New Q&A CNC 23/029: Accounting aspect of the migration of companies in Luxembourg

The following questions are answered by the CNC assuming there is a legal and accounting continuity. The full document can be consulted on the CNC website.

1. Do companies migrating to Luxembourg have the obligation to file an opening balance sheet upon their arrival?

Current accounting laws and regulations do not require preparing or filing an opening accounting situation.

It is to be noted that the Luxembourg notary will most probably require such an opening accounting situation (e.g. for capital requirement). If it is also often necessary for tax reasons or for internal purpose (e.g. new board member), such information will have to be prepared in accordance with Luxembourg accounting frameworks but will neither be filed nor published on the trade register.

2. If the migrating undertaking used a bookkeeping currency other than euro prior to its migration, will it convert its bookkeeping and presentation currency into euro upon its arrival in Luxembourg?

As long as the currency used is legal tender, fully convertible and freely usable and issued or guaranteed by a central bank or public authority, entities can continue to use it (see Q&A CNC 22/026(R) for more details).

Point of attention: from a pragmatic perspective, and as addressed by filing of eCDF rules, the choice of the currency is done by reference to ISO 4217.

3. Does the migration of an undertaking to Luxembourg come with an accounting continuity?

The CNC mentions that a migration to Luxembourg is based on the principle of continuity of legal personality (Cf: Affaire  C-106/16 – Polbud – Wykonawstwo sp. z o.o. – Arrêt de la Cour (grande chambre) du 25 octobre 2017). Therefore, there is no dissolution of the foreign entity moving to Luxembourg. Such continuity of the legal personality generally leads to an accounting continuity. In principle, it should lead to the transfer in Luxembourg of all assets, liabilities, expenses, and income as they were before the migration. The CNC however mentions that some exceptions exist, in particular when the valuation methods are not in line with Luxembourg legislation (see question 5 for more details).

4. If the migrating undertaking arrives in Luxembourg during the year, should its first financial year in Luxembourg necessarily be shortened? In other words, does migration have an effect on the duration of a financial year?

Assuming the migration is done with legal and accounting continuity, it has no effect on the financial year as foreseen in the bylaws. The accounting cycle of the entity continues despite the migration.

Therefore, the first annual accounts to which Luxembourg accounting law applies are the annual accounts for the financial year during which the migration takes place. These annual accounts cover the full financial year.

As an example, if the company follows the civil year and migrates in June, the first financial year will run from 1 January to 31 December and Luxembourg accounting laws and regulations will be applicable for the full year.

5. In the situation where there are significant differences between accounting principles and valuation policies of the country of departure and those applicable in Luxembourg, should you proceed to an accounting restatement?

Upon arrival in Luxembourg, the Luxembourg accounting law applies. In the situation where the accounting principles and valuation policies prior to migration are not compatible with the accounting laws and regulations in Luxembourg, adjustments are needed, The CNC proposes two different methods, a preferred approach and an alternative one.

The preferred method is to adjust all the items in line with the accounting principles and valuation rules. The differences arising from the adjustments should be recorded in the current financial year. In line with the Q&A CNC 21-024(R) the adjustments in relation to previous years should be either:

• recorded in the equity opening balance of the financial year for the adjustments related to previous years and the adjustments in relation to the current year should be recorded in the profit and loss account of the financial year or,
• in case it would not be possible to proceed with such an approach, all the adjustments to be made should be recorded in full in the profit and loss account of the year.

The alternative method is to consider previous accounting values as the deemed cost for all the concerned items. No adjustments will be required. However, to align the crystallisation of the potential unrealised gain and the prudence principle in Luxembourg, the CNC requires to isolate them in a non-distributable reserve until the realisation of the underlying items. In practice, the CNC precises that this should only be the case for tangible and some financial assets. 

6. Should an undertaking present comparative figures for the first financial year closed in Luxembourg? In that case, is it necessary to adapt the amounts of the previous financial year that are presented as a comparative?

In accordance with article 29(2) of the Accounting Law, the presentation of comparative figures is a legal requirement as from the moment the company was in existence before migration. 

In accordance with the intangibility of the opening balance sheet, the comparative figures cannot be modified. In case accounting principles prior to migration are not acceptable in Luxembourg and adjustments are made on the year of migration based on the preferred approach (i.e. adjustment to Lux GAAP, refer to question 5), it would be appropriate to analyse the impacts of these adjustments (refer to the Q&A CNC 21-024(R)) and its correlative impact with the comparative figures.

In order to provide clear information, specific information should be disclosed in the notes to the annual accounts to explain the reason why (if any) the comparative figures are not comparable.

7. Are undertakings migrating to Luxembourg under the obligation to file annual accounts under the SCA and be subject to the structured eCDF forms?

Undertakings migrating in Luxembourg are subject to Luxembourg accounting laws and regulations as from the date they migrate and for their full financial year, even if this latter started before the migration.

Therefore, unless the undertaking can benefit from a particular exemption (e.g., supervised by the CSSF), they are subject as from their first year of migration to the Standard Chart of Accounts and filing of the eCDF forms.