Luxembourg’s non-EUR Functional Currency for Tax Purposes
Luxembourg companies are already free to choose the currency in which their accounts are prepared. Therefore if you have a Luxembourg company and you expect to conduct either all or a majority of business in a currency other than EUR it is
possible to take this option. This can be beneficial for a number of reasons, one such reason being that foreign exchange losses and gains that have no reflection on the economic position of the company do not have to be recorded for accounting purposes.
Despite this currently tax returns are expected to be filed using EUR. This can lead to foreign exchange differences.
However, in a circular issued by the Luxembourg tax authorities on 16 June 2012 it has set out a clear framework to allow companies to opt to use a foreign functional currency when submitting tax returns.
In order to establish that the use of the option to use a foreign functional currency has arisen due to a genuine business reason the following procedures have been covered in the circular;
- A request must be sent to the Luxembourg tax authorities at least three months before the end of the first tax year that the foreign functional currency is required.
- The currency of the share capital and of the statutory accounts must be the same.
- This option is irrevocable and therefore will apply to all future tax returns as long as the share capital remains in the stated currency.
- Taxes will still need to be paid in EUR and will be done based on the European Central Banks exchange rates.
- The conversion can be made based on the year-end exchange rate or on an average of the rate for the period covered by the tax return. Once selected this is irrevocable and will apply to future tax returns.
It should be noted that any companies that are part of a tax consolidated group have to use the same currency for the preparation of their tax returns.
If you would like to learn more regarding establishing a Luxembourg company and the associated legal obligations please contact us by following the link below or call us on our offices
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