Why has Luxembourg become one of the global hubs for M&A transactions?
Luxembourg, one of Europe’s strongest financial centers, is a prime destination for mergers and acquisitions (“M&A”) transactions thanks to its investment-friendly legislation, strong tax advantages, and the flexibility it offers to international investors. Frequently preferred for both private equity fund investments and the cross-border operations of multinational corporations, Luxembourg provides a highly comprehensive legal infrastructure for M&A processes to the market and investors.
This Guide to Mergers and Acquisitions under Luxembourg Rules (“the Guide”) examines the legal foundations of M&A processes and the fundamental legal requirements that parties are obligated to follow. The Guide aims to analyze the normative framework, which is of critical importance for ensuring transaction security and achieving full compliance with local legislation.
1. The Legal Framework of the Luxembourg M&A Process
M&A transactions in Luxembourg are governed by various laws and directives depending on the nature of the investment (public or private). The core legal pillars are as follows:
- Commercial Companies Law (1915): The establishment, management structure, operation, as well as the merger, demerger, and share transfer processes of commercial companies are generally subject to this law.
- Takeover Law (2026): This law, which transposed EU Directive 2004/25/EC into national law, regulates takeover bids for public companies whose registered office is in Luxembourg and whose shares are traded on a regulated market.
- Mandatory Squeeze-Out and Sell-Out Law (2012): This regulates the mandatory acquisition of minority shares by majority shareholders or the right of the minority to sell their shares.
- Main Regulatory Body (CSSF): The Commission de Surveillance du Secteur Financier (CSSF) is the highest authority supervising companies in the financial sector and the takeover processes of public companies.
2. Methods of Merger and Acquisition
There is no single way to acquire a company in Luxembourg. Investors choose different structures based on their risk appetite and strategy. M&A activities in the Luxembourg market primarily take place through the following three methods:
1. Share Purchase:
A share purchase involves the acquisition of all or part of the capital shares (equity) of the target company.
- The company maintains its legal identity; all rights, liabilities, and contracts continue as they are. Essentially, only the "person at the steering wheel" changes.
- This is the most common choice for those who want speed and wish to take over the company’s existing operational structure (licenses, personnel, customer contracts) without disruption.
2. Asset Purchase:
In this model, the buyer does not buy the company itself, but rather its "contents." Specific assets—such as real estate, intellectual property (IP) rights, or customer portfolios—are selected and acquired.
- The buyer has the opportunity to leave out liabilities of the target company that are unknown or unwanted.
- This is ideal for risk-averse investors acting on the strategy of "taking the good assets and leaving the bad."
3. Merger:
According to Luxembourg legislation, mergers technically occur in two different scenarios:
Method |
Description |
Result |
Merger by Absorption |
One or more companies are absorbed into an existing company with all their assets and liabilities. |
The absorbed company ceases to exist; the surviving company continues by growing larger. |
Merger by Incorporation |
Two or more companies join forces and transfer all their assets to a newly established legal entity. |
The old companies are dissolved; a brand-new, powerful structure is born. |
3. Step-by-Step M&A Process Under Luxembourg Rules
Completing a successful M&A transaction requires meticulously executed planning and labor. A standard acquisition process under Luxembourg law covers the steps detailed below.
A. Preliminary Preparation, Letter of Intent, and Exclusivity
This stage is one of the primary factors determining the success of the transaction. At the start, parties usually begin by signing a Letter of Intent (“LOI”) or an exclusivity agreement that sets the fundamental terms and timeline. To prevent the seller from reaching an agreement with another party in the middle of negotiations, the buyer can protect the transaction with an "exclusivity agreement." In cases of breach, the counterparty may demand "break-up fees" depending on the contract content.
B. Due Diligence Process
The Due Diligence process (legal, financial, and tax auditing) is one of the most critical points of M&A, where the buyer performs risk analysis. Today, this process is mostly conducted through virtual data rooms with limited sharing, adhering to confidentiality agreements. In cases where foreign companies are acquired via Luxembourg, the due diligence phase can generally be limited to core areas like commercial and corporate structure, finance, and tax.
C. Contract Negotiations and Signing
Following the results of the due diligence, merger decisions are prepared by the management bodies of the companies and subsequently submitted for the approval of the general assembly of shareholders. In private limited liability companies (Société à responsabilité limitée – SARL), the most common company type in Luxembourg, the transfer of shares to third parties is, as a rule, subject to the approval of shareholders representing at least 75% of the capital. If specified in the company’s articles of association, this ratio can be reduced to 50%.
D. Official Approvals
- Antitrust Clearances: A bill is currently on the agenda to introduce a new merger control regime for large-scale mergers in Luxembourg. Furthermore, competition authorities have the power to intervene if certain conditions are met.
- Foreign Direct Investment (“FDI”) Screening: With the FDI Law that came into effect in September 2023, acquisitions by investors from outside the European Economic Area in critical sectors such as energy, health, and communication are subject to national screening and approval.
E. Registration and Closing
The transfer of shares in Luxembourg-based limited companies can be carried out via a private agreement, and notary approval is not mandatory. However, the transfer must be notified to and recorded in the Luxembourg Trade and Companies Register (RCS).
4. Special Cases in Public Companies: Mandatory Bids and Squeeze-Out
Luxembourg law sets clear thresholds to protect investors and minority shareholders in the acquisition of public companies traded on the stock exchange:
- 33.33% Control Threshold (Mandatory Bid): An investor who, acting alone or in concert, acquires 33.33% of the voting rights in a Luxembourg-registered public company is obligated to launch a "mandatory takeover bid" to all remaining shareholders.
- 95% Squeeze-Out Threshold: If the buyer reaches 95% of the share capital and voting rights after the acquisition, they can force minority shareholders to sell their shares at a "fair price."
