).
- They must be compliant with their social and tax duties. The New Law states that this also includes the withholding tax.
A manager can hold more than two business licenses for several companies provided that the companies are linked to each other and carry out certain activities.
Second chance principle: is it really a new chance?
The New Law aims to stimulate and promote entrepreneurship. To achieve this objective, it has introduced the second chance principle, which allows any entrepreneur to start a new business following bankruptcy of their first company, when the bankruptcy was due to:
- misfortune, which is the case for companies which went bankrupt because of a substantial decrease in their activities for reasons beyond their control (eg pandemic); or
- mismanagement.
Delivery of a new business license: additional requirements
Following a change of business license holder, the new holder will be granted a new business license only if the company:
- does not have significant public debts;
- is up to date with its tax returns; and
- is up to date with its filing and publication obligations with the Luxembourg Trade and Companies Register and the Luxembourg Register of Beneficial Owners.
New activities falling within the scope of the 2011 law
Business centres and co-working spaces
Companies renting out offices and workspace now have to obtain a business license for the commercial activity and services of renting out shared workspace or offices with ancillary services. In practice, business centres (including co-working centres) will have to apply for a specific authorization and will not be able to operate with a regular business license for commercial activities and services.
Short-term rentals
Short-term real estate rental businesses now receive a legal framework. The aim is to apply similar hygiene and safety requirements as those required in the hospitality sector if a threshold of overnight stays is reached (a cumulative three-month short rental period over a year since the last rent).
Specific training should be completed within six months of the above three month-period.
Real estate business contributors (apporteurs d’affaires immobiliers)
The New Law has also taken into account the rapid development of the new real estate business contributors profession. This profession involves facilitating connections between a real estate agent or a real estate developer and individuals interested in selling or renting a property.
Digitalizing the application process
Business licenses will only be issued online on the dedicated exchange portal of the Luxembourg government and will also be available for public consultation online. A two-dimensional barcode will be assigned to each business license.
