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Useful civil law concepts to understand the assignment rules in the Luxembourg contractual business practice

Business practice in Luxembourg is largely based on Civil Law and especially contract laws. Although derogatory rules apply to business and commercial transactions, a thorough understanding of certain Civil Law concepts is particularly important. This is especially true for concepts like the assignment of receivables, the assignment of debts and the assignment of contracts which can easily be mixed up with related concepts such as the delegation of payments or the novation.

Based on the Napoleon Civil Code, Luxembourg contracts laws have always been closed to French contracts laws. However, it is worth noting that the French law of obligations was deeply reformed in 2016 ( Ordinance No. 2016-131 of 10 February 2016 ). This reform has, inter alia , clarified in France the legal regimes of the said operations.

The purpose of the following is not to explore in detail the entire regime applicable to these concepts, but rather to review the definitions of, and conditions that apply to them under Luxembourg law. In particular, rules related to the defences that the assignee/debtor can raise against the defendant have not been considered here.

The assignment of a receivable

Definitions

A receivable is a right held by a person called the “creditor” against another person called the “debtor” who has an obligation either to give, to do or to refrain from doing towards the creditor. The receivable is very often in practice the right to obtain from the debtor a cash payment.

The assignment of a receivable is a contract by which the assigning creditor transfers, for a consideration or free of charge, all or part of his receivable against the debtor to a third party called the assignee.

It should be noted that the assignment of a receivable can relate to a future claim, provided that it is determined or determinable at the time of the assignment. However, the case law does not seem to accept the assignment of a receivable which is merely a possible receivable.

The assignment of a receivable has been ruled upon and is part of the rules governing the sale contract (Articles 1689 et seq . of the Civil Code).

In French law, the 2016 reform moved the concept of assignment of a receivable away from the contract of sale by removing the application of Articles 1689 and subs and creating a specific and lighter regime in Articles 1321 to 1326 of the French Civil Code.

For the assignment of a receivable to be valid, the contract must comply with the general rules on the validity of contracts.

The assignment of a receivable involves an agreement between the assignor and the assignee. The consent of the debtor is not required unless the receivable has been stipulated as non-transferable.

It should be pointed out here that the need (or not) for a written agreement arises from the general rules on evidence depending on whether the assignment is civil or commercial.

The assignment of the receivable will be enforceable towards the debtor and third parties by either (i) the notification thereof to the debtor pursuant to article 1690 of the Civil Code or (ii) the acceptance thereof by the latter. The notification and acceptance can be made in an authentic form or under private seal but must clearly inform the debtor of the assignment.

If the assignment has not been notified to, or accepted by, the debtor, the latter will be validly discharged from any payment made in the hands of the assignor. It is crucial to notify the debtor with no delay. In practice it is recommended that the assigned debtor be involved in the assignment contract.

Unless otherwise provided in the assignment agreement, the assignment of a receivable includes all the accessories attached to the receivable, which is the subject of the contract, in accordance with the adage: the accessory follows the principal (eg guarantees, privileges or mortgages – Article 1692 of the Civil Code).

It should be noted that the assignor must guarantee the existence of the receivable at the time of the assignment. He is not a guarantor of the future solvency of the debtor, unless otherwise provided in the assignment agreement (articles 1693 and subq of the Civil Code). While assessing the conditions of the transfer of a receivable one need to pay attention to the following restrictions.

Contractual restrictions

Most of the time, the receivable which is the subject of the transfer arises from a written agreement between the creditor and the debtor, the terms of which must be complied with. This original contract may include a clause preventing the transfer of the receivable, or otherwise provide that the receivable cannot be assigned without the prior agreement of one or both of the parties to the original contract.

Legal prohibitions/special regimes

There are legal prohibitions to the transferability of specific receivables eg legal or judicial alimony - an assignment agreement relating to such a receivable will therefore be void.

Special rules apply to the transfer of negotiable and financial instruments which shall be complied with.

Finally, in the context of international transactions the law governing the receivable which is the subject of the assignment must be ascertained. Indeed, the transfer formalities and conditions of the assignment shall comply with the law governing the receivable so that only the assignment of a receivable governed by Luxembourg law will follow the rules outlined above.

Assignment of debt

A debt is an obligation which a debtor is due to perform towards his creditor, often the obligation to pay a sum of money. It should be noted that the assignment of debt is not defined in, nor ruled by the Luxembourg Civil Code and that it has been created by practice. Some mechanisms (such as the novatory delegation) are close to the assignment of debt but are not the same and must be distinguished.

Assignment of debt is the operation whereby a debtor (the assignor) transfers his debt to a third-party assignee.

Given the importance of this transaction in practice, and its acceptance in domestic law by the doctrine and case law, it appeared essential to introduce and confirm the principle in the French Civil Code by the 2016 reform.

Again, the contract must comply with the general rules on the validity of contracts and of course, the consents of both the original debtor and the new debtor are required pursuant to the rules governing contracts set out in Article 1101.

What about the creditor’s consent? The French Civil Code now clearly states that the creditor’s consent is required. This caution on the part of the French legislator may seem excessive to the extent that the French rules also provide that the assignment of a debt does not, in principle, have the effect of releasing the initial debtor. The assignment only provides the creditor with a new debtor who is jointly and severally liable with the old one.

Under Luxembourg law, in the absence of a text governing the assignment of debt, the creditor’s agreement should not be a condition for the validity of the assignment. Nevertheless, there is no doubt that the assignment of the debt will only discharge the original debtor if the creditor has expressly agreed to such discharge. In the absence of such specific consent, the assignment only provides the creditor with a new debtor who is jointly and severally liable with the old one.

Thus, the creditor’s participation in the assignment agreement is the safest option and it is crucial to pay attention to the drafting of the assignment contract or in the original clause to provide for an express discharge of the original debtor if this is the intention of the parties. The creditor’s agreement to the assignment is not sufficient to discharge the initial debtor.

The creditor could give his consent in advance (eg by a clause in the contract which creates the debt) or after the original debtor and the new debtor have agreed on the assignment. In the case the creditor has agreed in advance to the assignment of the debt and does not intervene in the act of assignment, the debt assignment will only be enforceable towards the creditor when it has been notified to him. Thus, in the case of an assignment of debt accepted in advance by the creditor, a prudent approach would be to notify him of the assignment of debt as soon as possible.

As regards the transfer of security interests, it should be reminded that the risk incurred by the creditor on the payment of the debt by the debtor depends on the person of the debtor. Thus, we can easily understand that security interests granted by third parties only survive with their consent when the original debtor is discharged by the creditor. If the original debtor is not expressly discharged by the creditor, he remains jointly and severally liable with the assignee debtor, which may in a sense improve the situation of the guarantor. In this case, the risk borne by the guarantor decreases, so there is no reason to discharge him, and the guarantees provided by the original debtor are not extinguished by the assignment of the debt.

Difference between assignment of debt and delegation

As indicated above, the assignment of debt is close to the novatory delegation. It is therefore necessary to go back to the definition of delegation. Delegation is not defined in the Luxembourg civil code. However, Article 1275 of the Civil Code states that the delegation by which a debtor gives to the creditor another debtor who is obliged to the creditor does not operate as a novation, unless the creditor has expressly declared that he intends to discharge the debtor who has made the delegation.

The French Civil Code since the 2016 reform gives a clear definition of delegation: Delegation is an operation by which one person, the delegator (d élégant ), obtains from another, the delegate ( délégué ), that he obliges himself towards a third party, the delegatee ( délégataire ), who accepts him as debtor.

There are three essential elements in the delegation:

• First, the delegation is always a tripartite contract, which therefore requires the consent of the delegator, the delegate, and the delegatee.
• Secondly, delegation always creates a new obligation between the delegate and the delegatee. The delegation is therefore not comparable to an assignment of debt: any debt owed by the delegator to the delegatee is not transferred to the delegate, the latter is liable for a new debt.
• Thirdly, the pre-existence of an obligation between the delegator and the delegatee and/or between the delegator and the delegate is not required. It is therefore perfectly possible to have a delegation concluded between three parties, none of which is initially a creditor or debtor of the other. It is true, however, that this case would imply a liberal intention and is not common in practice.

In practice, thus, there is a pre-existing obligation between the delegator and the delegatee and between the delegator and the delegate: the delegator asks the delegate to commit himself to the delegatee because he (the delegator) himself is committed to the delegatee and the payment by the delegate to the delegatee will discharge his (the delegator) own debt to the delegatee; the delegate agrees to commit himself to the delegatee because he is already committed to the delegator and the payment he (the delegate) will make to the delegatee will also discharge his (delegate) debt to the delegator.

There is a distinction between the so-called “perfect delegation which is novatory” and the imperfect delegation. If the delegation maintains the pre-existing obligation between the delegator and the delegatee, the delegation is said to be imperfect. If the delegation contract expressly releases the delegator, then the delegation is said to be perfect or novatory. Perfect or novatory delegation is a form of novation by change of debtor. Novation cannot be implied, which is why the release of the delegator must be “expressly” provided for in the agreement.

Assignment of a contract

The conventional assignment of a contract is a legal technique developed by practice and which does not have its own legal regime in Luxembourg law. It should be noted, however, that there are assignments of contracts regulated by law such as assignments of employment contracts, insurance, or commercial leases. Are also excluded from this analysis the assignment ipso jure provided by law in the case of a merger, demerger, and assimilated operations.

Luxembourg case law, has developed both a dualistic analysis of the assignment of contract, considered as the sum of assignments of claim and of a debt (eg Court of Appeal, 10 February 2010) and a monistic analysis consisting in assimilating the transfer of contract to a transfer of the status of a party to the contract (eg, Court of Appeal, 21 December 2016). Now, the monistic analysis seems to be privileged (which is also the case in Belgium case law), especially after the French reform of 2016 which includes the monistic vision in its new articles defining the regime of the assignment of contract.

Thus, the assignment of contract can be seen as a tripartite contract involving an assignor and its contracting party (both parties to the original contract) and an assignee who becomes a party to the original contract in the place of the assignor. The transfer therefore implies a transfer effect (the third party becomes a party to the contract). The assignment of contract does not lead to the disappearance of the initial contract and the creation of a new contract but operates a transfer of the quality of party while maintaining the contract (thus the terms of and conditions of the initial contract remain effective).

