Spotlight

The Luxembourg Bar has recently expressed its opposition to the bill implementing DAC6 into Luxembourg law. According to Mr François Prüm, departing chairman of the Luxembourg Bar Association, the bill affects the professional secrecy obligation of lawyers.

DAC6 of 25 May 2018 aims at enabling Member States to identify new risks of tax evasion more quickly and take measures to block harmful arrangements. It requires intermediaries who develop or become aware of a « potentially aggressive » tax planning scheme to report such scheme to the tax authorities.
Intermediaries means tax advisers, accountants, bankers, trustees and lawyers.

It should be noted that DAC 6 leaves the door open to certain exemptions from the reporting obligations. Each Member State can take the necessary measures to grant intermediaries the right to be exempted from the obligation to provide information concerning a cross-border arrangement if such obligation to report is contrary to the professional secrecy applicable under the national law of that Member State. For example, in implanting DAC6 into their national laws Germany and Austria have provided for a full exemption for lawyers from the reporting obligation. However, in Luxembourg, the bill thus far does not mention such exemption. If the bill is enacted as it is, it would have as consequence the violation of the lawyer’s professional secrecy obligation, which might undermines the legal profession as a whole since lawyers’ non-disclosure privilege is a corner stone of their profession.

A new bill, numbered 7467 has recently been presented to the Luxembourg parliament. This bill aims at reinforcing the national legal framework of the fight against money laundering and terrorism financing by implementing new provisions and adjustements to the Law of 12 November 2014. The proposed legislation implements into domestic law EU Directive 2018/843 of 30 May 2018.

On 8 August 2019, Bill 7467 (the “Bill”) was presented to the Luxembourg Parliament. The object of this Bill consists of amending Law of 12 November 2004 on the fight against money laundering and terrorism financing (the “AML Law”) in line with the provisions of the EU Directive 2018/843 of 30 May 2018 (the “5th AML Directive”) (which amends Directive (EU) 2015/849 of 20 May 2015 (the “4th AML Directive”) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and Directives 2009/138/EC and 2013/36/EU).

The Bill was approved on 26 July 2016 by the Luxembourg Government Council, which announced that the implementation of the 5th AML Directive into national legislation was one of the Governement’s priorities. According to the press release of the government’s meeting, the implementation into domestic law of the 5th AML Directive will strengthen the measures already in force to fight against money laudering and terrorist financing.

In addition to the planned adaptations in the AML Law, other national laws relating to the organisation of regulated professions will be amended by the Bill, such as:

• the Law of 9 December 1976 on the organization of the notarial profession;
• the Law of 4 December 1990 on the organization of the bailiff service;
• the Law of 10 August 1991 on the profession of lawyers;
• the Law of 10 June 1999 on the organization of the profession of chartered accountants; and
• the Law of 23 July 2016 relating to the audit profession.

The main purpose of the Bill is to strengthen the measures for the combat against money laundering and terrorist financing within the national legal framework based on the precise recommendations of the Financial Action Task Force (FATF). FATF is the inter-governamental body setting the standards and promoting the effective
implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.
The Bill focuses on several new provisions to be implemented. Firstly, it proposes to extend the scope of the AML Law in order to include service providers engaged in exchange services between virtual currencies as well as custodian wallet providers. Furthermore, it also intends to lower the thresholds to identify the purchasers of prepaid cards in order to limit their use. As such, the changes proposed in the Bill aim to prevent the risks associated to the use of virtual currencies and allow a more efficient monitoring of the use of such currencies.
Secondly, the Bill strengthens and harmonizes the treatment of third countries identified by the European Commission as “high-risk countries”. Indeed, the Bill proposes to improve the safeguards for business relationships and transactions to and from high-risk third countries. As such, when dealing with high-risk cases, the Bill requires relevant professionals to apply enhanced due diligence measures to manage and mitigate risks taking into account recommendations expressed by the FATF, especially in cases where such recommendations do not have equivalent provisions in the EU Directives.

This is essential in order to reduce legal uncertainty for professionals which may result from divergent interpretations regarding their obligations in terms of anti-money laundering and financing of terrorism.
Thirdly, the provisions proposed by the Bill also have an impact on the supervisory authorities and self-regulatory bodies whose powers are currently only partly harmonised. Indeed, the Bill introduces further harmonization of the role of these authorities and bodies which fulfil similar tasks required by law and international standards in the fight against money laundering and terrorist financing. Considering the importance of cross-border activities in Luxembourg, this Bill aims at strengthening the capacity of the supervisory authorities to cooperate on an international basis with their foreign counterparts by proposing a legal framework in accordance with the principles established by Directive (EU) 2018/843 and the FATF recommendations in this regarddar.

