Acquisition of own shares in Luxembourg: the rules

What is the acquisition of own shares in Luxembourg and when is it allowed?

The acquisition of own shares in Luxembourg is the transaction by which a company buys back its own shares or corporate units. The amended law of 10 August 1915 allows it, but on cumulative conditions: authorisation by the general meeting, fully paid-up securities, a cap of 10 % of subscribed capital for a public limited company, a net asset test and an unavailable reserve on the liabilities side.

What makes it delicate is that it touches three bodies of rules that are not read in the same place: company law sets who decides and within what limits, accounting law where the securities and the reserve appear on the balance sheet, tax law whether the amount paid to the shareholder is a dividend or something else.

Two distinct regimes also hide behind the same word. A public limited company may hold its own shares in portfolio, within the limits examined below. A private limited company in practice goes through a capital reduction coupled with the buyback, the route we set out in our article on capital reduction with repayment to shareholders. Confusing the two is the most frequent error at the outset.

Which conditions must a public limited company meet before buying back its shares?

A Luxembourg public limited company may buy back its shares only by meeting the conditions of article 430-15 of the amended law of 10 August 1915 at the same time: prior authorisation by the general meeting, a cap of 10 % of subscribed capital, fully paid-up shares, a net asset test, equal treatment of shareholders and an unavailable reserve on the liabilities side.

The general meeting's authorisation is the point of entry. It sets the terms of the acquisitions, including the maximum number of securities and the duration of the authorisation, which may not exceed five years. The 2017 consolidated text states that it may be renewed one or more times by the meeting, under the conditions required to amend the articles, for periods each of which may not exceed five years. A lapsed authorisation cannot be cured after the event: it must precede the acquisition.

The 10 % cap on subscribed capital deserves to be flagged for a precise reason. The idea circulates that it disappeared with the 2016 modernisation of company law; the verification carried out for this article shows the opposite, the cap still appearing in article 430-15, paragraph 1, point 2, of the consolidated version applicable on 2 March 2025. Shares held by a person acting in their own name but on the company's behalf count towards that limit, and pledged shares are likewise taken into consideration.

The net asset test is the condition that blocks most projects in practice. The acquisitions may not have the effect of reducing net assets below subscribed capital plus the reserves that the law does not allow to be distributed: the legal reserve and statutory reserves are among them. A profitable company whose equity is absorbed by carried-forward losses therefore has no legal capacity to buy back, whatever its cash position.

Equal treatment completes the framework: the offer is made on the same terms to all shareholders in the same situation, unless the acquisition is decided unanimously at a meeting where all were present or represented. Two bounded exceptions also exist: on-market purchases by a listed company, under market abuse legislation, and a buyback necessary to avoid serious and imminent harm to the company, which dispenses with the authorisation.

A private limited company buys back its own units by another route

A Luxembourg private limited company buys back its own units through capital and not through portfolio: with the consent of the selling shareholder, the company resolves to reduce its capital by the nominal value of their units and to buy those units back, on the terms the articles have laid down. The lasting holding logic specific to a public limited company has no practical equivalent here.

The clause in the articles is therefore decisive, and its absence is expensive. The articles may allow the managers or the shareholders to reduce the capital or to buy back the units of one or more shareholders and set the terms; they may also authorise the managers to cancel the units bought back and to resolve on the matching capital reduction, by notarial deed drawn up within the month. Those clauses are best drafted at company formation: without them, every exit is renegotiated, and disagreement is settled somewhere other than around the table.

The price, precisely, is not improvised. Failing agreement and a method in the articles, it is determined by the magistrate presiding the chamber of the district court sitting in commercial matters and as in summary proceedings. The statutory basis of calculation rests on the average of the balance sheets of the last three years, or of a smaller number of financial years where the company does not have three. A payment period of up to two years may be granted by court decision.

A floor finally applies, and it is often discovered too late. The buyback may not have the effect that the nominal value, or failing that the accounting par value, of the units held by persons other than the company falls below the minimum share capital. Buying a shareholder out through a buyback rather than a capital reduction therefore does not get around the legal minimum: it reappears in the same place, in another form.

One reading caveat applies. Article 710-5, which carries these rules, was amended by the law of 18 May 2026 introducing deferred paying up of a private limited company's minimum capital, with effect from 2 June 2026. We could not read the coordinated text subsequent to it: the substance reported here comes from the 2017 and March 2025 consolidated versions, and the exact paragraph numbering should be checked before any citation in a deed.

