Following the Luxembourg government’s declaration of a state emergency on 28 March 2020 and as part of the new measures implemented in response to the unprecedented and unforeseeable consequences of the Covid-19 pandemic, the country has adopted a new law in an effort to support businesses suffering financial consequences.
It creates a new aid scheme aimed to assist companies, as well as self-employed persons (professions libérales), in Luxembourg in the form of a repayable advance of up to EUR 500,000.- for each business (considered as a group) (the Aid).
The new law entitled the “Law of 3 April 2020 relating to the implementation of an aid scheme in favour of businesses in temporary financial difficulty and amending the amended law of 19 December 2014 relating to 1) social measures to the benefit of independent professional artists and workers in the entertainment industry 2) the promotion of creative work" (the Law) was published on 3 April 2020 and came into force with retroactive effect as of 1 January 2020.
Widened scope of beneficiaries
Initially drafted to benefit small and medium sized enterprises, the Law's scope has been extended to assist businesses of all sizes and self-employed persons in Luxembourg, which satisfy certain conditions and have found themselves in temporary financial difficulty following the consequences of an unforeseeable event.
The relevant business benefiting from this Law must either be commercial, artisanal or industrial and hold a business licence, or a physical or legal person established in Luxembourg, which primarily exercises independently one of the activities listed in point 1 of the first paragraph of the amended law of 4 December 1967 on income tax (which covers a range including doctors, lawyers, inventors, architects and artists).
Specific sectors have been excluded from the scheme, which already benefit from a particular aid, including fishing, aquaculture, primary production of agricultural products, and those covering the processing and marketing of agricultural products where either (i) the amount of aid is set on the basis of the price or quantity of the products of this type purchased from primary producers or sold on the market by the relevant businesses or (ii) the aid is conditional on being either entirely or partially transferred to the primary producers.
Similarly, certain types of aid are excluded from the scope of the Law, being (i) aid for the benefit of activities related to the export to third countries or Member States, (ii) aid used to fund the creation and operation of a distribution network or other current expenditure related to the export and (iii) aid subject to the use of domestic products in preference over imported products. Certain aids for businesses in difficulty prior to 1 January 2020 are also excluded from the scope of the Law.
If a business exercises multiple activities, which fall within and outside of the scope, only those activities falling within the scope of the Law will be considered as eligible, and on the condition that either a clear separation of such activities from non-eligible activities or a distinction of costs is ensured.
In addition, any employers which have been convicted at least twice during the last four years from the relevant judgment of illegal employment or of employment of illegally residing third country nationals are prevented from benefiting from the Aid for a period of three years from such judgment (Excluded Offences).
Conditions to satisfy
Once the relevant business (or self-employed person) is within the scope of the Law, the granting of the Aid is subject to the following four cumulative conditions:
- the existence of an unforeseeable event which has been officially recognised by the Luxembourg government as having a negative impact on a certain type of economic activity during a specific period (the Relevant Period). For the purposes of the Covid-19 pandemic, the Relevant Period is currently from 15 March 2020 until 15 May 2020 pursuant to the Regulation of 3 April 2020 on the execution of article 3 of the Law;
- the relevant business encounters temporary financial difficulties;
- such business carried out its economic activity prior to the unforeseeable event; and
- the existence of a direct causal link between these difficulties and the unforeseen event in question, (points (ii), (iii) and (iv) above need to be evidenced in the application described below).
Overall, the intention is that the scope of unforeseeable event remains wide, to include terrorist attacks, epidemics, pandemics, and not to be limited to the Covid-19 outbreak.
Nevertheless, before any Aid can be granted, the European Commission must submit its final decision on the compatibility of the proposed aid regime with the internal market. It was reported by the European Commission on 24 March 2020 that it had approved the measures under the Law in the context of the State aid Temporary Framework to support the economy in the context of the Covid-19 outbreak adopted by the European Commission on 19 March 2020.
Eligible costs covered by the scheme
The Aid scheme covers eligible costs, which are defined as personnel costs and rental costs of the business for the Relevant Period with the last set of annual accounts being used as a basis to calculate them. If unavailable, the eligible costs can be based on any available financial information or, if the relevant business is not under the obligation to draw-up double entry accounts, on the last tax return.
It should be noted that limits on the amount of Aid have been put in place. For example, rental costs that are to be considered as eligible costs are limited to EUR 10,000.- per business (as a group or “single business"). Moreover, the maximum amount of Aid is up to 50% of the eligible costs, with the additional qualification that the Aid must not surpass EUR 500,000.-. per business (considered as a group or “single business"). The Law defines what it considers as a “single business" (“entreprise unique") being all businesses, which maintain amongst themselves at least one of the following types of relationships: (i) a business which holds the majority of shareholder voting rights in another business, (ii) a business which has the right to appoint or remove the majority of members of the management board, supervisory board and/or governing body, (iii) a business which has the right to exercise a dominant influence over another business pursuant to either an agreement with other shareholders of the same business or a provision in the articles of association of the relevant business, or (iv) a business which is a shareholder of another business and which has sole control over the majority of the shareholder voting rights pursuant to an agreement with other shareholders of the same business.
