Luxembourg is undergoing a significant reform of its corporate accounting framework with the introduction of draft bill no. 8286 on 28 July 2023 (the “New Draft Law”).
The New Draft Law aims to modernise and consolidate Luxembourg’s accounting rules, providing a clearer and more structured approach for businesses of all sizes. It also seeks to simplify regulations, reduce administrative burdens, and align Luxembourg’s accounting framework with European Union directives, notably the European Accounting Directive (Directive 2013/34/EU).
Abolition of the commissaire role
A key feature of the reform is the contemplated abolition of the commissaire role, which has been part of Luxembourg’s corporate law since 1915. The commissaire’s role—overseeing company accounts—has been criticised due to a lack of professional qualifications and independence.
This has led to confusion, especially among foreign investors, who have often misunderstood the role as providing a formal audit of the relevant accounts, when in fact those accounts did not meet international auditing standards. The New Draft Law proposes to replace the commissaire with the réviseur d’entreprises agréé (approved statutory auditor), an existing professional position subject to qualification and independence requirements.
New obligations for companies in liquidation
The New Draft Law also addresses the accounting requirements for companies in liquidation. The reform mandates that companies in liquidation prepare interim accounts at the end of each financial year and submit final closing accounts once a liquidation is completed. These closing accounts will be reviewed by a commissaire à la liquidation, ensuring that the process remains transparent and that third parties can access reliable financial information about companies in liquidation.
Introduction of new categories of companies for accounting purposes
The reform introduces two new company categories:
- Micro-entreprises: very small businesses meeting two out of three criteria: total assets below 350,000 euro; turnover under 700,000 euro; or ten or more employees). These companies will face the least stringent reporting obligations, including no requirement to produce an annex to their annual accounts.
- Grandes entreprises holdings: all holding companies with assets over 500 million euro will be classified as large holding companies (grandes entreprises holdings), requiring mandatory audits by a réviseur d’entreprises agréé. This major change addresses the fact that a majority of Luxembourg holding companies, despite holding significant assets, do not meet the audit criteria pertaining to net turnover and number of employees and are therefore not currently subject to audit requirements.
Extension of accounting obligations
The New Draft Law expands accounting requirements to include civil entities engaged in commercial or financial activities, such as partnerships, mutual insurance associations, and certain funds. Special limited partnerships (SCSp) will now be required to prepare and file annual accounts, even though these will not be publicly accessible.
Clarification of key terms
The New Draft Law introduces clearer definitions for terms used in accounting, such as control, significant influence, and holding entity, which are vital for understanding and implementing consolidation requirements.
Luxembourg’s New Draft Law represents a significant overhaul of the corporate accounting framework. It simplifies rules for small businesses, enhances transparency, and aligns with European standards. The timeline for when the reform will become effective, initially expected to be 1 January 2025, remains uncertain. Some inconsistencies remain to be addressed in the final version of the New Draft Law.
Pierre Joubert is a senior associate at law firm Norton Rose Fulbright. The firm is a member of Investment Officer’s panel of experts.