How to account for own shares on a Luxembourg balance sheet

Own shares are carried on a Luxembourg balance sheet under current assets, at item D.III.2 for transferable securities, and never among financial fixed assets. As a counterpart, an unavailable reserve of the same amount is established on the liabilities side, and accounting law prohibits showing those securities under any item other than the one designated for them.

The classification has changed and the old reflex survives in files. Fixed asset item C.III.7, which took own shares and own units, was deleted: the accounting standards commission draws the consequence that those securities may now appear only under current asset item D.III.2, and notes that the reclassification may entail a change of accounting method where they had been valued under the former regime.

The reserve is the compulsory step, and it is the one most often missing. Company law provides that an amount equal to the nominal value of the shares bought back is allocated to a non-distributable reserve, unless there is a matching capital reduction, and that where those shares are carried on the asset side, an unavailable reserve of the same amount is established on the liabilities side. The amended accounting law of 19 December 2002 lists the acquisition of own shares among the cases giving rise to such a reserve, which occupies line A.IV.2 on the balance sheet.

The economic effect of that reserve is the real subject, well beyond presentation. A buyback of EUR 200,000 funded from cash takes EUR 200,000 of liquidity out and at the same time freezes EUR 200,000 of distributable profit: next year's distribution capacity is reduced by that amount, while the profit and loss account carries no trace of it.

That is why we always run the transaction through the forecast distribution table before recommending it, and not through available cash alone. A later resale of those securities then follows the logic set out in our article on the disposal of a fixed asset and the resulting gain.

The standard chart of accounts offers a dedicated account for that reserve, account 132, "Reserve for own shares or own units". Verification limit: that number was read in the annex to the 2009 grand-ducal regulation, and the content of the chart is today determined by the regulation of 12 September 2019, against which the number should be confirmed before configuring software.

What holding own shares suspends: votes, quorum and dividend

Holding own shares in Luxembourg suspends the voting rights attached to them, and those shares are not counted when calculating quorum and majority at a meeting. The right to a dividend, by contrast, is not suspended automatically: it is for the board of directors to resolve to suspend it, and the dividend coupons then remain attached to the shares held.

Neutralising the vote has an arithmetical consequence that files overlook. Buying back 10 % of the capital dilutes nobody, but it concentrates power: the remaining 90 % represent the whole of the votes that can be cast, and a shareholder on 45 % holds a relative majority without having bought a single security. In a company with two or three shareholders, a buyback is an act of governance before it is a financial act.

Dividend treatment calls for an express and traceable decision. Its absence leaves a dividend entitlement in favour of the company itself, a flow that goes round in a circle and then has to be explained in the notes. We record the decision in the board minutes at the time of the buyback, not at the time of distribution, where it always arrives too late.

The framework ends with a sanction and a disclosure duty. Shares acquired in breach of the rules must be sold within one year of their acquisition, failing which the cancellation mechanism of article 430-16 takes over. And the management report must state the reasons for the acquisitions together with the number and nominal value of the shares acquired and disposed of during the financial year; for a small company exempt from the management report, that information moves to the notes, which is the condition of the exemption itself, as we explain in the article on the content of the management report.

The tax boundary: taxable dividend or partition of corporate assets?

The tax boundary for an acquisition of own shares in Luxembourg separates two characterisations with opposite consequences: the dividend of article 97 of the income tax law, subject to a 15 % withholding on the gross amount, and the partition of corporate assets of article 101, whose logic is that of a liquidation rather than a distribution. That boundary is the point to secure before the deed, not after.

The dividend regime is settled and quantified. Dividends paid by a Luxembourg company bear a 15 % withholding calculated on the gross amount, the article 147 exemption applying in particular to a parent company holding more than 10 % of the capital, and dividends fall under article 97, paragraph 1, number 1. A buyback recharacterised as a distribution therefore follows that regime, with a withholding to declare and pay within eight days.

The partition regime runs in another direction. On a liquidation, the proceeds are taxed in the hands of the liquidated company, and the surplus distributed is not subject to withholding tax nor treated as a dividend distribution by the company paying it. The circular of the director of taxes L.I.R. no. 100/1 of 13 July 2007 attaches the same treatment to the partition of corporate assets covered by article 101.

We must mark a clear limit here rather than fill a gap. The exact conditions on which a buyback followed by cancellation is treated as a partition of corporate assets under article 101, rather than as a dividend under article 97, could not be established on an official source in this verification: we identified no circular of the direct tax administration and no published decision specific to the buyback of own securities. The analyses that circulate on this point belong to market practice, and we do not restate them as settled law.

