On 19 December 2002, we saw the Law on the register of commerce and companies and the accounting and annual accounts of undertakings (LRCS) come into force. Fast forward to July 2023 more than two decades later (not forgetting several amendments along the way), and it is the dawn of draft bill 8286 by Luxembourg’s Minister of Justice. The law covers accounting, standalone annual financial statements and consolidated financial statements of companies, as well as related reports and the repeal of the role of the ‘commissaire’ in company law. The draft bill presents the future accounting law (which will be referred to as “Law of XX/XX/20XX relating to accounting, standalone annual financial statements, consolidated financial statements of companies as well as related reports”). Some relevant updates are summarized below:
1. Revision of categories of undertakings
Micro undertakings: the new category on the block: The draft bill brings with it a partial transposition of a new category of undertakings: micro undertakings. Micro undertakings are exempt from the preparation of management reports as well as statutory audits but must provide abridged primary statements and certain specific notes.
Bigger thresholds for small undertakings: Thresholds for categorization for small undertakings have been increased to the maximum provided by Directive 2013/34/EU1. Holding undertakings qualifying as small undertakings, however, will still be subject to additional disclosures in the notes to their standalone annual financial statements (e.g., table with details relating to some participating interests).
Large holding undertakings – another new category: The draft bill caters to Luxembourg specifically by introducing a category defined as large holding undertakings. Large holding undertakings will be undertakings that have a balance sheet total equal to or exceeding EUR500 million (for two consecutive years) and whose main activity is to hold, finance or manage participating interests or similar assets held for the long term or with a view of subsequent sale. Large holding undertakings must fulfil all the requirements applicable to small undertakings, provide additional details regarding certain participations, and undergo a statutory audit carried out by a “réviseur d’entreprises agréé”. When a large holding undertaking meets the requirements of a medium or large undertaking, the requirements of medium or large undertakings apply and supersede the above.
2.Duration of financial accounting period
The draft bill proposes that standalone annual financial statements have a duration of 12 months. By derogation, a financial accounting period can have a minimum of 52 weeks and a maximum of 53 weeks (except the year of incorporation, or in any other exceptional circumstances where an undertaking changes its financial accounting period).
A major overhaul in the draft bill relates to Sociétés en Commandite Spéciale (SCSps), the famous legal form introduced in 2013 in the amended law of 10 August 1915 on commercial companies. As of now, unregulated SCSps have an obligation to prepare financial data but are not required to file or publish any of their financial information.
So, what will change and should the draft bill be voted on its current form?
The answer is: Unregulated SCSps will have to submit their trial balance annually (via the eCDF platform) using the Luxembourg Standard Chart of Accounts (SCA)/Plan Comptable Normalisé (PCN). Certain SCSps, such as RAIFs, undertakings regulated by the CSSF and the CAA, as well as undertakings preparing financial statements in accordance with IFRSs, will be exempt from the obligation to submit the SCA/PCN as they are required to file financial statements in accordance with this draft bill.
It is important to highlight that SCA/PCN are not published and are not available for public consultation. Only government bodies including STATEC, the Administration des Contributions Directes (Luxembourg Inland Revenue), the Administration de l’enregistrement, des domaines et de la TVA will have access to the SCA/PCN of these SCSps.
4. Dissolved or in-liquidation undertakings
A new article in the draft bill explains that an undertaking which is not able to continue its activities or does not have the intention to carry on its activities, should adapt its accounting principles, measurement bases and valuation methods to reflect the non-going concern basis of preparation. This will also apply to dissolved or in-liquidation undertakings.
5. Definition of control
The comments to the draft bill cover the situation of General Partner (GP) and Limited Partner (LP) and hypothesize which party has the obligation to prepare consolidated financial statements.
6. Article 27 derogation
Previously included in LRCS, it could be understood that an undertaking may seek derogation from certain provisions of the Commercial Code or certain sections of the LRCS for the preparation of standalone annual financial statements from the Ministry of Justice. The transfer of this article to Title IV lays the premise that a derogation of this nature can be requested when choosing an accounting framework for the preparation of consolidated financial statements only.
7. Repeal the function of ‘commissaire’
The ‘commissaire’ function has not been replaced by any other supervisory body, therefore reducing the burden on undertakings that had to appoint one. Undertakings released from this obligation may still consider, on a contractual basis, seeking the assistance of a member of the Ordre des Experts-Comptables to help them prepare or finalize their standalone annual financial statements or a réviseur d’entreprises agréé to audit them.
8. Other noteworthy changes to keep on your radar
- The layouts of the balance sheet and the profit and loss account are now included directly in the draft bill.
- The scope of the draft bill has been extended to cover undertakings that have a commercial activity without a commercial form. These include:
- sociétés civiles (civil companies)
- associations agricoles (agricultural associations)
- associations d’assurance mutuelle (mutual insurance associations)
- associations d’épargne-pension (ASSEP) (pensions-savings associations)
- fonds communs de placements (FCP) (common funds)
- Annual accounts will be referred to as annual financial statements.
- It will be possible to recognize deferred taxes in both standalone annual and consolidated financial statements when the recoverability of taxes is highly probable.
- Intangible assets with unlimited useful lives will have to be tested for annual impairment.