The consent of the assigned contracting party is required for all conventional assignments of contract, whether or not the contract is concluded intuitu personae .

The contracting parties could give their consent in advance in their original agreement or limit this right to specific assignees (eg affiliates) or to specific rights and obligations. In this case, the assignment will be binding when it is notified to the assigned contracting party. This mechanism has been formalised in the new French Civil Code.

The French law reform of 2016 also made the assignment of contract a solemn contract by including the requirement of a written agreement as a condition of validity of the assignment of contract in the new article 1216 of the French Civil Code. Under Luxembourg law, in the absence of any legal provision governing the assignment of contract, there is no reason why a written agreement should be a condition for the validity of the assignment. The need (or not) for a written agreement arises from the general rules on evidence depending on whether the assignment is civil or commercial. However, in the latter case, in practice, unless the parties have agreed in advance to a possible assignment, the consent would be more difficult to prove without a written agreement.

New article 1216-1 of the French Civil Code provides that if the assignee has expressly consented to it, the assignment of the contract releases the assignor for the future.

Failing this, and unless otherwise provided, the assignor is jointly and severally liable for the performance of the contract. This has also been confirmed by the Luxembourg Courts (eg Luxembourg Court of Appeal 15 February 2012).

In view of the above, the assignment contract or the original clause allowing for the transfer, should provide for an express discharge of the assignor if this is indeed the intention of the parties and it should be specific enough about the rights and obligations so transferred and discharged.

As regards the transfer of security interests, like for the transfer of debt, it should be reminded that the risk incurred by the creditor on the obligation of its contracting party depends on the person of that contracting party. We can easily understand that security interests granted by third parties only survive with their consent when the assignor is discharged by its contracting party. If the assignor is not expressly discharged, he remains jointly and severally liable with the assignee, which may in a sense improve the situation of the guarantor. In this case, the risk borne by the guarantor decreases, so there is no reason to discharge him. This has been included in the new French Civil Code.

Article 1271 of the Luxembourg Civil Code provides that the novation can take place in three ways:

• when the debtor contracts with his creditor a new debt which is substituted for the old one, which is extinguished; it should be noted that only the substantial changes between the old and new obligation should lead to a novation;
• when a new debtor replaces the previous one, who is discharged by the creditor; and
• when, following a new commitment, a new creditor replaces the previous one, towards which the debtor is released.

The novation cannot be implied; the intention of the parties to operate a novation shall clearly result from their agreement.

Indeed, the consequences of the novation differ from the mere transfer of debt or receivables. The novation by change of debtor differs from the assignment of debt insofar as novation does not transfer the debt; it extinguishes the original debt and creates a new one for the new debtor. The reasoning is the same for the novation by change of creditor as this does not lead to a transfer of receivable but creates a new receivable for the benefit of a new creditor.

These differences are crucial to the extent that the extinction of the original obligation leads in principle to the extinction of all the accessories, including the privileges and guarantees, unless otherwise agreed by the guarantors.

Finally, it should be noted that the novation shall be distinguished from the delegation. All delegations do not lead to a novation, imperfect delegation by which a debtor gives to his creditor another debtor does not operate as a novation unless the creditor has expressly declared that he intends to discharge his debtor who has made the delegation. The simple fact that the debtor indicates that another person must pay his debt does not constitute a novation. To be novatory the contract must expressly release the delegator (debtor). All novation by change of debtor is not necessarily a perfect delegation. The delegation is a tripartite agreement while the novation by change of debtor can take place without the participation of the first debtor (article 1274 of the Civil Code).

Assignment clauses are contained in all or almost all corporate and transactional agreements. In view of the above and on the risk which lies on the assignor if not properly drafted, particular attention should be given to the assignment clauses contained in transactional agreements and these should not be seen as ancillary clauses only. Although in intra group transactions and reorganization these clauses may seem more theoretical they should also be reviewed carefully as the accounting books and records of the companies involved should reflect the content of the agreements (eg a debt of a given company can only be removed from its balance sheet if it has been properly assigned and the assignor/company fully discharged).

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Employment contracts

There are different forms of employment contracts for employees. The most common are:

Special contracts promoting the professional integration of jobseekers

Special contracts are employment measures promoting the professional integration of young people and the reintegration of the most fragile populations into the labour market such as elderly jobseekers and persons with disabilities or health restrictions.

Regular employment contracts

This section presents the different types of employment contracts that are most commonly used in Luxembourg.

What you need to know about the rental agreement in Luxembourg

In this article, we will explain the rules for drawing up a lease in Luxembourg.

Table of content

When renting an apartment in Luxembourg, the contract creation and the inspection of the apartment should be taken very seriously. The rental agreement and the act of acceptance transfer are the most important documents that protect both parties. If there is an agent, he will do all the work like drawing up the contract and inspecting the apartment.

Written form only

The contract must be drawn up in two copies in written form since any oral agreements are unprovable.

