Luxembourg is a member of the European Union, the Grand Duchy, a small country on the border with the Netherlands, Belgium, France and Germany, a wealthy country with a developed financial sector. The possibility of opening an offshore company in Luxembourg, bank secrecy, tax incentives for holding companies, low VAT rate (17%) – attract foreign capital to the country. Financial reporting is compulsory, regulated by national laws, auditing is not mandatory for small companies.
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Being a member of European Union, Luxemburg follows the requirements for records keeping and audit of financial statements settled in EU regulations and directives, implemented in national law.
All entities registered under the Commercial Code are required to keep accounting records and prepare annual financial statements.
The following organizational and legal forms of economic entities are obliged to submit financial statements:
The format of the balance and profit and loss statements should correspond with the format stated in the Luxembourg's Standard Chart of Accounts (Resolution of the Grand Duchy of June 10, 2009)
But some entities don’t follow the standard chart of accounts. They are individual entrepreneurs, partnerships (SENC) and limited liability partnerships (SECS) with annual turnover less than 100 000 EUR (without VAT).
The format of annual accounts depends on a size of the company. The law provides for the possibility to prepare condensed balance sheet, condensed profit and loss statement and condensed notes to accounts.
According to the law the company must keep financial documents for 10 years from the end of the fiscal year, or for 5 years in case of the company’s liquidation. Accounting records can be kept both in paper and electronic format. The place where the records should be kept must be Luxemburg.
Companies, whose shares are not listed on stock market, can use Generally Accepted Accounting Principles of Luxemburg (GAAP) or International Financial Reporting Standards (IFRS).
Listed companies (regardless the sphere of their activity) are obliged to prepare consolidated financial statements according to IFRS.
Nevertheless annual accounts may be prepared according to Luxembourg GAAP or IFRS.
As a rule the reporting currency coincides with the currency in which the company's share capital is issued. However, the company may choose a different reporting currency, for example, the currency of the consolidated financial statements of the group of companies.
The annual financial statements should be written in one of the three administrative languages: French, English or Luxembourgish.
As stated in the Audit Law, one of the requirements of the national law is the mandatory audit for all public companies. In Luxembourg the definition “public companies” includes companies whose securities are admitted to trading on the regulated market of any member state, credit institutions, as well as insurance and reinsurance companies.
Small companies, including cooperative ones, are exempt from audit if, as of the balance sheet date, 2 of the following 3 criteria have not been exceeded for two consecutive financial years:
General meeting of shareholders that approves the first annual financial statements must be held during 18 months from the date of incorporation. Thus the first fiscal year may last more than 12 months. The sequence of all subsequent periods should not exceed 12 months.
The financial statements must be submitted to Trade and Companies Register (RCS) during 7 months from the end of the fiscal year: during 6 months the statements must be approved by the general meeting of shareholders, and during 1 month from the date of the meeting the statements must be submitted to the Register.
The tax year coincides with the calendar year or with the financial year of the company that ended in the corresponding calendar year. Income tax returns must be submitted before 31 of May of the year following the reporting year. This period may be extended on the request. The currency of the tax return is Euro, unless the company has stated a different one in a special request to the tax authority.
VAT returns are submitted within 15 days after the end of the VAT reporting period (month, quarter), and till 1st of March, if the reporting period is a year. The summarizing annual declaration is submitted before May 1 of the year following the reporting one.
VAT returns are submitted based on the following criteria:
Penalty for late submission of financial statements may vary from 500 EUR to 25 000 EUR.
Penalties for late filing of income tax returns may range from 10 % of the tax amount to 25 000 EUR.
Penalties for late filing of VAT returns may vary from 250 EUR to 10 000 EUR. Penalty for late payment of tax is 10% of the amount.
The mother company is exempt from the obligation to prepare consolidated annual statements if, at the date of the mother company's balance sheet, the companies that were to be consolidated do not exceed the limits of two out of the three criteria set out below (based on their last annual statements):
Companies whose securities are traded on a regulated market ("listed companies") are subject to EU Regulation 1606/2002 of July 19, 2002 ("IFRS Regulation") and, therefore, are required to prepare and publish their consolidated financial statements in accordance with IFRS adopted by the European Union ("IFRS – EU") regardless of the criteria mentioned above. This requirement applies to all registered companies regardless of their type of activity.
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