This Bill is part of the continuous evolution of the preventive framework for the fight against money laundering and terrorist financing in the Grand Duchy of Luxembourg.

On 8 February 2017, the Luxembourg Parliament has adopted the Bill of Law Nr. 6992 amending inter alia, the law dated 29 August 2008 on freedom of movement of individuals and immigration, implementing new possibilities for investors to apply for residency permit in Luxembourg (the “Bill of Law”). A regulation (the Regulation”) has been adopted on 5 December 2017 in order to define eligible activities.

I. Conditions for the application

The residency permit is granted by the ministry to a third country resident (i.e. resident of a country outside the European Union and the EEA) if the following conditions are fulfilled :

1. Subject to the Regulation, the applicant invests at least EUR 500,000 in an existing Luxembourg Company having its registered office in Luxembourg
   carries out a commercial, artisanal or industrial activity, and commits to maintain the investment and the employment within that company at the same
   level for a period of at least 5 years (except in case the company faces financial difficulties); or
2. Subject to the Regulation, the applicant invests at least EUR 500,000 in a company to be incorporated in Luxembourg carries out a commercial, artisanal or
   industrial activity and commits to create at least 5 job positions, in collaboration with the Luxembourg employment agency (Agence pour le développement de l’Emploi), within 3 years as from the incorporation of the company; or
3. The applicant invests at least EUR 3,000,000 in an investment and management structure, already existing or to be created, in Luxembourg and maintains an appropriate substance; or
4. The applicant invests at least EUR 20,000,000 in the form of a cash deposit at a bank institution established in Luxembourg and commits to keep this
   investment for at least 5 years.

II. Specific conditions for residency permit application Residence permit is subject to the following restrictions:

• Real estate investments are excluded from the scope of investments giving right to the residency permit (real estate acquisition or renting);
• Investments in point 1.1 can be done through intermediary-investment structures;
• The investor must be the beneficial owner of the assets deposited or invested;
• Transactions remain subject to the AML regulation and in particular the law of 12 November 2004 on the fight against money laundering and terrorist financing (as amended from time to time);
• The investments under I.1, I.2, I.3 consist of at least 75% equity. The remaining 25% can consist of loans having a maturity of at least 3 years;
• The investment under 1.4 must be 100% equity.

III. Granting and validity of the residency permit

The applicant who proves to have an appropriate housing in Luxembourg will be granted an investor residency permit for a duration of 3 years. A verification of the conditions is made by the ministry within 12 months after the granting of the residency permit. If the conditions are no longer fulfilled, the applicant can be granted an extension of 12 months to fulfill his/her obligations. If the situation remains noncompliant after this period, the minister can withdraw the residency permit. The residency permit can be renewed on demand and after recommendation of the ministry for a duration of 3 more years. The applicant must be in a position to produce any document to the administration in case of verification.

The holder of a residency permit can also apply for a business licence in Luxembourg (investments under I.1 and I.2) if he/she has the required professional  qualification / honorability as required for business licence applications under the applicable law of 2011.

IV. In practice: the Regulation (which is applicable to investments as detailed in points I. 1 and I. 2), specifies that the eligible sectors of the Luxembourg economy
are as follows:

1. information and communication Technologies: (e.g.: data centers… (Skype, PayPal, SES…)).
2. space Technologies (see recent space mining law);
3. environmental technologies;
4. intelligent mobility technologies;
5. health technologies;
6. logistics, excluding simple road transport without any other activities which create economic added value;
7. industrial sector – provided that production or research and development will be located in Luxembourg;
8. tourism sector – for regional or national tourism infrastructure projects as well as hotel projects of more than 25 guest rooms;
9. commercial activities related to the creation, extension, takeover, transfer or change of one or more main commercial branches of a commercial surface whose sales area is equal to or greater than 400 m².

A robust business plan shall be prepared before any application. Before any investment is made, the project shall be submitted to the Ministry.

The investment project can also be made with several investors: in this case the individual and the number of employees as required under I.1. and I.2 remain the same
for the project.