Clearly stated rent amount

If you are planning to rent an apartment in Luxembourg, be careful here. The rental fee is established once the lease is signed. It can be adjusted only once every 2 years. This means that the amount cannot be reviewed for two years, unless the contract says otherwise.

By law, the maximum amount the owner may receive as a rental fee may not exceed 5% of the property's investment. This investment amount is made up of 1) the value of the land on which the property is located, 2) the cost of construction of the building, and 3) the amount invested in any repairs and alterations.

But there are exceptions. Social and luxury housing are not eligible for the 5% regulation.

Fixed-term lease and terms of termination

Normally the rental contract in Luxembourg is concluded for at least one year. It can be terminated whenever one of the parties requests it. But in this case, the other party must be notified. This is usually done in advance with a 1-2 month deadline to send the notice if other is not specified in the contract.

The Luxembourg lease will automatically be renewed at the end of the term specified in the agreement unless explicit notice of termination is written.

In case this is an open-ended lease, this should also be specified in the contract.

Recorded additional costs

When it comes to renting an apartment in Luxembourg, the additional costs are defined as the amounts that the owner can charge the tenant. These are utilities such as water, heating/gas, electricity, drainage, garbage disposal, and chimney cleaning. Minor repairs can be charged as well, in this case, we recommend that you define what counts as minor repairs and the amounts involved.

Ask the landlord about what counts as extra costs and write it down in the contract. Don't forget to state the procedure for paying utility bills (les charges) -— when to pay, who pays it, how, whether they are included in the rent, etc.

Simple bank guarantee as bail

A rent deposit, or security deposit, is a guarantee that money will be paid if the property is damaged.

You can make a security deposit with

• first-demand guarantee,
• bank guarantee,
• wire transfer to the landlord's account,
• home insurance to prevent rental risks (risqué locatifs).

Bail is the money you should get back if you haven't damaged anything. It should be mentioned in the contract as well. However, if you make a deposit in cash, a bank transfer, or a first-demand guarantee, there is little chance of getting the deposit back.

Bank guarantee

First-demand guarantee, home insurance to prevent rental risks, a detailed inventory of property.

When renting an apartment in Luxembourg, the tenant and the owner prepare a written report on the condition of the property. All damages, breaks, and defects are described in it. The utility measurements are to be included. It is best to take pictures and attach them to the description. The document is signed by both parties on each page. The date should be given at the time of making the document.

A property report is prepared the tenant enters the apartment as a host.

Certain rules for terminating a lease

The contract should spell out how the on-site inventory is conducted, how the keys are handed over, at what point the tenant has the right to stop paying rent, etc.

Source : author's article

We took photos from these sources : Deborah Cortelazzi for Unsplash

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From 1 January 2017 it is no longer obligatory to register residential/commercial lease agreements, although voluntary registration is still possible (Luxembourg Tax Reform 2017). Here we outline the key points of the new statute regarding registration of lease agreements under Luxembourg Law.

Registration: what is it about?

Registration occurs when a written agreement providing for the renting of a real estate property is inscribed in a public register held by the Land Registration and Estates Department ( “Administration de l’Enregistrement et des Domaines”, “AED” ).

Inscription is complete when one of the original copies of the agreement is filed with the AED and the registration fee is paid.

Any kind of written agreement providing for the renting of a real estate property can be subject to registration. Registration also applies to commercial, residential as well as office lease agreements.

Under Luxembourg law, any transfer or assignment of a lease agreement can also be affected by registration. The same holds true for sub-lease agreements.

What changed on 1 January 2017?

As a result of the Tax Reform, any residential/commercial lease agreement/sub-lease/addendum executed after 1 January 2017 is no longer subject to a mandatory registration . The same rule applies to lease agreement/sub-lease/addendum concluded after 30 September 2016 (AED Circular n° 782 of 2 January 2017).

There is also no longer any fine when a commercial or a residential lease agreement , a sub-lease agreement or an addendum is registered more than 3 months after its date of signing. Until 31 December 2016, any residential/commercial lease agreement/sub-lease/ addendum had to be registered within 3 months of being signed. Failing that, the registration fee was doubled.

Parties can, however, register a residential/commercial lease agreement, a sub-lease or an addendum on a voluntary basis . Here is the key relevant information on the applicable process:

Who can register a residential/commercial lease agreement, a sub-lease or an addendum and who should pay the registration fee?

Parties can ask the notary to register a residential/commercial lease agreement/sub-lease/addendum written in the form of a notarial deed.

For a residential/commercial lease agreement/sub-lease/addendum written under private seal, it depends on the terms of the contract:

• If there is nothing in the lease agreement/sub-lease/addendum to the contrary, it can be registered by either of the parties. The party who has dealt with the registration and also paid the registering fee cannot ask the other for the repayment of half of the global registration fee unless otherwise agreed between the parties.
• If the lease agreement/sub-lease/addendum determines which party has to perform the registration and pay the fee, this party must comply with these contractual obligations and will be liable for any breach of the lease agreement/sub-lease/addendum vis-à-vis the other party.

