1. Background
The Bill of Law #8286 (the New Draft Law) was
introduced by the Minister of Justice on 28 July 2023. Luxembourgish accounting
law is modernized by the New Draft Law making it more understandable and
intelligible and offers an improved structure of the law.
The idea behind the New Draft Law was to modernize
the law of 19 December 2002 (the Accounting Law), while assembling all the
accounting requirements into a single law. Currently Accounting Law
requirements are found in commercial law, commercial code, and accounting
law. The Accounting Law would also expand in scope to FCPs (Fonds Commun de
Placement), commercial companies in participation, civil companies, temporary
commercial companies, mutual insurance associations, pension-savings
associations, and agricultural associations.
The expectation is that these changes would give
further clarity to Luxembourgish professionals, integrate accounting doctrines
or market practices in the Accounting Law, and give more clarity on requirements
which were not self-explanatory.
2. Summary
The New Draft Law offers several distinctive changes:
2.1. A “Bottom-up” approach
The New Draft Law adopts a “bottom-up” approach, as opposed to the current “top-down” approach. According to this structure, the "small enterprise " regime constitutes the common core applicable to all enterprises (with the exception of micro-undertakings) and additional obligations will be added to this basic regime for medium-sized and large enterprises as well as for public-interest entities.
Moreover, the New Draft Law introduces a list-based approach enumerating the scope of accounting obligations per type of entity.
2.2. Adoption of the “micro-undertaking” as a new category of undertaking and new numerical thresholds for small-sized entities
The New Draft Law sets higher thresholds for small-sized entities/groups and establishes a simpler reporting and accounting framework for a new category of undertakings referred to as micro-undertakings. The most significant exemption for micro-undertakings is the cancellation of the notes to the accounts. These micro-undertakings will be subject to the eCDF forms and Luxembourg Standard Chart of Accounts (SCA).
|
|
Total Balance sheet (EUR) |
Net turnover (EUR) |
Staff (in average and full time number of employees) |
|
Micro-undertakings |
EUR 350,000 |
EUR 700,000 |
10 |
|
Small undertakings/groups New thresholds Current |
EUR 4,400,000 |
EUR 8,800,000 |
50 |
|
Medium and large undertakings/groups (no change) |
|
|
|
2.3. An audit requirement for “large holding companies”
The New Draft Law keeps holding companies in the category
of small enterprises but submits large holding companies to a more demanding
reporting regime – defined as those whose total balance sheet is more than
EUR 500 million – when their annual accounts are audited by an approved
statutory auditor.
With the New Draft Law, large holdings’ annual
financial statements will be subject to audit.
2.4. Embedding into law Q&As from the Commission des normes comptables (CNC Q&As)
The list of Q&As is as follows:
-CNC Q&A 19/019 “Categorization of undertakings: interpretation of the repetition criterion referred to in Article 36 LRCS”;
-CNC Q&A 22/026 (R) “Currency of Bookkeeping and annual accounts under LuxGAAP & LuxGAAP FV”;
-CNC Q&A 20/021 “Optional principle of substance over form”;
-CNC Q&A 21/024 (R) “Changes in accounting policies, measurement principles, and accounting estimates under LuxGAAP and LuxGAAP FV”;
-CNC Q&A 21/025 “Correction of errors under LuxGAAP and LuxGAAP FV”;
-CNC Q&A 21/022 “Discontinued operation/non-going concern and liquidation basis accounting in LuxGAAP & LuxGAAP FV”.
2.5. A filing requirement for Société en commandite spéciale, S.C.Sp.
S.C.Sp. will retain complete freedom in the choice of their accounting framework and will be generally exempt from the obligation to prepare annual financial statements, provided that they annually submit their trial balances as outlined in the Standard Chart of Accounts. These filings will not be subject to publication.
On the other hand, S.C.Sp.s within the sector of insurance companies, subject to supervision from the CSSF, credit institutions, those whose financial statements are prepared according to IFRS, securitization companies which are not subject to supervision by the CSSF, and those with the status of RAIFs are exempt from filing their trial balances under the Standard Chart of Accounts. However, the requirement of those S.C.Sp.s mentioned is to file financial statements according to Title III of the New Law.
2.6. The abolition of the function of commissaire in commercial companies’ law
The New Draft Law proposes to abolish the function of commissaire (supervisory body) responsible for the control of accounting documents. This is related to a public limited company (société anonyme, S.A.), simplified joint stock company (société par actions simplifiée, S.A.S.), european company (société européenne, S.E.), partnership limited by shares (société en commandite par actions, S.C.A.), private limited company (société à responsabilité limitée, S.à r.l.), from the amended Law of 10 August 1915 on commercial companies.
2.7. A concept of agent v principal in the context of control
The New Law introduces the definition of control which is a main concept for consolidation. Control is defined as the power to decisively influence or govern the financial policies and the management of another company. For example, control results exclusively from the following situations:
a) When the parent undertaking has majority of the voting rights as shareholders in another undertaking; or
b) When the parent undertaking controls the majority of the voting rights of shareholders through an agreement concluded with other shareholders of this undertaking
c) When the parent undertaking has the right to dismiss or appoint the majority of another undertaking’s management or supervisory body.
In the comments on the New Draft Law, it is clearly stated that the concept of agent versus principal applies in specific cases. This arises when there is competition between at least 2 of the 3 situations mentioned above.
2.8. Deferred tax asset recognition option
The New Draft Law includes an option to recognize deferred tax assets when there is a high probability that the tax losses will be recoverable in the future.
2.9. A measurement option for intangible assets with indefinite useful life
The New Draft Law recognizes cases where intangible assets may have an indefinite useful life. The New Draft Law requires a minimum annual robust impairment test giving the option not to proceed to their systematic amortization.
2.10. A modernized accounting framework for dissolved and liquidated undertakings
Due to the current lack of guidance to provide adequate financial information for undertakings dissolved and put into liquidation, the New Draft Law proposes solutions. For instance, when possible the preparation, filing and publication of annual intermediary and closing financial statements of the liquidation:
- At each annual close and in the absence of closure of liquidation.
- In accordance with the Law of Commercial Companies, it clearly provides that at each annual closure prior to the closure of the liquidation, companies in liquidation are required to draw up annual interim financial statements for liquidation (balance sheet, profit and loss account, and notes to the accounts).
- At the closing of the liquidation, it is proposed to maintain while modernizing and clarifying it, the obligation currently provided in the Law of Commercial Companies to draw up financial statements of closure of liquidation highlighting the clearance of liabilities through the realization of assets during the entire liquidation period.
2.11. Restriction of the current article 27 of title ii of the law dated 19 December 2002
The current article 27 of the Accounting Law allowed specific derogations from the Accounting Law will be restricted. The restriction would be used to align with the current practice. Entities could ask the Ministry of Justice for a derogation for preparing consolidated accounts under a different accounting framework from the ones allowed by the law in Luxembourg (i.e. Lux GAAP or IFRS as endorsed by the EU). The derogative framework will have to be recognized as equivalent by the EU Commission, i.e. in line with decision 2008/961/EC of the European Commission from 12 December 2008.
2.12. Terminology
Annual accounts and profit and loss are replaced by financial statements and income statements, respectively.
2.13. Financial year duration
New rules in relation to the financial year are in line with the current market practice. Financial year to last for 12 months except for newly created undertakings whose financial year can be up to 18 months. The New Law incorporates the floating financial years.
2.14. Effective date
Estimated to be for financial years beginning on 1 January 2025 and after.
