Articles in Category: Amendments to Law

Update 2016 of the Luxembourgish Commercial and Accounting Law

Law of 9 December 2015 modifying Luxembourgish accounting standards

On 9 December 2015 the Luxembourgish Parliament adopted the draft bill 6718 which transposes the Directive 2013/34/EU of the European Parliament and the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings into national law.

Amongst other things the new law introduces the materiality principle and modifies various provisions relating to the presentation of the annual accounts and the notes to the annual accounts.

Balance sheet and profit and loss account are harmonized to the EU Directive. The presentation of the profit and loss account has been changed from account form to staggered form (list).

The thresholds to determine large sized entities have been increased to EUR 20 million (currently EUR 17.5 million) for the total balance sheet and EUR 40 million for the turnover (currently EUR 35 million).

The main changes related to the notes to the annual accounts are the following:

  • Introduction and definition of the materiality concept;
  • Obligation to present the notes to the annual accounts in a specific order;
  • Obligation to describe the accounting policies in addition to the valuation rules;
  • Disclosure of gross amounts in case of compensation/netting;
  • Nature and financial impact on post balance sheet events for medium and large entities;
  • Disclosure requirement of exceptional items;
  • Additional disclosure requirement for small-sized entities related to the average number of staff by category;
  • New disclosures exemptions for small-sized entities relate to:
    • information regarding the investments in which they hold at least 20% of the share capital, except when this information is so important that it could alter the true and fair view of the annual accounts;
    • information on the fair value of financial fixed assets in case the latter is below the book value of the asset.

Furthermore Goodwill and developments costs which useful life are not reliably estimated cannot be depreciated over more than 10 years

The New Law shall apply for the first time to the annual accounts for financial years beginning 1 January 2016 or during the calendar year 2016.

Tax changes 2015 adopted by the Luxembourg Parliament

On 18 December 2014 the Luxembourg Parliament adopted bills no. 6720 and 6722 with a majority vote of the parties DP, LSAP and déi gréng. The wording of the tax law of 19 December 2014 was published on 24 December 2014 in the Luxembourg gazette Mémorial A no. 255.

 

The main changes have already been outlined under tax changes in 2015.

 

Luxembourg tax changes 2015

Draft legislation introduced to the Luxembourg Parliament

In mid-October, two draft laws were presented to the Luxembourg Parliament:

  • On 14 October, bill no. 6722, which contains measures to secure the future of Luxembourg for the years 2015-2018 and which was presented under the name "Zukunftspak" by Prime Minister Xavier Bettel
  • On 15 October, bill no. 6720, the draft budget for 2015 submitted by Finance Minister Pierre Gramegna.

The major changes that were announced are explained below.

 

Amendmends to indirect taxes

VAT rates are going to rise by 2%, only the lowest tax rate of 3% will remain unchanged, resulting in the following increases

  • the standard rate will be increased from 15% to 17%
  • the reduced rate of VAT will rise from 12% to 14%
  • the super reduced tax rate will go up from 6% to 8%.

In addition, the following changes relating to certain categories of goods and services are announced:

  • The import of antiques and collectibles, which is currently subject to a VAT rate of 15%, will be taxed with 8% when the changes take effect
  • VAT on construction services for owner-occupied properties remains unchanged at 3%. The VAT rate for real estate intended for rent, however, will rise from 3% to 17%. There will be a transitional arrangement permitting a VAT rate of 3% until the end of 2016 if an application is made before 1 January 2015 with the responsible authority.
  • A VAT rate of 3% is applied to shoes, accessories and clothes for children under 14 years of age.
  • The VAT rate for restaurants remains unchanged at 3%, but will no longer apply to alcoholic beverages. Here the tax rate of 3% will be increased to 17%. 

Regarding VAT refund claims, time limits will be imposed on the tax and revenue authorities within which claims for reimbursement are due. Failure to meet these deadlines will trigger interest payments on the refund claim.

 

Amendments to direct taxes

The corporate income tax rate remains unchanged. But the minimum corporate income tax rules are changed with a view to relieving the burden on small companies and companies without substantial activities. Currently Luxembourg imposes a minimum amount of EUR 3,210 for corporation tax on companies that have not applied for trading authorization but have financial assets (participations, transferable securities, loans to participations, investments in real estate partnerships, cash and cash equivalents) exceeding more than 90% of the total assets. The minimum taxation typically affects holding and financing companies. From 2015 on, this minimum taxation of EUR 3,210 will only take effect if, in addition, total assets exceed an amount of EUR 350,000. If this additional amount is not exceeded, the lower minimum tax amount for non-financial companies in the amount of EUR 535 will apply.

