The coalition agreement for the 2018-2023 legislature includes a commitment to modernise the right of establishment and "to stimulate entrepreneurship". On 8 April 2022, bill of law 7989 amending the law of 2 September 2011 regulating access to the professions of craftsman, trader, manufacturer and certain liberal professions (the "Bill"), was submitted to the Luxembourg Parliament (Chambre des Députés du Grand-Duché de Luxembourg).
The measures relating to co-working spaces, an activity that has been largely unregulated until now, are an ancillary part of the reform.
Pursuant to the Bill, companies that carry out the activity of renting out office and workspace must apply for and obtain a business licence for the commercial activity and services of renting out shared workspace or office with auxiliary services. Business centres (including co-working centres) will have to apply for a specific authorisation and will not be able to operate with a “simple” business licence for commercial activities and services (autorisation pour activités et services commerciaux).
In recent years, many business centres and co-working spaces opened in the Grand Duchy of Luxembourg. Some service providers allow clients to register their company’s head office at the provider’s address so that the line between office rental and domiciliation is becoming increasingly blurred. Despite rendering services such as mail or visitor management, the services provider involved did not consider themselves as domiciliary agent and, consequently, did not comply with the legal requirements applicable to domiciliary agents. As a result, some service providers were fined by the director of the indirect tax authorities (Administration de l'Enregistrement, des Domaines et de la TVA, “AEDT”) for non-compliance with the law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended (the “AML Law”) that is applicable to domiciliary agents.
The CSSF, in a press release dated 23 November 2021 (the “CSSF Press Release”), set out the criteria used to distinguish between rental and domiciliation activities and confirmed that the provision of working premises (where a company establishes its head office) is not considered as a domiciliation activity and therefore is not subject to the AML Law if it results in a genuine rental, meaning “a lasting and permanent rental ensuring that the renter has private premises available for its exclusive use”. The CSSF gave some indications in this respect: the size of the office must allow the effective exercise of the company’s activity, the office must be occupied in a permanent and exclusive manner, the effective management of the company must be performed on site, and finally, no services shall be rendered from the owner to the tenant. A contrario, a service provider qualifies as domiciliary agent in the event that it provides services to its clients as for example mail or visitor management.
In a recent decision delivered on 29 March 2022, the administrative tribunal (Tribunal administratif du Grand-Duché de Luxembourg) held that providing even a limited number of services is enough to be qualified as trust and company service provider in accordance with articles 2, paragraph (1), item 13a and 1, paragraph (8) of the AML Law. The service provider appealed against the decision of the AEDT (as the competent supervisory authority for professionals subject to the AML Law) imposing a fine on a rental company that provided exceptional services of mail reception in addition to the rental of office space. Pursuant to the AML Law, a trust and company service provider is “any natural or legal person which by way of business provides to third parties […] (c) a registered office, business address, correspondence or administrative address or business premises and other related services for a company, a partnership or any other legal person or arrangement”. The court defined the concept of “related service” as a service rendered to the company which contributes actively to its purpose as stated in its articles of association and without which the company could not operate correctly, as opposed to a service considered as ancillary to such activity.
It is to be noted that the Bill is intended to bring the law of 2 September 2011 regulating access to the professions of craftsman, trader, manufacturer and certain liberal professions in line with the national legislation and international standards concerning the fight against money laundering and terrorist financing and its corollary consisting in identifying ultimate beneficial owners. Consequently, the Bill creates new categories of business licences, for activities that are subject to anti-money laundering control obligations such as, as described above, the business of renting offices and workspaces, the activity of sale of vehicles or of sale of valuable movable goods. Therefore, these professionals will have to comply with anti-money laundering obligations as holders of a specific category of business licence.
The fast evolution of the “sharing economy” in Luxembourg also led the legislator to take position on the short-term tenancy of residential property (through platforms such as Airbnb). The aim is to apply, in certain circumstances, the same hygiene and security rules as those applicable in the hospitality sector. In fact, the legal definition of “accommodation providers” (“exploitant d’hébergement”) provided in the Bill is extensive and any owners of rental units will be subject to its scope, provided that a cumulative three-month short rental period has been exceeded over a year, from the last rental date. This activity is subject to the completion of a training related to, notably, the general rules of food hygiene and the respect of human rights and minors’ protection, which should be validated within six months. As a reminder, this activity must be differentiated from the domiciliation of companies governed by the law of 31 May 1999 governing the domiciliation of companies, as amended, since election of domicile is forbidden in rental units.
The legislator also introduced in this Bill a framework regarding the status of real estate business contributors (“apporteurs d’affaires”), i.e. commercial activity which consists in putting in relation a real estate agent or a real estate developer and any other person wishing to sell or rent a property. This activity of “intermediary” which took more and more autonomy now becomes a full-fledged profession. The government’s intention in identifying clearly the business contributors is to protect consumers and to impose anti-money laundering and anti-terrorist financing controls on that profession.
Others major modifications will be introduced through this Bill such as the obligation for the holder of a business licence to have a real link with the company, as owner or in charge of the daily management, or also a second chance principle in case of bankruptcy due to misfortune (e.g. the loss of a big client, activity decrease, …) or bad management. Without such a second chance principle, a business licence holder is currently usually prevented from holding a new business licence after a bankruptcy. An automatic exchange of information between the Luxembourg Register of Beneficial Owners and the Minister in charge of business licence is also foreseen to ease the flow of information between them.
It appears that through this Bill, the government aims at stimulating the Luxembourg economy through a better supervision of professionals and fostering entrepreneurship. However, this Bill remains subject to forthcoming changes depending on the different opinions to come. As it stands, the current business licences should remain valid and their holders will be granted a two-year transition period starting from the entry into force of the law. PwC Legal may help you understanding the impacts of this future legislation to your business and assist you complying with the law once adopted by the Parliament.
Please contact the members of our Corporate and M&A team should you need any assistance.