How to expand your business across borders. Luxembourg. The acceptance of terms and conditions is verified on a case-by-case basis.

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1 How to expand your business across borders Luxembourg PART I: CONTRACTUAL NO OFFICE IN THE TARGET COUNTRY A. Direct sale: A.1. Without written agreement general terms 1. What are the formalities a foreign seller must complete in your jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards noncommercial parties? There are no particular formalities that a foreign seller must respect in order to make its terms and conditions of sale binding towards Luxembourg purchasers. The terms and conditions shall be binding and enforceable towards local purchasers under the two cumulative conditions that (i) the relevant purchaser has been fully aware of these terms and conditions, and that (ii) the relevant purchaser has accepted them. The abovementioned conditions are applicable independently whether the terms and conditions are intended to the commercial parties, non-commercial parties and/or consumers. However, some particular rules apply to terms and conditions intended to consumers, including with respect to abusive clauses. The acceptance of terms and conditions is verified on a case-by-case basis. A.2. With a written agreement: 2. What are the clauses a foreign seller should integrate into a written sales agreement (or into his general terms and conditions) and the reasons why? (a) Retention of title: Is this provided for in your jurisdiction? What are the conditions to make it enforceable towards local purchasers and third parties? The retention of title exists under Luxembourg law and is recommended to be inserted into sales agreements and general terms and conditions. However, the application of such retention of title is in principle limited to the situations where insolvency proceedings are opened against the debtor. Pursuant to the retention of title, the seller can retain the ownership on the relevant non-fungible good until the price of the relevant purchased good has been fully paid.

2 This clause must be made in writing at the moment of delivery of the relevant good at the latest. The seller is in principle entitled to claim the relevant good within 3 months following the last publication of the judgment opening the insolvency proceedings, under the condition that the relevant good is still available and identifiable at the moment of the opening of the insolvency proceedings. (b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated into the agreement? What is the legal rate in your jurisdiction? Interest and penalty clauses are enforceable under Luxembourg law if clearly stipulated in the agreement. The judge can reduce the penalties only if they are clearly excessive. If it is not the case, the penalties shall in principle not be reduced, even if they exceed the effective damage suffered by the beneficiary of the relevant penalty clause. If the debtor of the penalty clause has committed a gross fault and/or wilful misconduct, the beneficiary may eventually even claim higher penalties than the ones stipulated in the penalty clause. If no interest clause is stipulated in the agreement, the legal interest rate shall be applicable, the rate of which is about 3% in (c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated into the agreement? Applicable law and jurisdiction clauses are in principle enforceable under the Luxembourg law. If applicable law clauses have been validly integrated into an agreement, the relevant agreement shall in principle be governed by the law set forth in the relevant agreement. If no choice of law has been made by the parties, the applicable law shall in principle be determined pursuant to the applicable European or international legislation. If competent jurisdiction clauses have been validly integrated into an agreement, the relevant agreement shall in principle be subject to the jurisdiction set forth in the relevant agreement. If no choice of jurisdiction has been made by the parties, the competent jurisdiction shall in principle be determined pursuant to the applicable European or international legislation. 2

3 B COMMERCIAL INTERMEDIARIES 3. What types of commercial intermediaries do exist in your jurisdiction? Commercial Agent (Agent Commercial); Franchising (Franchise); Commission Agent (Commissionnaire); Concession. 4. What legislation does apply in your jurisdiction with regard to the above mentioned types of distribution agreements? The Commercial Agent is subject to in particular the law of June 3 rd 1994 on commercial agents and their principals (Loi du 3 juin 1994 portant organisation des relations entre les agents commerciaux indépendants et leurs commettants); The Franchising is not subject to any specific legislation and as such governed by the general contract and competition law; The Commission Agent is subject to in particular art. 91 and seq. of the Luxembourg Commercial Code; The Concession is not subject to any specific legislation and as such governed by the general contract and competition law as well as the rules concerning the granting of a relevant licence. PART II: BRANCH OFFICE IN THE TARGET COUNTRY BUT NO LEGAL PERSON: 5. In your jurisdictions what are the differences between starting up a branch and starting up of a company (subsidiary)? A branch does not have any separate legal personality, while the subsidiary has a separate legal entity. Consequently, the foreign parent company remains liable for all debts and obligations of its branch. 6. What formalities must be fulfilled for opening a branch? In order to set up a branch office, the parent company has to: apply for a business permit for its branch (if applicable to the branch s business); and register its branch office at the Luxembourg Companies Registrar (Registre de Commerce et des Sociétés). 3