For the purposes of the self-employed, revenue from the exercise of a professional activity as a self-employed can be considered as eligible costs, subject to such person being affiliated as self-employed in accordance with the Luxembourg Social Security Code. These costs are limited to 2.5 times the minimum salary per person.
The Law also contains provisions which apply in the event of accumulation of State aids. The Aid provided under the Law may only be cumulated for the same eligible costs with other State aid schemes to the extent that this accumulation does not lead to the total aid amount to exceed the more favourable maximum aid amount foreseen in the various applicable regimes.
Form of aid and repayment terms
Aid can only be in the form of an advance, repayable in one or multiple instalments, but which must be granted before 1 October 2020.
Repayment conditions will depend on the state of the relevant business' financial recovery and according to a negotiated repayment plan. The plan will take into account the actual earnings of the business during the tax year in which the Aid was granted and the following tax years. However, repayment can only at the earliest 12 months after the date of the first advance (unless otherwise requested by the relevant business) in an effort to allow sufficient time for Luxembourg businesses to be in a position to do so.
Interest is also payable on the advance at a rate that is at least equal to the applicable discount rate at the time of the granting of the Aid, as published in the Official Journal of the European Union.
How to apply
In order to benefit from the Aid, a written application must be submitted no later than 15 August 2020 to the Minister for either the Middle Classes, for the Economy or for Tourism (the Minister) and contain details regarding the relevant business, including: (a) name; (b) evidence of the conditions (ii), (iii) and (iv) referred to in the section above on “Conditions to satisfy" being satisfied; (c) size; (d) annual accounts for the last tax year or, as applicable, all financial information available, including double-entry accounts or income tax return; (e) a list of eligible costs and calculation; (f) a recovery plan, which also evidences the direct causal link between the unforeseeable event and the temporary financial difficulties during the Relevant Period; and (g) a declaration certifying the absence of the Excluded Offences.
The application may further include any additional material the relevant applicant may deem relevant.
From a practical standpoint, the written application can be submitted on MyGuichet.lu.
Refund of the Aid
The Law provides that the Aid must be refunded (along with any interest at the legal rate applicable at the date of grant of the Aid) in the event that the Aid provided is incompatible, and, unless otherwise provided, within three months of the ministerial decision to refund (unless such ministerial decision foresees a different timing). Only the Minister has the ability to recognise the facts leading to the loss of any Aid.
Any persons who have benefited from any advantages set out by the Law on the basis of any information knowingly incomplete or incorrect shall be subject to the penalties set out in article 496 of the Criminal Code (being four months to five years of imprisonment and a fine in the range of EUR 251.- and EUR 30,000.-) and with the possibility of being obliged to refund the Aid granted.
Updated regime for professional and intermittent artists
The Law also extends the amended law of 19 December 2014 relating to 1) social measures to the benefit of independent professional artists and workers in the entertainment industry 2) the promotion of creative work (the 2014 Law).
Independent professional artists, who are eligible to receive social aid, can apply for more help from the Social Cultural Fund. More specifically, they can request up to an amount equivalent to the minimum salary for qualified persons. The request must relate to the relevant period during which an unforeseeable event (which has been officially recognised by way of a Luxembourg regulation) has occurred and subject to such unforeseeable event having a negative impact on the activities falling within the scope of the 2014 Law. Additionally, the independent professional artist must encounter temporary difficulties to carry out his/her artistic works during the relevant period and there must be a direct causal link between the unforeseeable event and these temporary difficulties. To be eligible to receive social aid, the artistic activity must generate a revenue of at least four times the minimum monthly salary for unqualified workers during the year immediately prior to the request, reduced by EUR 714.- for each month during the period set by the Luxembourg regulation.
Intermittent artists who are eligible to receive an allowance in the event of involuntary inactivity can also claim up to 20 additional daily allowances per month in the event of involuntary activity during the period in which an unforeseeable event (which has been officially recognised by way of a Luxembourg regulation) has occurred and again, subject to such unforeseeable event having a negative impact on the activities falling within the scope of the 2014 Law. In order to claim the additional allowances, the intermittent artist must also satisfy the same conditions (existence of temporary difficulties and a direct causal link) as independent professional artists.
This legal initiative meant at mitigating the disastrous impact of the current pandemic on Luxembourg small and medium businesses is a welcome initiative, even if it remains rather restrictive. An additional support measure in the form of the grant of State guarantees on loans for all companies which were viable before 18 March 2020 (but excluding those promoting, leasing or selling buildings or holding investments) is also being adopted. This scheme aims to assist businesses with covering their liquidity needs for the foreseeable future. In order for a loan to be eligible, its maximum amount cannot surpass 25% of the turnover in 2019 of the relevant company. 85% of the relevant loans will be guaranteed by the State, whilst the remaining 15% will be guaranteed by the participating banks. Overall, the guarantees will only be provided for loans granted between 18 March 2020 and 31 December 2020, for a six-year maximum period and will include provisions to pay guarantee premiums. A bill is currently under discussion to put this measure in place.
As the situation develops, the Luxembourg government has not excluded the possibility of putting other measures in place to limit the impact of loss of revenue caused by Covid-19 on Luxembourg businesses and independent workers.
More about the coronavirus
You can read more publications on the impact of the coronavirus on our website. Here you will also find a list of contacts within our office who can advise you with questions about the implications of the coronavirus for your company.