5. Why Choose Luxembourg?
Beyond being a target market, Luxembourg is positioned as a primary holding (Special Purpose Vehicle - SPV) hub for international acquisitions. The main reasons for this are:
- Tax Advantages: No transfer tax or stamp duty is applied to the sale and transfer of company shares in Luxembourg.
- Flexibility: Corporate law offers a high level of contractual flexibility in share transfers and transaction structuring.
6. Which Companies Can Merge or Acquire Under Luxembourg Rules?
Reflecting its investor-friendly approach, Luxembourg law keeps the scope of company types that can participate in mergers broad. All Luxembourg companies with legal personality (Société Anonyme (SA), Société à Responsabilité Limitée (SARL), partnerships, cooperatives, etc.) can be party to both local and cross-border merger transactions. Whether the company is public or private changes the nature of the rules applied; public companies are subject to the transparency obligations of the "Takeover Law."
7. Can Foreign (Non-Luxembourg) Companies Merge or Acquire Under Luxembourg Rules?
Yes, foreign companies can directly be parties to M&A transactions within the framework of Luxembourg rules. Luxembourg corporate law provides a broad and business-supportive infrastructure in this regard.
Under Luxembourg law, a Luxembourg company can merge with or be absorbed by a foreign company provided the following conditions are met:
- Breadth of Scope: Luxembourg rules, going beyond the relevant EU directives, allow cross-border mergers not only with companies in EU member states but also with companies established in non-EU countries.
- Application Requirements: The cross-border merger must not be prohibited under the national law governing the foreign entity, and the foreign company must comply with the national provisions and official procedures in its own country.
- FDI (Foreign Direct Investment) Audit: If the foreign company is an investor from outside the "European Economic Area (EEA)" and is acquiring a company operating in a critical sector in Luxembourg (such as energy, health, media, or transport), it will be subject to security screening and approval by the Luxembourg state under the FDI Law that came into effect on September 1, 2023.
- In conclusion, mergers and acquisitions under Luxembourg rules offer a strong legal foundation and predictable process management not only for Luxembourg-based companies but also for foreign actors operating in the international arena. Whether you are acquiring a local Luxembourg company or an international entity through Luxembourg, proper Due Diligence, shareholder approval processes, and compliance with local regulators are the cornerstones of a successful transaction.
8. Why Should Gaming and Software Firms Pursue Structural M&A?
The reasons why Luxembourg has become a "strategic and central necessity" for tech and gaming companies are based on specific key factors that offer competitive advantages aligned with the Eropean Union (“EU”):
- Intellectual Property Regime: Luxembourg's strongest pillar is the "Luxembourg IP Box Regime." This regulation exempts a large portion of income derived from R&D activities from the tax base. Accordingly, 80% of the net income obtained from software, code, patents, and registered trademarks is exempt from corporate tax.
- Flexible Shareholding: The Companies Law of 1915 provides the rapid growth and exit tools that the tech world requires.
- Ease of Cross-Border Mergers: Tech companies frequently incorporate teams and companies from different countries. The cross-border merger rules, updated by EU Directive 2019/2121 and detailed above, serve this purpose.
9. Frequently Asked Questions (FAQ)
1. What is the statutory approval threshold for the transfer of shares in a Luxembourg private limited liability company (SARL)?
Pursuant to the Luxembourg Law of 10 August 1915 on Commercial Companies, the transfer of shares to non-shareholders is, as a general rule, subject to the prior approval of shareholders representing at least 75% of the share capital. However, provided that it is explicitly stipulated in the company's Articles of Association, this threshold may be reduced to a 50% majority.
2. At what threshold is a "Mandatory Takeover Bid" triggered for publicly traded companies?
Under Luxembourg’s Takeover Law, any person or entity acting individually or in concert who acquires securities which, when added to their existing holdings, exceed the threshold of 33.33% of the voting rights in a Luxembourg-incorporated public company, is legally obligated to launch a mandatory takeover bid for all remaining shares at an equitable price.
3. Under which conditions can the "Squeeze-Out" mechanism be exercised?
Following a takeover bid, if the offeror acquires at least 95% of the target company’s share capital and voting rights, the offeror is entitled to exercise a "Squeeze-out" right. This mechanism allows the majority shareholder to require the remaining minority shareholders to sell their securities at a "fair price," thereby achieving full ownership of the entity.
4. Are non-Luxembourg (foreign) entities permitted to enter into mergers under Luxembourg jurisdiction?
Yes. Luxembourg’s legal framework adopts a permissive approach toward cross-border mergers. Provided that the national law governing the foreign entity does not prohibit such transactions and that all local procedural requirements are satisfied, Luxembourg companies may merge with entities established both within the EU and in non-EU jurisdictions.
5. What specific fiscal advantages does the "Luxembourg IP Box Regime" offer to gaming and software enterprises?
The Luxembourg IP Box Regime provides a highly competitive tax incentive whereby 80% of the net income derived from qualifying intellectual property assets—including software, source codes, patents, and registered trademarks—is exempt from corporate income tax.
References:
- Legal 500 (2025), Country Comparative Guides: Luxembourg Mergers & Acquisitions.
- KPMG International (2016), Taxation of cross-border mergers and acquisitions: Luxembourg.
- Cosmos Legal, Lüksemburg Birleşme Veve Devralma ile Lüksemburg Şirket Birleşimi Makaleleri.
- T.C. Gelir İdaresi Başkanlığı, Türkiye-Lüksemburg Çifte Vergilendirmeyi Önleme Anlaşması Rehberi.
- Lüksemburg Gelir Vergisi Kanunu (LIR): Madde 50bis.
- Lexology: Commercial Companies Act of 10 August 1915
- Eur-Lex: Directive (EU) 2019/2121
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