4 7. Why would you rather advise a foreign seller to set up a branch and not a company in your country, or vice versa? The branch offers a representation of the parent company at a reduced cost. However, the branch can only pursue the activities undertaken by its parent company and the latter remains liable for all liabilities of its branch. Consequently, we consider it more convenient to incorporate a separate company, which shall in principle maximize the protection of the parent company against any liabilities with respect to its subsidiary. In addition, unlike a branch, the subsidiary may conclude agreements with its parent company and benefit from the thereto related tax advantages. 8. Is a branch authorized to act before the court, to engage people? As the branch has no legal personality, it cannot act before a court in its own name. For the same reason, potential workers of the branch should be employed by the parent company. 9. What is the liability of the legal representative of the branch? The representative of the branch is an employee of the parent company. His liability is in principle that of an ordinary employee. 10. Is there an automatic liability of the head office for the operations or acts of the branch? The head office is bound by all operations and acts of its branch. 11. Which language will the documents be in? All documents required by law must be written in one of the official languages in Luxembourg, i.e. French, German or Luxembourgish. Contracts between professional parties may be drafted in any other language. 12. What are the accounting requirements for a branch? The Luxembourg branch of a foreign company must in principle have its own financial statements. PART III: SUBSIDIARY LEGAL PERSON (SEPARATE LEGAL LOCAL ENTITY) IN THE TARGET COUNTRY 13. What are the advantages of establishing a subsidiary compared to establishing a branch? 4

5 The main advantage of a subsidiary is that the latter has its separate legal entity and liability towards third parties, which offers the best possible protection to the parent company with respect to the activities of its subsidiary. 14. Can you present the main characteristics of the company forms existing under your jurisdiction in the following schedule: COMPANY FORM SARL SECA or SCA SA SAS SE Private limited liability company Partnership limited by shares Public limited company Simplified public limited company European company (Société à responsabilité limitée) (Société en commandite par actions) Limited liability yes yes, except for the general partner Free transferability of no the shares The shares are freely transferable (i) between existing shareholders, and/or (ii) if there is a sole shareholder. (Société anonyme) (Société par actions simplifiée) (Société européenne) yes yes yes yes Transfer to a third party requires an approval by the shareholders representing at least ¾ of the share capital Fixed or variable Fixed capital Minimum capital EUR ,00 EUR ,00 EUR ,00 EUR ,00 EUR Number of founders Notarial deed 1-40; this number can be exceeded in case of transfer of shares upon death and/or dissolution of a matrimonial community At least 3: minimum one general partner and 2 limited partners yes At least 1 If the legislation of a Member State stipulates a higher minimum capital for companies carrying out certain types of business, this legislation will apply to SEs carrying out these activities. 5

6 COMPANY FORM SENC SECS SCS Civil company SC Limited liability Partnership (Société en nom collectif) no unlimited liability of the partners for the debts of the business Limited partnership (Société en commandite simple) Special partnership (Société en commandite spéciale) no the general partners have unlimited joint and several liability for the debts of the business (Société civile) no - unlimited liability without joint and several responsibility; liability proportional to the number of partners and not depending on the share capital held by each of them; Cooperative company (Société coopérative) yes / no the extent of the partners' liability is defined in the AoA; in the absence of a clarification in the AoA, partners have joint and several liability Free transferability of the no shares Fixed or variable capital fixed variable Minimum capital no minimum capital required Number of founders at least 2 at least 2: one general partner and at least 2 at least 7 one limited partner Notarial deed yes / no (at the choice) 15. Which of the company forms is used most frequently in your jurisdiction? SARL, SA and SCA 16. Which company form is used most frequently in case of small or family business? SARL 17. What are the main formalities a foreign company has to comply with in order to establish a subsidiary? The signature of a deed of incorporation; The application for a business permit (if applicable to the subsidiary s business); The registration of the company with the Luxembourg Companies Registrar (Registre de Commerce et des Sociétés); and The application of a VAT number (if applicable to the subsidiary s business). 18. What are the costs of establishing a subsidiary in your jurisdiction? Between EUR 500 and 2.000, depending on the chosen legal form, including notary fees (if applicable), but excluding legal fees. 6