Moreover, new tax rules will be introduced regarding transfer pricing, which will be modeled more closely on the third comparison (arm's length principle) and also on the OECD Model Convention. In particular, there will be a reversal of the burden of proof in the absence of proper transfer pricing documentation.

Rules governing advance tax confirmations from the tax authorities will be laid down in detail in the tax code with a view to unifying and streamlining the currently existing procedures and to increasing the transparency of the Luxembourg tax system. As of 2015, tax authorities may impose a fee of up to EUR 10,000 for mandatory preliminary information which is supposed to cover administrative  costs.

If you would like any further information, please don't hesitate to contact us.

 

Double Tax Treaty between Germany and Luxembourg enters into force

The new Double Tax Treaty (DTT) for the avoidance of double taxation and the prevention of fiscal evasion with the respect to taxes on income and on capital between Germany and Luxembourg signed on 23 April 2012 entered into force on 30 September 2013 after the exchange of the instruments ratification had taken place.

The new DTT Luxembourg-Germany is applicable as of 1 January 2014 in order to directly follow the Treaty of 1958.

The new DTT corresponds in the main to the OECD Model Tax Convention.

It fixes the withholding tax rate for dividends at 15%. In case of direct shareholdings in a company (with the exception of partnerships and investment companies) of at least 10%, the withholding tax rate is reduced to 5%. In addition, a reduction of withholding tax rate according to EU Parent Subsidiary Directive has to be reviewed on a case to case basis. The withholding tax rates for interest and for licenses remain unchained at 0% and 5% respectively.

Extension of Luxembourg Foundation Law

On 22 July 2013 the Luxembourg Minister of Finance has submitted the draft law No. 6595 to the Parliament aiming at a fundamental reform of Foundation Law in Luxembourg (Law of 21 April 1928).

The foundation according to the current legal situation is basically restricted to philantrophic, religious, social, scientific, artistic or educational purposes, or must have its mission on the areas of sport or tourism. In general the foundation must be a non-profit organization (Article 27 of the Law of 21 April 1928, as amended).

Family foundations, foundations serving private interest or company-affilated foundations known from foundation regimes in other countries such as the Dutch Stichting are not yet permitted under Luxembourg law. The foundation according to current Luxembourg law was therefore not suitable for private wealth management.

With the new foundation law the attractiveness of Luxembourg as a location for family offices and private wealth management vehicles will increase and the influx of wealthy individuals to Luxembourg will further be stimulated.

Overview of the new legal and fiscal framework

Setting up a family foundation requires a notarial deed that is to be published in the Luxembourg Register of Commerce and Companies. Founding members, beneficial owners and the amount contributed do not have to be disclosed.

The family foundation may be represented by one or several managers who can be natural and legal persons.

The foundation may issue registered certificates linked to predetermined assets and liabilities and representing rights defined in the incorporation act.

The family foundation is subject to general obligations to keep accounts in Luxembourg and has to prepare financial statements. However these need not be published in the Luxembourg Register of Commerce and Companies.

The family foundation is subject to general corporate income and business tax. It is, however, exempt from net wealth tax. It also benefits from an exemption for dividends, interest payments and capital gains on securities. Payments to non-resident beneficiaries are not subject to withholding tax and should not be taxable in Luxembourg.

At the death of a Luxembourg foundation member the transfer of net assets (total of all assets minus debts) to the beneficiaries is subject to a registration tax depending on the degree of relationship to deceased´s heir. For spouses of the founder, his/her partner, and his/her direct ascendant or descendant the transfer of net assets is tax exempt.

The present draft law further strengthens Luxembourg´s competitiveness as an attractive location for family offices and high net worth individuals.

Introducing automatic exchange of information in Luxembourg

Financial institutions (mostly banks) in Luxembourg will transmit the information foreseen in the EU Savings Directive 2003/48/EC to the Administration des Contributions Directes which is the Luxembourg Revenue Service for direct taxation.

This administration will then confidentially transmit the information to the corresponding revenue service in the EU Member State in which the beneficial owner is a resident.

Automatic exchange of information in tax matters is limited to an exchange of information among competent government tax authorities. Professional secrecy will continue to be applicable.

However, and although the Luxembourg Government still considers the withholding tax to be a most effective instrument to guarantee effective taxation and client privacy, dialogue with its partners has shown that international developments, such as FATCA and the failure of the Rubik agreement between Germany and Switzerland, point to a broader use of automatic exchange of information in tax matters.

