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.
The salient proposed changes are the following:
- Consolidation of accounting provisions within a single accounting law
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:
- the Luxembourg Commercial Code (Book I, Title II);
- Title II of the law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of companies, as amended (the “RCS Law”); and
- Title XVII of the law of 10 August 1915 on commercial companies, as amended (the “Company Law”).
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.
- Adoption of a bottom-up approach and a list-based approach
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.
- Introduction in Luxembourg of the “micro-enterprise” category and raising to the maximum of the thresholds applicable to small businesses
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: