Allocation of profit in Luxembourg: who decides

Who decides the allocation of profit in Luxembourg?

Allocation of profit in Luxembourg is decided by the meeting of shareholders or members, which rules on it at the same time as it approves the annual accounts, within six months of the financial year end: the management body proposes an allocation, the meeting decides it, and that decision is what makes a dividend payable.

The split of roles is the starting point. The board of directors, the management board or the managers draw up the accounts and put forward a proposed allocation. The annual meeting has the approval of the annual accounts and the allocation of results on its agenda, alongside the discharge of the officers and statutory appointments. Until the meeting has ruled, the profit for the year remains an equity line: no member holds a claim over it.

The legal form changes the mechanics without changing who is competent. In a société à responsabilité limitée with no more than sixty members, holding a meeting is not mandatory unless the articles provide otherwise: members receive the text of the resolutions and cast their vote in writing. Above sixty members, the law requires a meeting to be physically held each year. In a société anonyme, the general meeting of shareholders approves the accounts and the allocation.

The calendar then chains two deadlines that have to be read together. Approval falls within six months of the year end; filing with the Luxembourg register of commerce and companies falls within one month of that approval, and no later than seven months after the year end. A year closing on 31 December must therefore be approved by 30 June at the latest and filed by 31 July. We regularly see the reverse in practice: a resolution signed in late July, which makes the filing late by construction, when the accounts had been ready since May.

In what order is profit allocated?

The order in which profit is allocated in Luxembourg is not a custom but a sequence of constraints: carried-forward losses come off first, the legal reserve and any statutory reserves due are set aside next, and only the balance is shared between dividend and carry-forward.

The first tier is absorption. A debit balance carried forward mechanically reduces what can be distributed: it does not vanish because the year has returned to profit, it is set off. The second tier is the mandatory allocation. The law requires an annual transfer of at least one twentieth of net profit to a reserve fund, until that reserve reaches one tenth of the share capital; the transfer resumes if that tenth is eaten into. The articles of association may add reserves of their own, with their own transfer rate and their own ceiling.

The third tier is the only one where the meeting genuinely has discretion. It weighs a dividend against transfers to free reserves, the reserve backing a net wealth tax reduction, and the profit carried forward. That last line is not a meaningless accounting residue: it is the base for future distributions, and a company that carries profit forward rather than reserving it keeps room for manoeuvre that releasing a statutory reserve would not give it without amending the articles.

The habit we apply before drafting the minutes is to run that sequence out in writing, line by line, rather than starting from the desired dividend. Rebuilding the order backwards is the surest way to discover at the last minute that the legal reserve was not complete and that the distributable amount quoted to the member was overstated.

What is the distributable amount in Luxembourg?

The distributable amount in Luxembourg starts from the results of the last closed financial year, increased by profits carried forward and by reserves released for that purpose, then reduced by losses carried forward and by amounts to be placed in reserve. Those amounts are the ones the law or the articles require to be reserved. A second test, on net assets, can cancel the outcome.

That second test is the one most often overlooked, and it is the one that blocks. Save in cases of a reduction of subscribed capital, no distribution may be made to members where the net assets at the close of the last financial year are, or would become as a result of the distribution, lower than the subscribed capital increased by the reserves that the law or the articles make non-distributable. In other words: a company can show a profit for the year and a positive distributable amount on the first calculation, and still be unable to distribute anything because earlier losses have already eaten into its equity.

The two tests do not replace each other, they stack. The first caps the amount, the second governs whether any distribution is possible at all. In practice the check fits on one line: compare equity after the intended distribution with the sum of subscribed capital and non-distributable reserves. If the result is negative, the distribution is unlawful whatever the meeting voted, and the amount received stays exposed to a claim for repayment.

A distribution during the year follows a separate regime with its own conditions: the decision belongs to the management body on the basis of interim accounts, not to the meeting ruling on the annual accounts. An interim dividend is therefore not an early allocation of the result but an advance set against it, whose fate the meeting records when it allocates the final result.