The prudent course follows from that uncertainty. A significant buyback, and particularly a buyback followed by cancellation in favour of a resident shareholder, is prepared with tax counsel and, depending on the stakes, secured by a written request addressed to the administration before the transaction. The gap between the two characterisations is counted in percentage points of the amount paid.

What we regularly see on buybacks of own securities

The buybacks of own securities we take over in Luxembourg almost always fail on the mechanics of equity, not on price or negotiation. Three omissions recur, and all three come to light when the accounts are closed, several months after signature.

The unavailable reserve never booked comes first. The payment has gone out, the securities sit on the asset side, and the liabilities side carries no counterpart: the distributable profit shown is overstated by the amount of the buyback, and a distribution resolved on that basis is irregular. The second omission is the authorisation: a meeting held after the acquisition, or an authorisation older than five years never renewed, covers nothing.

The third concerns the written trace. No board decision on suspending the dividend right, no disclosure in the management report or the notes, a shareholders' register left unupdated: the transaction is economically done and legally unfinished. Taking over a completed buyback represents a few hours of file work, in the order of a few hundred euros within a corporate secretarial engagement, to be compared with the cost of a distribution to be reversed or a sale stalled in due diligence.

The reflex that avoids all three is simple and sits before signature. Before any buyback, we check the authorisation in force, we simulate the net asset test on the latest annual accounts approved, and we write the reserve entries at the same time as the payment. The framing is settled with the licensed accountant who will keep the books, because it is they who will carry the reserve on the balance sheet and have to justify it.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickael LOC, licensed accountant (authorisation 10077274). The sources were verified on 7 November 2026, the publication date of this article.

The sources consulted are the following. For company law: the amended law of 10 August 1915 on commercial companies, in its consolidated versions applicable on 2 March 2025 and 19 December 2017 published on legilux.public.lu.

Its articles 430-15 to 430-19 give, for the public limited company, the 10 % cap on subscribed capital, the five-year maximum duration of the authorisation and its renewal, the net asset test, equal treatment, the unavailable reserve, the waiver in case of serious and imminent harm, the sale within one year of shares acquired in breach, the suspension of voting rights and their exclusion from quorum, the board's decision on the dividend right, the reserve matching financial assistance and the management report disclosures.

Its article 710-5 gives, for the private limited company, the buyback clause in the articles, the capital reduction with the selling shareholder's consent, the price calculated on the average of the balance sheets of the last three financial years, the jurisdiction of the magistrate presiding the commercial chamber of the district court, the two-year payment period and the minimum capital floor; the law of 18 May 2026, noted on legilux.public.lu, amends it.

For accounting: the amended law of 19 December 2002, for the prohibition on showing those securities under any other item and for attaching their acquisition to the cases giving rise to an unavailable reserve; CNC Q&A 16/010 of the accounting standards commission, for the deletion of item C.III.7, the classification at D.III.2 and the possible change of accounting method; and the standard chart of accounts for the reserve account.

For tax: the "Distribution of dividends" and "Termination of activity of a capital company - tax impact" pages of guichet.public.lu, the coordinated text of the amended law of 4 December 1967 on income tax and the withholding tax return on income from capital published by the direct tax administration, and the circular of the director of taxes L.I.R. no. 100/1 of 13 July 2007. For the company forms: the "Societe anonyme (SA)" and "Societe a responsabilite limitee (SARL)" pages of guichet.public.lu.

Four points could not be verified in this run, and we flag them rather than present them as settled. First, the tax characterisation of a buyback of own securities followed by cancellation: no circular of the direct tax administration and no published decision dealing specifically with the buyback of own securities was identified, and the boundary between the dividend of article 97 and the partition of corporate assets of article 101 remains to be established case by case, the reader being able to approach the direct tax administration or request a written position before the transaction.

Next, the number of the reserve account in the standard chart of accounts, read in the annex to the 2009 grand-ducal regulation and not in the grand-ducal regulation of 12 September 2019 which today determines the content of the chart, to be confirmed against that later text published on legilux.public.lu. Next, the effect of the law of 18 May 2026 on the numbering and the exact wording of the paragraphs of article 710-5, to be read in the coordinated text in force before any citation in a notarial deed.

Finally, the consolidated versions of the 1915 law and the guichet.public.lu pages were consulted through indexed extracts, the drafting network not allowing direct access to those domains; the article numbers and thresholds cited cross-check between several consolidated versions, but the literal wording should be read on legilux.public.lu before use in a file.

This article states the law as it stands at the publication date and is not personalised advice: a particular situation is assessed on the documents. Report an error to contact@financialservices.lu: the correction is dated in the article.