Changes to Luxembourg's bearer shares regime

The law of July 28, 2014 regarding the immobilisation of shares and bearer shares and the the registers of registered shares and of bearer shares has been published in Luxembourg’s Official Gazette on August 14, 2014, The legislation, which amends the law of August 10, 1915 on commercial companies and that of August 5, 2005 on financial collateral arrangements, also reflects Financial Action Task Force recommendations on appropriate measures to guarantee the transparency of shareholdings in Luxembourg companies.

The law aims to facilitate identification of the beneficial ownership of bearer shares and the ability of the authorities to combat money laundering and terrorist financing. The new rules oblige the management body of the Luxembourg company to deposit bearer shares with a professional depositary and immobilise them through a share register.


The following entities fall within the scope of the law:
– Public limited companies (S.A. or société anonyme);
– Partnerships limited by shares (S.C.A. or société en commandite par actions);
– Investment funds such as SIFs (specialised investment funds), SICAVs (open-ended investment companies), SICARs (risk capital investment companies) and FCPs (mutual fund).
The legislation applies to existing bearer shares and those yet to be issued, which must be deposited with a professional depositary appointed by the board of directors or the management board.

Conditions regarding the depositary

The depositary may not be a shareholder of the issuing company and must be one of the types of professional entity:
– Credit institutions;
– Private portfolio managers;
– Distributors of fund shares and units;
– Specialised financial sector professional entities (PSFs) approved as family offices, domiciliary agents, providers of incorporation and management services, registrar agents or professional depositaries of financial instruments;
– Lawyers (lists I and IV);
– Notaries;
– Statutory auditors and approved statuary auditors; and
– Chartered accountants.
The depositary must be located in Luxembourg and keep a register of the deposited shares containing information on the owner, the number of bearer shares held, the date of the deposit, transfers of bearer shares (with notice of transfer) or their conversion into registered shares (if applicable). The rights relating to bearer shares can be exercised only if they have been deposited with the depositary and the required information has been provided.

Shareholder rights

– Right to consult: a holder of bearer shares is only allowed to consult his/her/its registrations in the register.
– Ownership rights: the right of ownership is subject to registration of the bearer shares in the register and provision of the information. The depositary holds the bearer shares or units on behalf of the their owner. A certificate confirming registration of bearer shares can be delivered by the depositary at the shareholder’s written request.
– Right to transfer: A transfer of bearer shares becomes enforceable upon its inscription in the share register, on the basis of documents or notice, delivered to the depositary, establishing the transfer of ownership of the shares between the transferor and the transferee.
– Dispossession of a security by registration: the dispossession of bearer financial instruments deposited with the depositary under article 42 of the amended law of August 10, 1915 on commercial companies can occur by registration of the security in the margin of the registration of financial instruments on the depositary register.
Managers or directors of the company may incur a fine of between €5,000 and €125,000 if they wilfully fail to comply with their obligations (i) to maintain a register of registered shares, (ii) to designate a depositary (iii) to suspend the rights of holders of bearer shares that do not comply with the provisions of the law or (iv) cancel bearer shares not deposited in accordance with the provisions of the law.
Key dates

Luxembourg - Investment Funds - Impact of the Madoff fraud case

The Luxembourg regulator (CSSF) has on 22 December 2008 issued a press release analysing the impact of the Madoff fraud case on the Luxembourg investment funds.
The CSSF noted that the impact on Luxembourg investment funds which are directly or indirectly exposed to the Madoff case amounts to 1.9 billion Euro which represents only 0.15% of the total net assets of undertakings of collective investment as at 30 November 2008. The CSSF furthermore noted that it does not imply that this amount is entirely lost but that it represents the maximum responsibility at stake.

