Luxembourg government introduced to the Luxembourg Parliament (Chambre des Députés) on 31 July 2023 a draft law to modernize the Luxembourg accounting legislation (the “Draft Law”). The Draft Law intends to clarify and consolidate general accounting legislation, currently spread in several legislations, into a single accounting law and foresees the introduction of new accounting obligations. If adopted, the provisions of the Draft Law should be applicable as of 1st January 2025.
Consolidation of general Luxembourg accounting rules into a single accounting law
The Luxembourg accounting rules to be consolidated into a single law are the following:
- Bookkeeping and annual inventories as set forth in the Commercial Code;
- Annual accounts and related reports of the amended Law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings;
- Consolidated accounts and related reports of the Law of 10 August 1915 on commercial companies;
- Mandatory report on income tax information from Directive (EU) 2021/2101 of 24 November 2021 currently being transposed in Luxembourg (see our previous newsflash);
The Draft Law proposes to integrate several doctrinal positions issued by the Luxembourg Commission des Normes Comptables or “CNC” (i.e., the Luxembourg accounting standards committee).
Accounting rules contained in special law are not integrated in the Draft Law but are referred to where relevant:
- Law of 17 June 1992 pertaining to accounting rules applicable to the Banking sector;
- Law of 8 December 1994 pertaining to accounting rules applicable to the Insurance and Reinsurance sectors;
- Law of 11 January 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market;
- Law of 13 February 2007 on specialised investment funds;
- Law of 15 June 2004 relating to the investment company in risk capital (“SICAR”);
- Law of 17 December 2010 relating to undertakings for collective investment; and
- The criminal provisions relating to offences and misdemeanours in accounting are maintained in the amended Law of 10 August 1915 on commercial companies.
Moving from a top-down approach to a bottom-up approach and easing the determination of the scope of the different accounting obligations
As per the Draft Law, the regime for small companies should constitute the standard regime for all undertakings (save for micro-undertakings) to be complemented by additional requirements applicable to medium, large and public interest undertakings.
For this purpose, the scope of accounting and filing obligations should be based on an exhaustive listing of undertakings subject to each obligation with the aim to facilitating the determination of the accounting obligations of the different type of undertaking.
Holding undertakings category and audit requirement for large holding undertakings
The Draft Law introduces the notion of holding undertakings defined companies whose principal activity is the holding, financing or management of financial holdings or similar securities held on a long-term basis or with a view to their subsequent sale. Commentary on the Draft Law acknowledges that these holding enterprises are generally subject to the small undertakings’ regime, currently excluded from the audit requirement.
The Draft Law also introduces the notion of large holding undertakings defined as holding enterprises subject to the small undertakings’ regime but whose total balance sheet exceeds EUR 500 million at the accounting closing date. These large holding undertakings should be subject to the audit requirement.
In addition, the Draft Law explicitly provides that holding undertakings must provide details on the participations held.
Introduction of the micro-undertakings regime and increase of the threshold for small undertakings
Micro-undertakings’ regime
The Draft Law foresees the introduction of an option for micro-undertakings, provided for by Directive (EU) 2013/34, that do not exceed the limits of at least two of the three following criteria for two consecutive financial years:
- Balance sheet total: EUR 350.000
- Net turnover: EUR 700.000
- Average number of employees: 10
Application of the micro-undertakings’ regime will notably have the following effects:
- Preparation of abridged balance sheet and abridged profit and loss accounts;
- Limited disclosures in the annual accounts (no obligation to prepare detailed appendices to the financial statements provided that certain information is disclosed as footnotes to the balance sheet);
- Exemptions to (i) prepare a management report, be audited by a réviseur d’entreprises agréé, (ii) publish the profit and loss accounts.
The micro-undertakings regime should not apply to undertakings qualifying as holding undertakings, credit institutions, undertakings under CSSF supervision, undertakings of the insurance sector, securitization undertakings, reserved alternative investment funds.
Threshold increase for the small undertakings’ regime
The thresholds to be met for the application of the small undertakings’ regime will be increased as follows:
- Balance sheet total: from EUR 4.4 million to EUR 6 million;
- Net turnover: from EUR 8.8 million to EUR 12 million;
- Average number of employees: 50 (unchanged).
As a result, certain entities subject to the medium undertakings’ regime would fall within the scope of the small undertakings’ regime and would, notably, be exempt from the preparation of a management report as well as audit by a réviseur d’entreprises agréé and have the possibility to prepare an abridged balance sheet and not publish their profit and loss accounts.
Extension of the obligation to prepare financial statements
Entities concerned by such extension are the followings, unless specific legislation provides for derogatory accounting rules:
- Civil companies;
- Agricultural associations;
- Mutual insurance associations;
- Pension savings associations (assep);
- Mutual funds (FCP);
- Temporary trading companies and commercial joint ventures.
Additional filing for special limited partnerships (“SLPs”)
SLPs are currently not subject to the (non-public) filing of their financial statements (mainly regulated SLPs). SLPs should be required to file their balance of accounts following the Luxembourg Standard Chart of Accounts on the Luxembourg Trade and Companies Register (“LTCR”) (these filings being non-public).
This obligation shall not apply to SLPs required to prepare financial statements according to the Draft Law (meaning SLPs of insurance sector, credit institutions, SLPs subject to CSSF supervision, SLPs preparing financial statements under IFRS, SLPs under the securitization regime which are not supervised by the CSSF and SLPs under the RAIF regime).
Clarification of accounting obligations of companies dissolved and put into liquidation
The Draft Law aims at filling certain gaps of current legislation, so that:
- The general accounting principles should continue to apply to companies dissolved and in liquidation but to reflect that the company no longer operates on a going concern basis, accounts should be prepared on a liquidation basis as per CNC Q&A 21/022;
- Companies in liquidation should be required to prepare and file interim annual liquidation financial statements within the 6 months as of the end of the financial year or of the anniversary of the liquidation’s opening;
- Financial statements of a company in liquidation should only be presented to shareholders’ general meeting and filed with the LTCR; and
- Upon closing of the liquidation, the last financial statements should be subject to a filing obligation with the LTCR and may have to be published depending on the company’s legal form.
Removal of the “commissaire aux comptes” function
The Draft Law proposes to suppress the function of “commissaire aux comptes” (statutory auditor) that currently has a supervisory/internal control function for public companies subject to the small-undertakings accounting regime.
Other notable points introduced in the Draft Law
- Interpretation of the repetition criteria applied for the determination of the accounting regime (as per CNC Q&A 19/019)
- Euro Currency of the financial statements should apply by default and conditions for an alternative currency are included (integrating CNC Q&A 22/026)
- Duration of the financial year is defined with the possibility for floating financial years (integrating CNC Q&A 14/003)
- Option to apply the substance over form principle as already mentioned in CNC Q&A 14/003
- Accounting for the effects in a change in accounting methods shall take place during the financial year such change is decided (integrating CNC Q&A 21/024R)
- Applicable rules to deal with accounting errors (integrating CNC Q&A 21/025)
- Intangible assets with indefinite useful life might be amortized subject to an annual impairment test based on IAS 36 or alternatively on the accounting standards of another Member State
- Introduction of key definitions not foreseen by Directive (EU) 2013/34 for the terms “control” (key notion to determine consolidation requirements), “notable influence” and “joint control”
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