According to the Luxembourg Tax Code, both parties however stay jointly liable for the registration fee, which means that if the party who filed the lease agreement/sub-lease/addendum with the AED for registration purposes does not pay the applicable fee within the fixed time period, the AED has the right to ask the other party for the payment of the global amount.

How much is the registration fee?

The Tax Reform has not changed the rates of the registration fee.

If the lease agreement/sub-lease/addendum is subject to VAT, there is a fixed registration fee of EUR 12.00. This fixed fee applies when (i) application of VAT to the lease agreement/sub-lease/addendum has been duly authorized by the AED through the option form (déclaration d’option TVA) and (ii) the lease agreement/sub-lease/addendum is registered on the date it comes into force at the latest.

If the lease agreement/sub-lease/addendum is not subject to VAT , there is a proportional registration fee, which is equal to 0.6% of the accumulated amount of the rent. E.g. for a 3 years agreement with a rent of EUR 1,000.00 per month, the registration fee is 0.6% of (36 x 1,000.00) = 0.6% of EUR 36,000.00 = EUR 216.00.

Lease agreements/sub-leases that are concluded for a period of 3-6-9 years are regarded as 9-year agreements, so that the registration fee is calculated on a period of 108 months.

The registration fee of an unfixed-term lease agreement/sub-lease is calculated on the basis of a 20-year term.

What is the benefit of registering a residential/commercial lease agreement/sub-lease/addendum if it is no longer mandatory?

The main benefit of registering a residential/commercial lease agreement/sub-lease/addendum is to give it a specific date so that it can be enforceable against third parties, which cannot then claim to be unaware of the existence of the agreement itself and/or the parties’ rights resulting from it.

Enforceability can be very useful if the real estate property is to be sold. If a lease agreement has been registered before the sale contract, the new owner will not be allowed to ask the tenant to move out immediately even if he had no knowledge about the existence of the registered lease agreement (see Art. 1743 of the Civil Code).

This benefit is however limited regarding residential lease agreements. In fact, Article 12 (5) of the amended Law of 21 September 2006 states that any residential lease, whether registered or not, is automatically enforceable towards third parties.

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• Housing & Rentals

All you need to know before signing a rental agreement

Luxembourg - Housing & Rentals

Once you’ve found a house or apartment to rent, you’ll have to negotiate and finalise a lease, or rental contract. You should read the lease carefully before signing it and, if you have doubts or questions about any of the terms, have them translated or explained to you.

This article is an extract from Living and Working in Holland, Belgium & Luxembourg .

By Just Landed

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Further reading

• Introduction: The rental market in Luxembourg
• Finding accommodation: How to find a place to live
• Other things to consider: Common charges, house rules and inventory
• Buying property: How to buy a place in Luxembourg

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Posting workers to Luxembourg

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Posted workers to Luxembourg fall under the scope of application of Directive 96/71/EC concerning the posting of workers in the framework of the provision of services.

Therefore, companies that post their workers to Luxembourg must consider a series of requirements provided for by national transpositions of this Directive, Directive 2014/67/EU and Directive (EU) 2018/957, namely the Loi du 20 décembre 2002 , the Loi du 14 mars 2017 and the Loi du 15 décembre 2020 .

In the following sections you can find a summary of the obligations provided by Luxembourg and European Law on transnational posting of workers to Luxembourg.

For an overview of EU Directives regulating the posting of workers, take a look at our complete guide on EU Posted Workers Directives .

Preliminary obligations for the posting of workers to Luxembourg

EU/EEA and Swiss Confederation companies may post their workers to Luxembourg under the scope of Directive 96/71/EC. Following to Directive 2014/67/EU, the posting of workers to EU involves registration requirements. In the case of Luxembourg, the posting company must notify (through the déclaration préalable ) the temporary transnational provision of services to the Direction générale des Classes moyennes at the Ministry of the Economy.

Further obligations related to the posting of workers to Luxembourg

Following to the submission of the posting declaration, each posted worker must obtain a social badge. This identification tools embeds the identity details of each employee. Furthermore, a barcode allows the competent authorities – in this case the Inspectorate of Labour and Mines (ITM) – to check the data provided in the posting declaration.

Besides, when the activity falls within specific sectors, such as the construction sector, the posting company must consider additional obligations. As a matter of fact, in such cases the foreign-based company must register for VAT in Luxembourg .

We recommend a specific analysis of each case in order to assess whether the VAT registration is needed.

Working and salary conditions applicable during the assignment to Luxembourg

When workers are posted to Luxembourg, the foreign posting company must meet the provisions set out by Luxembourg labour law. General conditions of employment concern working time, safety, health and hygiene in the workplace and paid leave, among others.

Minimum wage in Luxembourg

As far as the minimum wage is concerned, in Luxembourg there is both a social minimum wage and collective bargaining agreements. Each agreement sets out the applicable minimum wage requirements, that in any case lay over the social minimum wage.

With the last increase of February 1st, 2023 , the social minimum wage in Luxembourg now amounts to EUR 2447,07.

Social security in Luxembourg

When posted to Luxembourg by an employer in an EU/EEA-country, a posted employee temporarily works in Luxembourg, but continues to be employed in another country. Thanks to the EU harmonized social insurance system, employees posted abroad pay social insurance contributions to the country where they are regularly employed.