Investment Funds - Guidelines of the Committee of European Securities Regulators (CESR) concerning eligible assets for investment by UCITS

The CSSF has issued on 26 November 2008 circular 08/380 in relation to the CESR's guidelines concerning eligible assets for investment by UCITS. This Circular replaces circular 08/339.
The only amendment that has been made compared to circular 08/339 is point 24 paragraph 1. The amended paragraph reads as follows: “Techniques and instruments relating to transferable securities and money market instruments include, but are not limited to, collateral under the provisions of directive 2002/47/EC on financial collateral arrangements, repurchase agreements, guarantees received, and securities lending. The requirement to comply with the provisions of Article 21 of Directive 85/611/EEC imply in particular that if UCITS are authorized to use repurchase agreements or securities lending, these operations must be taken into account to calculate the global exposure of the UCITS.”

New draft bill - Exemption of withholding tax on dividends paid to treaty countries

On 1 October 2008, a draft bill (n°5924) introducing new favourable tax rules was submitted to the Luxembourg Parliament. We set out hereunder a brief overview of the main changes that are proposed and that relate to companies:

  • The exemption of withholding tax on dividends paid to corporate shareholders located in countries with which Luxembourg has signed a double tax treaty. This expansion of the participation exemption regime would seriously enhance the attractiveness of Luxembourg as a jurisdiction for the repatriation of profits. Currently, most treaties signed by Luxembourg provide for a reduced rate of withholding tax (generally 5% instead of the domestic withholding tax of 15%). Practically, if the bill is voted, this would reduce the withholding tax on dividends paid by a Luxembourg company to its parent company located in a country with which Luxembourg has signed a double tax treaty to 0%;
  • As already mentioned by the Prime Minister in a speech addressed to the Luxembourg Parliament on 22 May 2008, the Luxembourg overall income tax would be reduced gradually over a period of a couple of years from 29,63% to 25,5%. If the draft bill is voted, the overall corporate income tax rate would already be reduced to 28,59%;
  • Introduction of new favourable measures in relation to the law of December 2007 on income and capital gains derived from intellectual property: Currently, 80% of income and capital gains derived from intellectual property rights is exempt from corporate income tax. The draft bill would introduce the following measures: (1) qualifiying IP assets held by Luxembourg companies will be exempt from the net wealth tax of 0.5% and (ii) domain names are, as from tax year 2008, are eligible to the 80% tax exemption on income derived from intellectual property.

Although this bill is not yet voted, it is expected to be approved so that the measures would be applicable as of the year 2009.

Tax reforms proposed by the Luxembourg government

In a speech addressed to the Luxembourg Parliament on May 22, 2008, Jean-Claude Juncker, the Luxembourg Prime Minister,  shed lights on Luxembourg’s economic, social, and financial situation and proposed important changes, mainly from a taxation perspective.
Brief overview of the main changes proposed:

  • Relating to corporate taxation
    • Progressive decrease of the corporate tax rate from 29.63% to 25.5% with a possible broadening of the corporate tax base
    • Abolishment of capital duty as from January 1st , 2009
  • Relating to personal taxation
    • Income tax brackets for personal income tax will be increased by 6% in 2009
    • Increase of tax deduction ceilings (insurance premiums)
    • Tax allowance of € 600 for salaried and pensioned taxpayers will be replaced by a tax credit of € 300
    • Single parent allowance of € 1,920 will be replaced by a tax credit
    • Salary indexation will be restored as from 2010 (unless the economic situation worsens)
    • Introduction of specific measures for people with low income
  • Relating to Philanthropy  and Environment
    • The maximum tax deductible amounts for donations to certain charitable organization are doubled from € 500,000 to € 1,000,000, respectively from 10% to 20% of the net income
    • No increase of the duty on road fuel (petrol and diesel) and of excise duties
    • Company cars will benefit from the € 750 incentive granted for the purchase of low-emission cars (< 120g CO2/km)

While promoting environmental and philanthropic measures, those proposed reforms mainly aim at enhancing Luxembourg attractiveness for investors, in the context of a general slowdown of the global economic activity, which justify the introduction of social measures.
On the whole, it is a balanced evolution allowing for a preservation of Luxembourg competitiveness in a new economic context.