Hence, ten years after the adoption of the EU Savings Directive and given these developments in tax transparency, the Luxembourg Government has therefore decided to end the transitional period foreseen in the EU Savings Directive and to introduce automatic exchange of information on 1 January 2015.

Luxembourg will effectively apply the following mechanisms as of fiscal year 2015:

  • Automatic exchange of information as defined in EU the Savings Directive within the EU and applicable to interest paid to individuals resident in an EU Member State other than the one where interest is paid;
  • Exchange of information upon request as agreed in double-tax treaties with third countries;
  • Other bilateral arrangements with third countries, i.e. as currently negotiated with the US with respect to the implementation of FATCA;
  • Withholding tax for Luxembourg residents as currently applicable.

The date of 1 January 2015 coincides with the date of entry into force of the Council Directive 2011/16/EU on administrative cooperation in the field of taxation and Council Directive 2010/24/EU concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures.

The information to be exchanged is defined in article 6 of the EU Savings Directive and is limited to information regarding savings income in the form of interest payments on debt claims.

Considering these impending strengthening of the Luxemburg Law especially individuals residing in Germany should carefully consider whether or not they take the opportunity to make their way into tax honesty by making a subsequent tax declaration (Nacherklärung) , so called “Selbstanzeige”.

We would be pleased to explain our approach and conduct of such a subsequent tax declaration in an initial consultation.

In this context we would also like to draw your attention to our news about the Family Wealth Management Company - SPF on our website.

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IFRS in Luxembourg

Luxembourg lawmakers took a significant step to modernizing accounting in the Grand Duchy by passing a respective law on 10 December 2010.

The law amends several items of the balance sheet and the profit and loss account and redefines criteria for the determination of company size. One of the main changes, however, is the introduction of the fair value option in the Luxembourg accounting framework. The law confirms the fair value accounting option for financial instruments under Luxembourg GAAP and introduces the possibility of applying international financial reporting standards for the preparation of annual financial statements.

The following table shows the situation before and after the enactment of the law:

  Before enactment     After enactment  
 
IFRS
Lux GAAP +Fair Value
Lux GAAP
 
IFRS
Lux GAAP +Fair Value
Lux GAAP
Annual Accounts              
Listed companies Possible derogation   Obligation   Option Option Benchmark
Credit institutions, insurance and
re-insurance companies
Option Option Benchmark   Option Option Benchmark
Unlisted companies Possible derogation   Obligation   Option Option Benchmark
               
Consolidated accounts              
Listed companies Obligation       Obligation    
Credit institutions, insurance and
re-insurance companies
Option Option Option   Option Option Option
Unlisted companies Possible derogation Option Benchmark   Option Option Benchmark

We would be happy to assist you with the implementation of the fair value option or the introduction of International Financial Reporting Standards respectively.

NORMES COMPTABLES INTERNATIONALES POUR LES ENTREPRISES

Creation of a balance sheet database

The creation of a balance sheet database (“Centrale des bilans”) is one of the measures laid down in a law passed on 10 July 2011, the objective of which is to centrally and electronically capture all financial information on companies registered in Luxembourg.

The management of the “Centrale des Bilans” falls under the responsibility of the Luxembourg Statistical Office (STATEC). The law also regulates the electronic filing of annual financial statements at the Luxembourg Trade Register (RCSL).

Two electronic platforms are used to collect the data: the „Plateform élèctronique de collecte des Données Financière“ (eCDF) and the „eRegistre de Commerceet des Sociétés“ (eRCS).

The law becomes applicable from 1 January 2012.

The following table provides an overview of which types of company have to apply the electronic filing procedures and to what extent.

Standard chart of accounts

Following a decree issued by the Grand Duke on 10 June 2009 the use of a standard chart of accounts has become mandatory in Luxembourg.

The measure is part of the ongoing modernization of financial reporting and accounting rules in Luxembourg which began in 2002.

The standard chart of accounts must be used by the following entities and persons:

  • Commercial companies
  • European and other economic interest groupings
  • Branches and headquarters established in Luxembourg by sole proprietors not resident in Luxembourg, companies subject to the law of a foreign state (comparable to Luxembourg commercial companies) and economic interest groupings established abroad
  • Sole proprietors

The decree will apply to fiscal years starting after 31 December 2010 and to sole proprietors as of calendar year 2011. The first filings of account balances under the standard chart of accounts format will thus have to be effected in 2012.

We can assist you in implementing the new standard chart of accounts in your enterprise.

PLAN COMPTABLE NORMALISE

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