Electronic signatures: remote execution in Luxembourg

The COVID-19 pandemic currently has a severe impact on the process of ongoing and future transactions. In the context of transport limitations and self-confinement many turn to electronic signatures (e-signatures) to remotely execute documents. Please find below some practical advice on the use of e-signatures in Luxembourg law governed documents.

Are e-signatures accepted in Luxembourg?

Yes. Wet ink, written signatures are not necessarily required for valid execution under the laws of the Grand Duchy. Where legally competent parties reach agreement, either orally, electronically or physically, then, generally speaking, such agreements are validly made (Articles 1322-1 and 1322-2, the Luxembourg Civil Code). Although, no person can be obliged to sign electronically, meaning parties are entitled to refuse to execute in this manner, pursuant to Article 18(3) of the Luxembourg e-Commerce Act, as modified (the e-Commerce Act).

Not all e-signatures are created equal, however, with the equivalence in probative value of a hand-written signature. As the Regulation (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the internal market (the Regulation), replacing and repealing the e-Signatures Directive (1999/93/EC), outlines the three types of e-signature, increasing in their level of complexity and acceptance:

1. Standard e-signatures (SES) (e.g. an electronic copy of a handwritten signature on a document) are already widely used in transactional, commercial, licensing and intangible property transfer agreements;

2. Advanced e-signatures (AES), which require (a) a unique link to the signatory; (b) capability of identifying said signatory; (c) creation via means that is solely under the signatory's control; and (d) encryption to prevent tampering or alteration; and

3. Qualified e-signatures (QES), a specific digital signature implementation that has met certain government specifications, including using a secure signature creation device, and certified as 'qualified' by either that government or a government contracted third party.

In compliance with the Regulation, Luxembourg, as with the other EU member states, maintains a publicly accessible list of supervisory bodies for qualified certificated providers of AES and QES systems. When choosing one of these providers, the adequacy of data protection and recovery planning, convenience, cost, location of physical servers and compatibility with current systems should be considered.

Can e-signature validity be challenged?

Where the requirements of QES are met, the e-signature benefits from a presumption of equivalence to physical execution, in the eyes of the courts of all EU member states (Articles 25(2) and (3) of the Regulation), which would otherwise have a wider margin of discretion to reject the signature as evidencing valid execution.

Moreover, even where the e-signature falls short of the presumption of equivalence, Articles 18(2) of the e-Commerce Act and 11(2) of the Luxembourg e-Archiving Act transpose the principle of non-discrimination into Grand-Ducal domestic law, which makes challenging validity more difficult. Non-discrimination prevents courts discarding e-signatures solely for being in electronic form or failing to satisfy the conditions for equivalence. Thus, in practice, the burden of proof is on the claimant to justify a challenge as to the authenticity and integrity of an e-signature.

When should e-signatures not be used?

E-signatures are not appropriate execution replacements for all circumstances, especially those that are typically reserved for matters requiring a wet ink signature.

Such barred instances include those requiring formal notarisation in front of a public officer, for example, deeds of incorporation or migration, the amendment of articles of association, or contracts that concern the transfer of real, tangible property.

What are the tax implications?

If the e-signatory is not present in Luxembourg when executing corporate documents, such as board minutes and resolutions, or contractual documentation, it is important to consider the tax rules and any effect on the entity's seat of effective management and control.

Our tax team can advise on such implications.

What are the practical tips?

Some actions need not be overcomplicated by enacting as deeds and could instead be signed as contracts.

Moreover, when opting to use e-signatures, it is important to strike the right balance between convenience and security. Striking this balance should include considerations as to the number of individuals who have the power to bind the entity, including attorneys, and to ensure that two of these individuals are capable of being present at the same location to initiate an e-signing; the first to execute via e-signature and the second to stand as witness.

We advise our clients on a wide range of issues in relation to e-signatures, particularly in the corporate governance space, and welcome queries in this regard.