7 19. How long does it take to establish a subsidiary in Luxembourg? Upon the accomplishment by the founder of all formalities and the opening of the bank account for the company, the incorporation of the company only takes 24 hours and the obtaining of the business licence about 10 days. 20. Is there specific legislation with regard to the liabilities of the founders and the directors of the most used company form? There is no specific legislation concerning the liability of the founders. Founders may incur a liability in very limited cases. Directors may be held liable for breaches to the company s articles of incorporation and the legal obligations to which directors are subject. Directors may further incur a criminal liability in some limited specific situations 21. What are the main taxes for which a Luxembourg company is liable? Luxembourg companies are in principle subject to the following taxes, except in case of any thereto related exemptions : municipal business tax (impôt commercial communal); net wealth tax (impôt sur la fortune), applying to non-transparent companies only; property tax (impôt foncier), levied on all property belonging to natural and legal persons; income tax (impôt sur le revenu des collectivités); and VAT. PART IV MISCELLANEOUS A. Real estate A.1. Purchase of a real estate 22. Who do you turn to in order to close a valid purchase agreement? A public notary for the deed of transfer only and it is advisable to turn to an attorney at law for the prior agreement. 23. What are the costs related to the purchase agreement? A transfer of real estate is in principle subject to a transfer tax of in total 7% of the price of the relevant real estate, except in case of any thereto related exemptions. 7

8 24. Is there in your jurisdiction legislation that can slow down the purchase process (e.g. environmental legislation requiring preliminary soil examinations) No. A.2. Rent a real estate: 25. In your jurisdiction is there imperative law with regard to the rent of offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of these regulations? The imperative rules applicable to commercial leases mainly provide for: notice periods applicable to the ending of commercial leases; preferential rights for renewal; and the right to request extensions in case of termination of the lease. 26. Are there any formalities to fulfil in order to enforce the lease agreement towards third parties? No, although a commercial lease should be registered at the Luxembourg Land Registration and Estates Department (Administration de l'enregistrement et des Domaines). A.3. Environmental issues: 27. For what types of activities is an environmental permit required? Building sites, operating equipment, as well as some establishments or activities which can have an impact on the environment are subject to so-called "commodo/incommodo" authorisations. The "commodo/incommodo" authorisations are operating permits for classified establishments and define the development and operating conditions deemed necessary to protect the environment and ensure the safety of workers, the public and the neighbourhood in general. 28. Can you describe briefly this procedure? How much time will this procedure normally take? Each type of establishment or activity is classified in a class (1, 2, 3, 3A, 3B or 4), which determines the authorisation procedure to be followed: an application for authorisation must be made to different public authorities for establishments and activities classified under the classes 1 until including 3; and a mere declaration must be made to the Environment Agency for class 4 classified establishments or activities. 8

9 A.4. Employment: 29. Are there any specific regulations with regard to outsourcing of employees? Yes. 30. Applicable legislation according to the type of employment (differences between employment by local company or by head office for the local branch) No differences exist in the applicable labour law between employees employed by a local branch or by a subsidiary. 31. Legal engagement and dismissal requirements and formalities Engagement Any employer wishing to recruit an employee must conclude an employment contract either before or on the first day of employment. Even if labour law recognises the validity of an oral contract, it is strongly recommended to conclude a contract in writing. The employer needs to further file its employees to the social security. Dismissal An employer dismissing an employee for a reason other than serious misconduct must grant a notice period. If the business employs more than 150 staff, the employer must conduct a predismissal interview with the employee prior to the latter s dismissal. Businesses with at least 15 staff members must also notify the Economic Committee about each dismissal for reasons other than the ones related to the employee's person. 32. Social security regulations Based on the salaries, the social security (Centre Commun de la Sécurité Sociale) determines the sum of social contributions payable per employee. This sum includes the contributions payable by the employee and the employer. The employee and employer pay each approximately one half of the due social contribution. 9