As a matter of fact, pursuant to Regulation (EC) 883/2004, the posting company must apply to the competent social institution for the issuing of an A1 Certificate for each posted worker. This document states in which country the holder pays for social security contributions. Therefore, posted workers remain under the social security system legislation of the country in which they are employed.

We at A&P would be glad to support you in the application for the A1 certificate or the multistate A1 Certificate.

Non-EU workers posted to Luxembourg

EU-based companies (including the ones based in the EEA and the Swiss Confederation) may post non-EU workers as long as they have the right to work and reside in the country where the firm is based. Pursuant to article 49 of the modified law of 29 august 2008, if the posting lasts more than 3 months , third-country nationals must apply to the Immigration Directorate for a residence permit for workers posted by a service provider established in the EU.

Documents’ availability during the posting of workers to Luxembourg

All documents related to the posting must be available in Luxembourg during the posting period in case of an audit. In particular, the appointed representative acts as reference for the authorities to collect information. Once the posting terminates, documents must be stored up to 10 years in order to allow Labour Audits.

Moreover, these files must be available either in French or German. If they are drafted in another language, translations are therefore required.

Penalties in case of non-compliance as defined in the Luxembourg legislation

Any breaches of the provisions applicable to the posting of workers to Luxembourg may entail penalties in the form of administrative offences. The fine may amount up to EUR 5,000 for posted worker. However, in case of repeated offences the authorities may raise it up to EUR 50,000.

Since the posting company and the receiving company share the responsibility, either of them may pay this fine .

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Home Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Written by Josh Sainsbury | Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

Related Documents

• Sales and Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Contract : An agreement in which each party agrees to an exchange, typically involving money, goods, or services.
• Lease/Rental Agreement : A lease agreement is a written document that officially recognizes a legally binding relationship between two parties -- a landlord and a tenant.
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Q&A: loan document terms in Luxembourg

Loan document terms

What forms or standardised terms are commonly used to prepare the bank loan documentation?

International financing transactions generally follow the sample standards of the banks extending the credit and contain the essentials of the terms and conditions in the contractual agreement. An Anglo-Saxon lender would follow the LMA standards, while German and French banks would go by their template used in domestic transactions. Reference to Luxembourg law is fairly limited in those agreements, but is used to comply with the imperative and public policy provisions prevailing in Luxembourg. When foreign lenders have established their operations or a branch in Luxembourg, LMA standards can be used with a substantial reference to Luxembourg law. However, the use of this type of Luxembourg law LMA standard agreement is very limited in the market.

Bank loan documentation used in Luxembourg is mostly prepared on the base of the standardised terms of the LMA. The Association of German Banks provides a master agreement that is used from time to time.

What are the customary pricing or interest rate structures for bank loans? Do the pricing or interest rate structures change if the bank loan is denominated in a currency other than the domestic currency?

Interest rate structures will depend upon types of credit loans and the banking practices of the lenders. A fixed rate is preferred in fixed asset-backed financing (real estate, equipment, immovable investments) while floating rates are used in most corporate lending transactions. It will generally be a US structure with a base rate or a LIBOR plus a margin fixed on a specific period. Mandatory costs may also be included in the computation of the interests to reflect cost of lending. Floating interest rates refer generally to a benchmark rate such as LIBOR for US dollars, British pounds, Swiss francs, yen or EURIBOR for loans denominated in euros, or occasionally NIBOR (Norwegian krone), CIBOR (Danish krone) and STIBOR (Swedish krona) and a margin. In private equity transactions, exit fees are also common and ensure a minimum tax return from lenders on the loan operation.

Have any procedures been adopted in bank loan documentation in your jurisdiction to replace LIBOR as a benchmark interest rate for loans?

Since the investigations into the LIBOR manipulations and the outcome thereof through conviction of certain traders and imposing of fines against big financial institutions, there has been a discussion about changing the benchmark interest rate. In fact, given the latest announcements of the financial conduct authority, reliance on LIBOR could no longer be assured after the end of 2021. Hence, even if this remains, for the time being, an academic discussion in Luxembourg, LIBOR is so embedded in the day-to-day activities of the users of financial services in Luxembourg that they should start preparing the transition to an alternative interest rate benchmark.

What other bank loan yield determinants are commonly used?

Credit facilities are not issued at a discount, however pricing floors can be instituted with respect to the determination of interest rates. Zero floor provisions are often included to avoid negative interest rates. Pricing on tranche B loans may be more diverse and can include conversion rights in equity or additional warrants with attractive pricing conversion with a view to enhancing the targeted return.

Describe any yield protection provisions typically included in the bank loan documentation.

When a bank financing is put in place on the basis of a foreign law governed LMA-style agreement, the following yield protection provisions are generally included in the loan agreement:

• increased cost provisions to cover the costs which the lenders may incur as a result of:
• the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation; or
• compliance with any law or regulation made after the date of the financing agreement (eg, according to Basel III, CRD IV or CRD V, see question 9);
• make-whole amounts or prepayment fees;
• tax gross-up provisions; and
• break-up costs.