Which reserves must or may the meeting fund?

The reserves of a Luxembourg company do not follow a single regime: the legal reserve is owed under the law, statutory reserves under the articles, and the reserve backing the net wealth tax reduction through a tax application. The reserve for own shares follows from holding those shares, and other reserves from the will of the meeting alone.

The useful distinction is not the name but availability. A non-distributable reserve stays out of the distributable amount for as long as its cause persists; an available reserve re-enters it as soon as the meeting decides to release it. That is why a company placing everything in statutory reserves out of caution gives up flexibility that a simple carry-forward would have preserved, and will need an extraordinary meeting amending the articles to reverse course.

The reserve backing the net wealth tax reduction deserves separate mention, because it ties an allocation decision to a tax decision. The reduction is granted on application to a taxpayer that creates a reserve equal to five times the reduction claimed and keeps it on the balance sheet for the following five tax years. The reduction therefore equals one fifth of the reserve, the minimum net wealth tax cannot be reduced, and distributing the reserve before the end of the five-year period increases the tax assessed by one fifth of the amount used.

The calendar point is the one that costs most when missed. Since the 2016 amendment, the reserve must be funded no later than in the last financial year closed during the tax year concerned: the tolerance of one extra financial year that existed before has gone. An application made after the event, on a year already closed with no matching allocation, no longer has an accounting basis. The corporate tax return form draws the same line, separating the reserve created by allocating the profit of the tax year from the reserve created by allocating free reserves, both of which presuppose an allocation decision taken in time.

Which entries and which balance sheet presentation?

An allocation of profit translates in Luxembourg into a transfer within equity: the profit for the year is cleared, and its counterpart is split between reserve accounts, the profit carried forward and, for the distributed share, a liability to the members. No charge appears in the profit and loss account.

The standard chart of accounts set by the grand-ducal regulation of 12 September 2019, applicable to financial years beginning on or after 1 January 2020, gives the destination accounts. Heading 13 carries the reserves, with the legal reserve at 131, reserves for own shares at 132, statutory reserves at 133 and other reserves at 138, the last of which houses the net wealth tax reserve among others. Heading 14 carries results, including results carried forward at 141.

The balance sheet presentation follows an order set by the accounting law, and that order is not decorative: subscribed capital, share premium, revaluation reserve, reserves — legal, for own shares, statutory, other —, results carried forward, profit for the year, then investment subsidies. A reader of the accounts sees in that sequence what the meeting has locked and what it has left free. Other reserves are themselves split between available and non-distributable reserves, a distinction the balance sheet layouts make visible.

One methodological point avoids half the discrepancies we find when taking over a file: the allocation entry carries the date of the meeting's decision, not the year-end date. It therefore belongs to the following financial year, while the dividend decided relates economically to the result of the year approved. The same mismatch appears on the recipient's side, where a dividend is recognised at the date of the distribution decision and not on receipt. Before filing with the register, the accounts pass through the eCDF platform, where account balances are presented under the standard chart of accounts, except for companies reporting under international standards.

What tax consequences does the allocation decision trigger?

An allocation decision that makes a dividend available triggers in Luxembourg a withholding tax of 15% of the gross amount, to be declared on form 900 and paid within eight days. The deadline runs from the income being made available, not from the date of the decision.

Three refinements make the difference in practice. Where the company bears the withholding instead of deducting it, the base changes and the rate to apply to the amount actually made available to the recipient becomes 17.65%. Where the recipient meets the conditions of the parent-subsidiary regime, no withholding is operated, but the exempt amount must still be reported on form 900 within the same eight days. Where a tax treaty provides for a lower rate, a written application for a reduction may be submitted to the tax office, either before the return or together with it.

The rest of the allocation is tax neutral, and that is precisely what makes it a tool. Placing profit in reserve or carrying it forward creates no new taxable base: the result has already been taxed in the company's hands. The decision therefore has tax effects only through what it takes out of the company, through the reserve it creates for net wealth tax purposes, and through what it leaves available for the following year.

The sequencing error is the one we meet most often: a resolution dated June, a transfer in September, and a form 900 filed in October on the basis that the decision was old. The eight-day period runs from the moment the income is made available, so from September, and the filing is late. The mechanism and the exemptions are set out in our article on dividend withholding tax.

Which mistakes do we see most often on the allocation of profit?

The allocation mistakes we most often unwind in Luxembourg are not about arithmetic but about order and dates: a dividend settled before the mandatory transfer, silent minutes, and a tax reserve claimed after the year that would have carried it.

The first is the dividend calculated backwards. The member announces the amount they want to extract, and the allocation is built to reach it. The legal reserve component is then forgotten or understated, and the distributable amount quoted exceeds the real one. The correction is unpleasant because it comes after the fact: either the dividend already announced has to be cut, or an excess distribution has to be recognised.

The second is the silent minutes. A resolution approving the accounts without ruling on the allocation leaves the profit for the year in a line that has no legal basis any more, and the following year's allocation entry then has nothing to rely on. We regularly find profits carried forward accumulated over several years without any decision ever having allocated them: putting that right takes one meeting per year, year by year.

The third is the tax reserve claimed too late, covered above, and the fourth is the net asset test never run. On this cycle, the year-end close, the proposed allocation, the minutes and the filing are handled by the firm from EUR 250 excl. VAT per month for a company, under the schedule published on the fees page. The time does not go into the entry, which takes three lines, but into rebuilding the years where no decision was taken.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). Every source cited below was read on 24 October 2026, the date that governs the state of the law presented in this article.

Company law and accounting law: the amended law of 10 August 1915 on commercial companies, for the annual transfer of at least one twentieth of net profit up to one tenth of the share capital and its resumption where that tenth is eaten into, for the net asset test before any distribution, for the five components of the distributable amount and for the written vote of the members of a société à responsabilité limitée; the law of 19 December 2002 on the register of commerce and companies and on the accounting and annual accounts of undertakings, for the seven-month deadline and for the order of the equity lines in the balance sheet.

Administrative pages of Guichet.lu: société anonyme, société à responsabilité limitée, general meeting of members of a SARL or SARL-S, convening a general meeting of a SA, filing annual accounts with the register of commerce and companies. Accounting: the standard chart of accounts set by the grand-ducal regulation of 12 September 2019, applicable to financial years beginning on or after 1 January 2020, for accounts 131, 132, 133, 138 and 141, and question and answer 16/010 of the Accounting Standards Commission for the balance sheet layouts.

Tax: the net wealth tax reduction for corporate taxpayers and directors' fees pages of the direct tax administration, circular I.Fort. no. 47quater of 17 May 2018, forms 500 and 900, and the dividend distributions and parent-subsidiary regime pages of Guichet.lu.

Four points could not be verified and are therefore not asserted here. First, the Luxembourg official domains are blocked by the network proxy of our editorial environment: those pages were read through indexed extracts obtained by a search restricted to official domains, with no extrapolation. Second, the article numbering of the coordinated 1915 law differs between the extracts consulted, one attaching the legal reserve to a number in the société anonyme chapter and another attaching the inventory and distributions to neighbouring numbers: no article number is therefore cited, only the rules.

Third, the ceiling of the net wealth tax reduction, which the administration's A to Z page expresses by reference to corporate income tax plus the employment fund contribution of the previous year, while an extract of the 2001 text relates it to the tax year itself: the ceiling exists, its reference period is not established here. Fourth, the standard chart of accounts number carrying the profit for the year, absent from the extracts read, and the current scale of late filing surcharges, the only grid found dating from a grand-ducal regulation of 2018.

Readers can check these points on legilux.public.lu, on impotsdirects.public.lu, on cnc.lu and on lbr.lu.

This article sets out the state of the law at the date of publication and is not personalised advice: allocating a result depends on the articles of association, on earlier losses and on each company's tax position, and must be settled with your authorised accountant. Report an error to contact@financialservices.lu: the correction is dated in the article.