Investment Funds in Luxembourg

Luxembourg vehicles may choose to adopt Luxembourg Generally Accepted Accounting Principles (“Lux GAAP”) or International Financial Reporting Standards (“IFRS”) as adopted by the EU.

Limited Partnerships (SCSp) are allowed to apply any accounting principles as described in their Limited Partnership Agreement (“LPA”) and will therefore be allowed to use Lux GAAP, IFRS, UK GAAP, US GAAP or “Other GAAP”.
Other unregulated vehicles (SARL, SA, SCA) are subject to the requirements of the 1915 Law and therefore are required to prepare their annual accounts in compliance with Lux GAAP or IFRS. A derogation can be granted in special cases, as ruled by Art. 27 of the Law of 19 December 2002, as amended.

In practice, the standalone annual accounts of Luxembourg private equity and venture capital vehicles are very frequently prepared in accordance with Lux GAAP whereas consolidated annual accounts (whether legally required – see below – or contractually required – for example as a consequence of raising external financing) are frequently prepared under IFRS as adopted by the EU.

Through its international exposure, Luxembourg service providers have significant experience in the application of IFRS. Note that while most companies are required to prepare annual accounts there are specific size thresholds that will determine if an audit by an approved statutory auditor (Réviseur d’entreprises agréé) under International Standards on Auditing (“ISA”) is required by law.

The audit of the annual accounts is required for regulated vehicles, for the RAIF and in general when at balance sheet date the company exceeds the limits of two of the following three criteria, for two years in a row: balance sheet total: 4.4 million EUR net turnover: 8.8 million EUR average number of full-time staff employed during the financial year: 50

Since interest, dividend income and capital gain don’t qualify as net turnover, in many cases no legal audit would be required for unregulated investment vehicles, though an audit might be required by the LPA.