Gross-up provisions are in most cases irrelevant in Luxembourg since there is no withholding tax on interest payments in Luxembourg, but aim at protecting any requalification of interest into profit distribution when rates are formed of a fixed and high variable portion deriving from the borrower profits.

Do bank loan agreements typically allow additional debt that is secured on a pari passu basis with the senior secured bank loans?

When a bank financing is put in place on the basis of a foreign law governed LMA-style agreement and in particular in acquisition finance, accordion facilities can be included on an uncommitted basis. Depending on the negotiated terms, such debt may be secured pari passu. To the extent permitted, additional debt can be incurred outside of the financing arrangement and will, depending on the situation or the negotiation, be either super senior secured (DIP financing), pari passu secured or secured on a second-ranking basis. A specific intercreditor agreement will be put in place to arrange enforcement of security interests and the distribution of proceeds. Under the Financial Collateral Law a security interest of a higher or lower ranking can only be granted with the express consent of the existing beneficiary of a security interest.

What types of financial maintenance covenants are commonly included in bank loan documentation, and how are such covenants calculated?

When a bank financing is put in place on the basis of a foreign law governed LMA-style agreement the following financial maintenance covenants are generally included in the loan agreement:

• equity-to-debt ratio;
• loan-to-value ratio, indicating the maximum percentage of the loan towards the value of a pool of assets;
• an interest cover ratio, indicating the minimum ability of the debtor to pay its interest obligations for a certain interest period; and
• capital expenditure indicating the maximum amount for capital expenditures.

In case of a breach of a financial maintenance covenant, equity cure rights are included in the loan documentation enabling the sponsors to inject equity in the structure to cure such breach.

In Luxembourg law governed straight loans, the financial maintenance covenants will generally be limited to loan-to-value covenants and interest cover ratios.

Describe any other covenants restricting the operation of the debtor’s business commonly included in the bank loan documentation.

Covenants patterns follow the type of sample loan used in the transaction, in particular the common law or civil law orientation of the contractual documentation. Concepts of good faith in civil law imposed under Luxembourg statutory laws require the adoption of fair and responsible practices from lenders and borrowers. The contractual documentation may strengthen or add some obligations on the borrowers not foreseen in the law, such as covenants restricting payments of dividends, disposal of assets, change of control and negative pledge preventing them from granting additional security interests or securities with lower rankings, or incurrence of further debt.

What types of events typically trigger mandatory prepayment requirements? May the debtor reinvest asset sale or casualty event proceeds in its business in lieu of prepaying the bank loans? Describe other common exceptions to the mandatory prepayment requirements.

When bank financing is put in place on the basis of a foreign law governed LMA-style agreement, mandatory prepayment is generally triggered by events such as change of control, unauthorised payments of dividends by the borrower to the sponsor, sale of assets and any other event that benefits the borrower to the extent not permitted under the loan facility or otherwise not authorised by the lender. In specific loans, contractual provisions may foresee that free cash proceeds exceeding certain pre-agreed thresholds trigger some prepayment obligations (cash sweep provision).

Describe generally the debtor’s indemnification and expense reimbursement obligations, referencing any common exceptions to these obligations.

In straight loans governed by Luxembourg law, a borrower will indemnify the lenders for any costs, expenses or loss incurred by the lender in relation to:

• investigating any event that it reasonably believes is an event of default;
• acting or relying on any notice, request or instruction that it reasonably believes to be genuine, correct and appropriately authorised; or
• instructing lawyers, accountants, tax advisers or other professional advisers or experts as permitted under the loan agreement.

A Luxembourg judge may, however, reduce the amount of such indemnities if it is considered as punitive damages.

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Global Private M&A Guide - Limited External Content

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• Which entity is likely to be the target company (on a share sale) or the seller (on an asset sale)?
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• What are the key features of a share sale and purchase?
• What are the key features of an asset sale and purchase?

In Luxembourg, a business can be acquired by way of either a share deal, under which part or all of the target's shares are transferred, or an asset deal, consisting of the purchase of some or all of the target's assets.

Most of the transactions undertaken in Luxembourg are privately negotiated ones, usually between a seller and a preferred buyer. However, recently there has been a move towards more sellers opting to run an auction process.

To enhance its favorable legal environment, Luxembourg has also implemented the various EU merger directives ( a draft bill on the transposition of EU Directive 2019/2121 of 27 November 2019, amending EU Directive 2017/1132 regarding cross-border conversions, mergers and divisions (" Mobility Directive ") into Luxembourg, has already been prepared and awaits approval) . Besides purely domestic mergers, Luxembourg provides for a regulatory framework for cross-border mergers in line with its characteristically open-market approach.

Cross-border mergers are possible for any merger of a Luxembourg and foreign company, and are not restricted to EU companies, as long as the foreign jurisdiction does not prohibit the merger and the foreign company complies with the requirements and formalities of its domestic law. A merger will entail the universal transfer of all assets and liabilities of the absorbed company to the absorbing company, except in certain cases. The Mobility Directive's implementation is expected to bring further changes to the applicable regime in terms of scope and applicable procedure.

