Goodwill in Luxembourg

Goodwill in Luxembourg

Under Luxembourg accounting rules, goodwill is governed by Article 59 of the amended Law of 19 December 2002.

Goodwill may only be recognised as an asset if it has been acquired for consideration. Internally generated goodwill cannot therefore be recognised on the balance sheet.

The statutory balance sheet format specifically provides for “Goodwill, to the extent that it was acquired for valuable consideration”, while account 213 of the Luxembourg Standard Chart of Accounts is dedicated to the same item.

How long should goodwill be amortised over?

Since the Law of 18 December 2015, goodwill is no longer subject to the accounting rules applicable to formation expenses as goodwill is now only governed by article 59 of the amended Law of 19 December 2002 that provides:

• goodwill and other intangible assets must, in principle, be amortised over their useful economic life;
• where, in exceptional circumstances, the useful economic life of goodwill cannot be reliably estimated, it must be amortised over a period of no more than 10 years. 

In any case, the period applied must be explained in the notes to the annual accounts.

The previous rule under which goodwill was generally amortised over five years, unless a longer period could be justified, no longer applies. The five-year period now only applies to formation expenses under Article 53.

There is also an important rule regarding impairment. Under Article 55, an impairment loss recognised on goodwill cannot subsequently be reversed, even if the circumstances that originally justified the impairment no longer exist.

Impairment charges on goodwill are recorded under account 6323 of the Luxembourg Standard Chart of Accounts.

Tax treatment of goodwill

For Luxembourg tax purposes, amortisation charges relating to goodwill acquired for consideration are deductible business expenses.

Article 32 of the Luxembourg Income Tax Law (Loi concernant l’impôt sur le revenu, or LIR) provides that normal depreciation for wear and tear is determined by reference to the asset’s remaining customary useful life.

In practice, the Luxembourg Tax Department generally considers 10 years to be the customary useful life of goodwill. A shorter or longer period may nevertheless be applied where the taxpayer can provide appropriate economic justification.

Accounting vs tax: which amortisation period should be used?

Luxembourg accounting and tax rules are now largely aligned around the concept of the asset’s useful life.

A company may therefore use the tax depreciation period for accounting purposes where that period appropriately reflects the useful life of the goodwill.

If different periods are used for accounting and tax purposes, the resulting difference between accounting profit and taxable profit must be dealt with in the company’s tax return.

Example

Assume that a Luxembourg company acquires goodwill for EUR 200,000 and that its useful life cannot be reliably estimated.