Luxembourg Adopts Stricter Financial Reporting Requirements for Businesses

Overview

As a member of the European Union, Luxembourg has implemented stricter financial reporting requirements for businesses operating within its borders. The Grand Duchy’s unique blend of financial expertise and tax incentives has made it an attractive destination for foreign capital.

Entities Required to Maintain Accounting Records and Prepare Annual Financial Statements

The following entities registered under the Commercial Code must maintain accounting records and prepare annual financial statements:

• Private limited liability companies (S.A.R.L.)
• Public limited liability companies (S.A.)
• Simplified joint stock companies (SAS)
• Partnerships (SENC)
• Limited partnerships (SECS)
• Cooperative companies (SCOP)
• Foreign companies with representative offices in Luxembourg

Format of Balance and Profit and Loss Statements

The format of the balance and profit and loss statements must conform to the Luxembourg Standard Chart of Accounts, as outlined in the Resolution of the Grand Duchy of June 10, 2009. However, individual entrepreneurs, partnerships (SENC), and limited liability partnerships (SECS) with annual turnover less than 100,000 EUR (excluding VAT) are exempt from using this format.

Storage and Retention of Financial Documents

Companies must maintain financial documents for a period of:

• 10 years from the end of their fiscal year
• 5 years in case of liquidation

Accounting records can be kept in either paper or electronic format, but must be stored within Luxembourg’s borders.

Auditing Requirements

Companies whose shares are not listed on a stock market may use Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). However, listed companies must prepare consolidated financial statements according to IFRS.

The reporting currency typically coincides with the currency in which the company’s share capital is issued.

Exemption from Mandatory Audit

Smaller companies, including cooperative ones, are exempt from mandatory audit if they meet specific criteria regarding balance sheet currency, turnover, and average number of employees.

Tax Obligations

The tax year coincides with the calendar year or the company’s financial year that ended in the corresponding calendar year. Income tax returns must be submitted before May 31 of the following year, while VAT returns are due within 15 days after the end of each reporting period (month, quarter, or year).

Penalties for Late Submission and Payment

Late submission of financial statements can result in penalties ranging from 500 EUR to 25,000 EUR, depending on the nature and severity of the offense. Failure to file income tax returns on time may incur penalties between 10% of the tax amount and 25,000 EUR, while late payment of tax carries a penalty of 10% of the amount.

EU-adopted IFRS for Listed Companies

The European Union’s IFRS Regulation applies to listed companies, requiring them to prepare consolidated financial statements in accordance with EU-adopted IFRS. This regulation is mandatory for all registered companies, regardless of their type of activity or size.