The most widely used private company in Luxembourg is the private limited liability company (société à responsabilité limitée (SARL)), which is used by around two-thirds of companies in Luxembourg.

• public limited liability company (société anonyme) — S.A.
• simplified joint-stock company (société par actions simplifiée) — S.A.S.
• corporate partnership limited by shares (société en commandite par actions) — S.C.A.
• common limited partnership (société en commandite simple) — S.C.S.

The number of shareholders of a SARL is limited to 100.

In principle, the shares are freely transferable. However, the articles of association of the company, an agreement entered between the shareholders or the law (i.e., the approval right of the shareholders in a SARL) can limit the transferability of the shares. At a minimum, a sale and purchase agreement needs to include the parties that consent to enter into the transaction, the object, the applicable price. The agreement will also record the agreement of the parties on their respective rights, obligations and liabilities in connection with the transaction. No specific form of agreement is prescribed under Luxembourg law, although it is generally accepted that the drafting principles are heavily influenced by the anglo-saxon legal drafting principles.

In the case of the transfer of shares in a SARL to a non-existing shareholder, the Luxembourg law on commercial companies provides that such transfer requires the prior approval of the current shareholders representing 75% of the company's share capital. It is possible to reduce this majority to 50% in the articles of association.

When a business is transferred by way of an asset purchase, each individual asset needs to be transferred in accordance with the formalities for a transfer applicable to that type of asset. For some assets, this will simply be a case of delivering the asset to the buyer, but in other cases, the formalities are more cumbersome (e.g., requiring filing the transfer in respect of trademarks and patents; or for real estate the additional step of executing the purchase agreement before a notary public in Luxembourg, updating the land registry (cadastre) and filing the notarial deed with the mortgage registry (conservation des hypothèques)). The assignment of contracts under an asset purchase could also raise issues of third-party consent, while in a share deal, third-party consent is needed only for agreements that have a change of control clause. It is, therefore, necessary to include a provision, either in the purchase agreement or in separate agreements, requiring those formalities to be complied with. There will usually be an asset purchase agreement to record the respective rights, obligations and liabilities of the parties.

UK-Luxembourg Double Taxation Agreement

September 27, 2023

On 19 July 2023, the Luxembourg Parliament ratified the long-awaited updated UK-Luxembourg Double Taxation Agreement, which aligns the treaty with the majority of other countries, in particular in relation to the taxation of capital gains on indirect disposals of UK real estate. With the UK government having already ratified the new treaty, it will now become effective from 2024.

The Key Changes Are:

• Capital gains on disposals by a Luxembourg company of shares in a company which derives more than 50% of its value from UK real estate can be taxed in the UK (and vice versa). This brings disposals by Luxembourg companies into the scope of the UK non-resident capital gains (“NRCG”) rules for disposals of UK property rich companies which derive more than 75% of their value from UK real estate. This change will apply in the UK from 1 April 2024 for Corporation Tax and 6 April 2024 for Capital Gains Tax.
• Withholding Tax ("WHT") on interest, royalties and dividends is reduced to 0%, other than for REIT Property Income Distributions which the treaty reduces to 15%. This change will apply from 1 January 2024.

The full text of the amended treaty can be found here .

Key Implications for UK Real Estate Investors:

In a scenario where investors hold their UK real estate investments in corporate structures, and such a structure is sold by a Luxembourg holding company, that holding company will pay tax on the disposal of the structure from 1 April 2024. The tax will be applicable to the increase in the value of the shares from 5 April 2019 (i.e. a valuation of the shares as of 5 April 2019 factoring in the property revalued to its 5 April 2019 value – if higher than the original cost).

Please get in touch with the FTI Consulting Tax Team if you would like to discuss further the implications of these changes.

Such investors may look to divest their holdings prior to 1 April 2024 given the significant tax charge that could arise after this date. Investors should continue to be mindful of the anti-forestalling measures set up to prevent them from moving their holding structures to Luxembourg after the NRCG rules were originally announced on 22 November 2017. We would not expect any further anti-avoidance to apply, as long as no artificial measures are taken to accelerate the tax point of the transaction prior to 1 April 2024. Note that where there is an unconditional contract, tax on the capital gain is triggered at the point of exchange, and not completion, if the two are different, and documents should be reviewed in detail and considered further where a transaction straddles 1 April 2024.

The treaty’s test which allows for disposals of a company deriving more than 50% of its value from UK real estate to be taxed in the UK does not override the UK domestic law which applies to companies that derive 75% of their value directly or indirectly from UK real estate. As such, if between 50% and 75% of the value of the company is derived from UK real estate, UK corporation tax does not apply to the share disposal under current UK rules (albeit it could in the future if the UK rules are amended).

In relation to WHT on dividends, although there are currently exemptions under domestic legislation, this may be useful for distributions by Luxembourg entities to the UK where the participation exemption would not be available (e.g. if a UK corporate held less than 10% of the share capital for less than 12 months). If such is the case, the entity would avoid the need to structure to get the UK domestic exemption. This may be helpful in the future when there is a joint venture between an investor investing via a Luxembourg platform and UK joint venture partners such as asset managers, who often have a small holding in the venture.

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