On 28 July 2023, a new draft law was introduced that aims to dust off the Luxembourg Accounting Law as part of a wider convergence of standards within the European Union (“the Draft Law”). This article summarises highlights in a nutshell.
The general view in the Luxembourg market is that the Draft Law, were it to be implemented, would allow to collect scattered pieces of legislation and centralise them into a single accounting law, which would enhance the legibility and accessibility of the Luxembourg accounting framework. It would also extend its scope to undertakings that do not have a commercial form while carrying out activities of a commercial nature. It constitutes a major step towards convergence with other EU frameworks and revamps terminologies, “annual accounts” would for example be referred to as “annual financial statements”. It is however not expected that the Draft Law would come into force for financial years before 1 January 2025.
Audits for large holding companies
The Draft Law contemplates subjecting “large” holding companies – i.e., whose total balance sheet exceeds EUR 500 million – to a statutory audit requirement. Such holding companies would currently fall short of the thresholds required for an audit to be triggered in most cases. No exemption has been foreseen in the Draft Law as of yet. Some (limited) additional disclosures to the financial statements would also be required. Furthermore, the Draft Law would create a micro-undertaking regime with simplified disclosure requirements – essentially only a balance sheet would be publicly available – and some restrictions. It would also lift thresholds under which a company is considered small-sized, from EUR 4.4 million in total balance sheet to EUR 6 million and from EUR 8.8 million in net turnover to EUR 12 million; the full-time employee threshold would remain unchanged at 50 staff.
Reporting requirements for SCSp
While specialised partnerships (sociétés en commandite spéciale or “SCSp”) were already subject to regular bookkeeping requirements, they were not required to file annual accounts with the Luxembourg trade register. It is proposed to require certain SCSp to file annual accounts going forward, although it should in practice be limited to SCSp that fall under specific laws such as the securitisation or reserved alternative investment fund laws. Most SCSp should theoretically still be exempt from filing annual accounts.
Intangible assets and consolidation
The Draft Law would largely align the treatment of intangible assets with that currently in force under International Financial Reporting Standards (“IFRS”), although this should remain optional (such as not amortising goodwill). Likewise, the Draft Law aims to clarify the concept of control in line with IFRS guidance (implying more than simply share capital or voting rights), although it falls short of considering control in the absence of a shareholder link. This could trigger consolidation requirements that previously did not exist and should be watched closely.
Other accounting changes
The Draft Law would also clarify the concept of “significant influence” which is already well-known to IFRS practitioners and would recognise a rebuttable presumption that significant influence exists where 20% of the voting rights or share capital is held by a given entity.
There exists something of a grey area as to the recognition of deferred tax assets in the current Luxembourg accounting framework, where most professionals refer to IFRS guidance in a rather flexible manner in light of the significant amount of subjectivity involved. The Draft Law would be slightly more prescriptive by attaching the recognition of deferred tax assets to the prudential principle (“likelihood” which suggests probable tax assets should be recognised), which signals a broader interpretation thereof as compared to what it may have been in the past. This would however be applicable only for consolidated financial statements.
Some other noteworthy items are the introduction of some additional disclosures in the notes to the annual accounts such as foreign exchange policies.
Abolition of commissaires aux comptes
Among other contemplated changes, it is proposed that the function of commissaire aux comptes (for S.A. companies) be abolished. The Draft Law also targets new requirements for companies in liquidation to draw up and publish financial statements within 6 months of the end of the financial year or the anniversary of the liquidation. There would also be an additional requirement to publish financial statements at the closing of the liquidation to evidence the discharge of liabilities and the realisation of assets during liquidation.
We are here to help
As always, JW Partner stands ready to assist in case you would have any concerns or questions around the contemplated changes and how to anticipate them. Feel free to reach out to us at contact@jwpartner.lu for a free review of your needs and a quote.