On 28 July 2023, the Minister of Justice introduced the bill of law 8286 (the Bill of Law), which aims to regroup and consolidate the general accounting provisions, while the more sector-specific accounting rules will remain separate, but with a clear connection with the Bill of Law.

The main drivers of the Bill of Law are detailed below: 

1. Consolidation of accounting provisions into a single Accounting Law

The accounting provisions are currently scattered across several texts including (i) the Luxembourg Commercial Code (Book I, Title II), (ii) the Law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of companies, as amended (Title II) (the Accounting Law), and (iii) the law of 10 August 1915 on commercial companies, as amended (Title XVII).

The Bill of Law also aims to transpose into Luxembourg law principles and obligations from the Directive 2013/34/EU on accounting[1] (Accounting Directive) and implement some concepts of the Directive 2022/2464/EU pertaining to sustainability reporting[2]. 

2. Bottom-up approach

 The Accounting Law is based on a “top-down” approach, under which the general regime is the one applicable to large companies and whereby derogations and exemptions are applied to small and medium-sized companies.

Considering that small-sized entities represent a large majority of Luxembourg entities, the Bill of Law intends to reverse the rationale by adopting a “bottom-up” approach whereby the common regime would apply to small entities, with additional obligations applying to medium-sized and large entities. Additionally, it is proposed to move to a list-based approach detailing the form and categories of entities subject to the accounting obligations. 

3. Introduction of the "micro-enterprises" concept and revised thresholds for small-sized entities

The Bill of Law introduces the concept of micro-enterprises, being companies which do not exceed two of the three following thresholds for two consecutive financial years:

Micro-enterprises would mainly be exempted from establishing notes to the annual accounts. Micro-enterprises will also benefit from some other simplification measures applicable to small businesses, including (i) the exemption from the requirement to produce a management report, (ii) the exemption of the statutory audit, and (iii) the option of publishing only their balance sheet (where the income statement would still have to be filed but could remain confidential and be accessible only to public authorities).

 It is important to note that under the Bill of Law, holding companies, credit institutions and other entities subject to the supervision by the supervisory authority of the Luxembourg financial sector (Commission de Surveillance du Secteur Financier (the CSSF)), insurance companies, securitisation companies governed by the law of 22 March 2004 not subject to prudential supervision by the CSSF and reserved alternative investment funds (RAIF) are expressly excluded from the scope of application of the concept of micro-enterprises.

The Bill of Law further proposes to raise the thresholds for “small-sized” entities to the maximum level authorised by the Accounting Directive, namely:

 This increase will help reduce the administrative burden on companies currently categorised as "medium-sized" as they will become "small-sized” enterprises as a result of the Bill of Law. It should be noted that this increase in thresholds is likely to affect only a limited number of companies (approx. 200).

As for accounting consolidation within groups of companies, the Bill of Law does not affect the thresholds currently allowing for the small group exemption or the existing categories of consolidation exemptions, in particular the “passive holding” exemption and the non-material subsidiaries exemption. 

4. Audit requirement for large holding companies

Under the current regime, an auditor and, hence, an audit report is only required if a holding company exceeds two out of the three following thresholds: (i) total balance sheet (EUR 4.4 million), (ii) net turnover (EUR 8.8 million) and (iii) average number of employees (50). The Accounting Law currently defines net turnover as the amount derived from the sales of products and the provisions of services after deducting sales rebates and valued added tax and other taxes directly linked to turnover.

Holding companies typically do not have a turnover and only few employees; thus they are not under an obligation to appoint an auditor. 

Under the Bill of Law, most of the holding companies shall remain categorised as “small enterprises”, while a concept of large holding companies is created. The Bill of Law defines large holding companies as those whose balance sheets exceed EUR 500 million. Such large holding companies will have the obligation to have their financial statements audited annually by an independent auditor (Réviseur d’Entreprises Agréé). 

5. Extended scope

The Bill of Law extends the scope of application of the Accounting Law to companies that carry out economic, financial or commercial activities but do not have a commercial form, such as:

• civil companies;
• agriculture associations;
• mutual insurance associations;
• pension savings associations;
• mutual funds (fonds commun de placement);
• temporary commercial companies (sociétés commerciales momentanées); and
• joint-venture commercial companies (sociétés commerciales en participation).

The Bill of Law more importantly provides that Special Limited Partnerships (SCSp) are generally exempt from the obligation to prepare annual financial statements if they annually submit their trial balance as outlined in the Luxembourg Standard Chart of Accounts (SCA). However, certain SCSp, namely those falling within the sector of insurance companies, credit institutions, and other SCSp subject to prudential supervision by the CSSF, as well as those preparing their annual financial statements according to IFRS, those with the status of securitisation companies not subject to prudential supervision by the CSSF, and those with the status of RAIF, are exempt from filing their trial balance under the SCA format but are required to establish financial statements in accordance with Title III of the new Accounting Law. 

6. Companies dissolved and put into liquidation

The Bill of Law clarifies that the general accounting principles continue to apply mutatis mutandis before and after dissolution or liquidation. Accordingly, dissolved and liquidated entities will have to establish annual financial statements (balance sheet, profit and loss accounts, notes) listing their assets to be realised and the liabilities to be discharged, recognising and valuing them appropriately. Those annual financial statements will not be subject to approval by the shareholders' meeting but will have to be filed with the RCS and published in the RESA after having been presented to the shareholders. Only the closing financial statements will be subject to approval by the shareholders' meeting and subject to filing and publication under the same conditions. 

7. Abolition of the function of commissaire (supervisory auditor)

The Bill of Law abolishes the commissaire (supervisory auditor) role to enhance clarity, reduce burdens, and modernise Luxembourg's regulations while allowing flexible financial oversight options for small-sized enterprises, which can request a contractual audit on a voluntary basis.

The timing for approval of the Bill of Law is not yet known, but it should be noted that the Bill of Law introduces obligations for various Luxembourg businesses, and as some of them could apply as from the financial year 2025, companies should therefore start checking what these changes would imply for them prior to the implementation of the Bill of Law.

For more information, please contact Cédric Bless or Nicolas Marchand.

[1] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC.

[2] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting.