PwC Legal Belgium/Luxembourg - Does your company have an international dimension? Be aware of the legal risks and consequences.
31 Oct 2024
In today's globalised economy, it's increasingly common for legal entities to have an international dimension in their legal and/or governance structure. Businesses may establish themselves in one jurisdiction while managing their operations from another. These situations may result from internal organisation considerations (e.g. the intention to appoint the same individual(s) to the management body of the group’s entities across all jurisdictions) or be more intentional (e.g. organisations may want to take advantage of various regulatory, tax and strategic benefits across different jurisdictions). While these arrangements can offer flexibility and competitiveness, they also come with legal complexities and risks.
Identifying the applicable legal framework
Determining the legal framework, or ‘lex societatis’ for a legal entity with an international dimension is crucial for resolving cross-border matters. The lex societatis determines the internal and external aspects of a legal entity, including its formation, operation and dissolution. The applicable lex societatis does not necessarily correspond to the tax residency of a legal entity as other criteria are used to either claim the tax residency over a legal entity or to mitigate the risk of another jurisdiction claiming tax residency.
Under private international law, ‘connecting factors’ help to identify the most relevant lex societatis for each situation by linking legal issues to specific jurisdictions based on criteria such as domicile or location of effective management.
Key theories and doctrines in European jurisdictions
In Europe, the identification of the applicable lex societatis is typically based on the following criteria:
Place of incorporation: the legal framework is based on the jurisdiction where the legal entity was incorporated.
Place of statutory office: the legal framework is based on the jurisdiction where the registered office is located, as specified in the articles of association or governing documents. This theory is derived from the theory of the place of incorporation and is applicable in Belgium.
Real seat: the legal framework is based on the jurisdiction where the legal entity’s effective management and central administration are located. This theory is applicable in Luxembourg, where there is a presumption that the place of central administration coincides with the place of the registered office, which is assessed based on factual elements.
Complex scenarios: When multiple or no lex societatis apply
The lack of international harmonisation may lead to complex situations sometimes described by practitioners as ‘double nationality’ or ‘stateless’ entity situations:
Double nationality - a company with its statutory office in Belgium but its place of effective management in Luxembourg would be subject to both Belgium and Luxembourg laws as applicable lex societatis.
Stateless entity - opposing situations may exist where no applicable lex societatis can be clearly identified, with each jurisdiction referring to the laws of another jurisdiction.
Legal risks and practical implications
Legal practitioners must exercise extreme caution when advising an entity subject to more than one lex societatis. Proper due diligence and coordination are essential to avoid any adverse consequences. A legal entity with dual lex societatis must comply with the legal requirements of both jurisdictions at the stages of its formation, existence and dissolution.
This implies the requirement for a minimum share capital, compliance of the articles of association with both jurisdictions, determination of a legal form that allows the legal entity to legally exist in both jurisdictions, etc. It should be noted that failure to meet any existence condition in one jurisdiction could result in challenges to the entity's legal existence in that jurisdiction.
The EU Mobility Directive and cross-border operations
The EU Mobility Directive (EU) 2019/2121 aims to facilitate smoother cross-border operations for entities within the EU. However, for entities subject to multiple lex societatis, careful review of the applicable legal framework is required to ensure compliance with all procedures. For example, a cross-border merger involving an entity subject to both Belgian and Luxembourg laws may be treated differently under Belgian and Luxembourg law1, resulting in a complex compliance landscape:
Scenarios |
Identification of the operation |
Approach to be taken |
| Merger between (i) a company with a ‘double nationality’ (Belgium and Luxembourg as lex societatis) and (ii) a Luxembourg company | Merger qualifies as a local merger from a Luxembourg perspective. Merger qualifies as a cross-border merger from a Belgium perspective.
|
Complimentary application of:
|
Merger between two companies with a ‘double nationality’ (Belgium and Luxembourg as lex societatis) |
Merger qualifies as a local merger from both a Belgium and Luxembourg perspective. |
Complimentary application of:
|
1 At the time of this newsflash, the EU Mobility Directive (EU) 2019/2121 has not yet been implemented in Luxembourg.
Key takeaways
Legal entities with an international dimension must conduct a thorough review to determine if they are subject to more than one lex societatis. If multiple connecting factors are met, operations must be implemented with extreme caution to avoid potential legal and tax consequences. Close coordination with local authorities and all stakeholders is essential to prevent any blocking issues, especially when compliance is subject to administrative, civil or criminal sanctions.
Contact us
If your legal entity operates across multiple jurisdictions, feel free to reach out to our PwC Legal Belgium or Luxembourg teams for a comprehensive review of your legal framework and guidance on mitigating potential risks and ensuring compliance.
Contributors: Bart Vanstaen & Imad Sidi from PwC Legal Belgium, and Jean Valat, Maxime Gilot & Jean-Yves Lhommel from PwC Legal Luxembourg
