Official Foreign Currency Provisions Now Available For Luxembourg Tax Purposes

The Luxembourg tax authorities issued a new circular on 16 June 2014, impacting companies that maintain their share capital and accounting in a currency other than EUR. Our Luxembourg MD provides the basics.

Luxembourg companies maintaining their share capital and accounting in a different currency than EUR have - until now - been required to file their tax returns in EUR, based on EUR-denominated tax balance sheets. In this tax balance sheet, the long-term assets and liabilities needed to be converted using the exchange rate prevailing as of the acquisition date, whereas the short term items needed to be converted using the exchange rate prevailing as of the closing date. Foreign exchange differences arising on conversion were taxable.

Another option for such companies was to submit a special request to the tax authorities to use the foreign currency as functional currency for tax purposes. With this option, the Company was able to prepare its full tax return in the foreign currency, and convert the fiscal result into EUR using the exchange rate prevailing as of the date of closing of the company.

The new Circular formalises the practice of using the foreign currency as functional currency for tax purposes and provides a clear framework. It states that Luxembourg companies intending to use a currency other...

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