Considerable increase of Luxembourg company's and group's classification thresholds

New accounting thresholds were recently introduced in Luxembourg by the Grand-Ducal Regulation of 25 October 2024, implementing the Delegated Directive (EU) 2023/2775 (the "Regulation"). 

The Regulation increases the size criteria for small, medium and large enterprises in response to the inflation observed between 2013 and 2023 and will reduce accordingly the level of administrative burden for certain Luxembourg companies. In this respect, the Commission des Normes Comptables (CNC) published a circular detailing the new modalities for categorizing companies and groups in Luxembourg on 7 November 2024 (Q&A CNC 24/034)

Luxembourg companies should therefore analyse their financial data closely in order to determine whether they might benefit or not from a re-classification and according alleviations in terms of preparing their financial information potentially as soon as from 2025.

New thresholds

Company classification

Group classification

Practical effects on reclassified companies in terms of obligations

The following overview provides a summary of the main effects of the re-classification:

1.  Large to Medium-Sized Companies:

• Sustainability Reporting: Companies reclassified from large to medium-sized will be exempt from the obligation to publish sustainability information as required by the directive (EU) 2022/2464, known as the Corporate Sustainability Reporting Directive (CSRD).

2.  Medium to Small Companies:

• Statutory Audit: Medium-sized companies reclassified as small companies will no longer be required to undergo a statutory audit by an approved auditor.
• Management Report: These companies will also be exempt from the obligation to prepare a management report.

3.  Large to Small Groups:

• Consolidated Accounts: Large groups reclassified as small groups will be exempt from the obligation to prepare and publish consolidated accounts and consolidated management report.

Application and Effective Dates

The new thresholds will apply retroactively to financial years starting on or after January 1, 2023. Therefore, due to the repetition criterion, the effects of reclassification will only manifest after two consecutive financial years of exceeding or not exceeding the thresholds:

• Pre-existing Companies: A company that ceases to exceed the thresholds during the 2023 and 2024 financial years will be reclassified in 2025.
• Newly Created Companies: A company established in 2024 will be categorized based on a good faith estimate of its performance at the end of its first financial year.

Illustrative Examples

1. Pre-existing Company: A medium-sized company in 2022, with total assets of €12 million, net turnover of €14 million, and 40 employees, will be reclassified as a small company in 2025 if it does not exceed the new thresholds in 2023 and 2024. Under the old classification thresholds such a company exceeded the minimum thresholds with respect to its total assets and net turnover and therefore qualified as a medium-sized company (fulfilment of two of the three criteria being sufficient for such classification). Under the new thresholds and in particular due to the increase of the net turnover threshold to €15 million the company will only meet one of the three requirements for medium-sized companies (i.e. with respect to its total assets) and thus will re-qualify as a small company.

2.  Newly Established Company: A company created in 2024 will be categorized as a small company from its first financial year if it does not exceed the prescribed thresholds.

Conclusion

The increase in size criteria will reduce the administrative burden on certain Luxembourg companies while adapting existing rules to current economic realities. You should therefore assess the new rules thoroughly and adjust your company's accounting practices accordingly.
Please do not hesitate to contact us should you have any further questions.