On 28 July 2023, the Luxembourg government introduced the Bill of Law 8286 (“Bill“), which aims to reform and modernise Luxembourg accounting legal framework by making it more efficient, clearer and better structured.
Key takeaways
The salient proposed changes are the following:
One of the successful and notable achievements sought by the Bill is to remediate the current situation where the legal provisions pertaining to accounting are disseminated amongst several legal sources, i.e. primarily:
In addition, other titles in the Company Law currently contain accounting provisions, such as Title XV relating to criminal sanctions or Title XI relating to the liquidation of companies.
Similarly, accounting provisions are also to be found in several sectoral texts (e.g. the law of 17 June 1992 on the accounts of credit institutions; the law of 8 December 1994 on the accounts of insurance undertakings, as amended; the law of 13 February 2007 on SIFs, as amended, etc).
Such scattering of accounting provisions across several legal sources renders the Luxembourg legal accounting framework difficult to read (especially as a whole) for all interested parties.
Consequently, the Bill proposes that accounting law texts be merged into one single law. It is however proposed to limit the said consolidation to the common law texts (“lex generalis“) listed above, i.e. (i) the provisions of the Luxembourg Commercial Code relating to the keeping of accounts and the annual inventories, (ii) the provisions of the RCS Law and (iii) the provisions of the Company Law, to the exclusion of the sectoral law (“lex specialis“). The criminal provisions relating to offences and misdemeanors in accounting matters are therefore also to remain outlined in the Company Law.
Luxembourg law regulating annual accounts is based on a “top-down” structure, whereby the legal framework primarily applies to large companies and incidentally to smaller ones. Such a rationale does not reflect the market anymore, and the government took note of the fact that nowadays the vast majority of Luxembourg companies are small (around 97% of filing companies). In this context, the “top-down” structure touts out to be unsuitable, as the general regime is, in fact, the exception (less than 1% of companies are categorised as “large companies”) and the derogatory regime has become the rule.
Reversing the rationale in the Bill and to improve the readability of Luxembourg accounting legal framework, the bottom-up structure according to which the “small business” regime constitutes the common base applicable to all businesses (except for micro-enterprises) would be the rule. For medium-sized and large companies, as well as for public interest entities, additional obligations are grafted onto this basic scheme.
In addition, considering the scope of accounting law (e.g. bookkeeping, annual accounts, consolidated accounts, related reports) and Luxembourg’s specific features (e.g. standardised chart of accounts (i.e. PCN), administrative filing vs. public filing), it is proposed to clarify the scope relating to the various aspects of accounting obligations by implementing an exhaustive list enumerating the forms and categories of companies concerned.
The bottom-up structure and the list-based approach should thus bring greater clarity and comprehensibility to the common accounting law.
Directive 2012/6/EU (subsequently recast into Directive 2013/34/EU) introduced an optional scheme applicable to micro-enterprises defined as those not exceeding two of the following three criteria for two consecutive financial years:
This optional regime provides for a number of simplification measures that the Member States are free to transpose in whole or in part.
Considering that a majority of Member States, including Luxembourg’s neighbours, have exercised all or part of the “micro-enterprise” option, it now seems appropriate to do the same in Luxembourg. The number of micro-enterprises is estimated at more than 27,000, i.e. around 37% of the population of filing companies.
Following the example of other Member States, it is proposed that the “micro-enterprises” option should only be partially exercised. Thus, the Bill does not provide for the possibility for micro-enterprises to keep simplified accounts or to be exempted from the general publication obligation. In this context, the main simplification resulting from the qualification as a micro-enterprise should consist in exempting the micro-enterprises from establishing the notes to the annual accounts. It is also worth noting that the Bill excludes from this category (i) holding companies, (ii) credit institutions and more largely professionals under the supervision of the CSSF, (iii) insurance companies, (iv) non-supervised securitization vehicles as well as (v) RAIFs.
As a corollary to the bottom-up approach and regarding small businesses, it is proposed that the thresholds to qualify as such be raised to the maximum level authorised by Directive 2013/34/EU, namely:
Regarding accounting consolidation within groups of companies, and more particularly the thresholds currently allowing for the small group exemption (Art. 1711-4 of the Company Law), the Bill does not affect the 3 criteria which captures both small and medium-sized groups, i.e.:
More largely, the Bill does not affect the existing categories of consolidation exemptions, in particular the “passive holding” exemption and the non-material subsidiaries exemption.
The Bill also explicitly provides that consolidated accounts filed in Luxembourg shall be drawn up in EUR currency.
The Bill introduces an audit requirement by a “réviseur d’entreprises agréé” for large holding companies defined as those with a balance sheet total of more than EUR 500 million (on a stand-alone basis)
The Bill proposes to extend the scope of application of common accounting law to companies that carry out economic, financial or commercial activities but do not have a commercial form, such as:
In this respect, the government took a pragmatic approach and decided to maintain the status quo regarding (i) the 2002 IAS regulation options (drawing up and filing of annual and/or consolidated accounts according to IFRS standards) and (ii) the fair value option and the substance over form principle.
The Bill provides that common accounting law shall continue to apply to companies that find themselves in a situation of discontinuity both before and after their dissolution with the opening of a liquidation.
It is clarified in the Bill that a company in liquidation shall:
It is proposed by the Bill to abolish the function of a commissaire aux comptes, which currently applies only to certain small companies (e.g. small public limited companies). The abolition of the auditor’s function aims at reducing the administrative burden on small companies, it being understood that the shareholders of small companies will still be free to require – for example in their articles of association – a contractual audit of their accounts by a réviseur d’entreprises agréé or even by a chartered accountant (expert comptable).
For further information and to discuss what this development might mean for you, please do not hesitate to contact our corporate team at the following address: welcome@brouxelrabia.lu.
The Luxembourg Chamber of Commerce has paved the way for progress with their recent opinions, and now, the much-anticipated Bill of Law N°8185 regarding the transfer of non-performing loans is on the verge of adoption…
