Assets under construction in Luxembourg: depreciation

What are assets under construction in Luxembourg?

Assets under construction in Luxembourg are fixed assets still unfinished at the balance sheet date: accounting law places them, together with advances paid on fixed assets, under balance sheet items C.I.4 and C.II.4, where they stay carried at cost and are not depreciated until they are put into service.

The item in fact carries two different things under a single heading. An advance paid is money handed to a supplier for an asset the company does not yet hold; an asset under construction is the accumulation of costs already incurred on an asset being built or installed, a building site, a technical installation, a software development. In both cases the company holds a capitalised cost, not yet a productive tool.

The Luxembourg wording deserves one clarification that practitioners spot quickly. The tangible fixed assets item reads "Acomptes versés et immobilisations corporelles en cours", advances paid and tangible assets under construction, and the Commission des normes comptables, the accounting standards board, notes that the words covering intangible assets under construction were added to the intangible item for the sake of parallelism: the Luxembourg heading therefore departs from the European model to align the two lines. In the standard chart of accounts these items correspond to account 214 for intangibles and 224 for tangibles, with subdivisions by type of asset.

One boundary has to be drawn before the account is opened. An asset intended for sale is not an asset under construction but work in progress, which belongs in inventories; and for a property, the accounting standards board recalls that under the cost model land and buildings always remain separate assets, with no offsetting between them. A site capitalised as a single line, land included, turns out to be impossible to depreciate properly on the day it is delivered.

Why is an asset under construction not depreciated?

An asset under construction is not depreciated in Luxembourg because systematic depreciation exists to spread the cost of an asset over its useful life, and that life has not started: as long as the asset cannot be used, there is nothing to spread.

The rule sits in the valuation provisions of accounting law. For fixed assets whose use is limited in time, the purchase price or production cost must be reduced by value adjustments calculated to write off the value of those assets systematically over their useful life. The accounting standards board adds that this systematic depreciation cannot be set aside for an asset with a limited life, and that land is in principle not depreciated. Useful life is therefore the pivot, and it is counted from the moment the asset serves.

Tax law takes the same starting point, in more explicit terms. Circular L.I.R. no. 34/1 of 19 June 1998 states that depreciation is to be taken, for an acquired asset, from the moment the taxpayer can make economic use of it, and for a self-produced asset as soon as it is ready for use. The Guichet.lu portal puts the same idea to business owners: depreciation is in principle calculated from the purchase or the commissioning of the asset.

The mirror-image error costs just as much, and it is more common. Starting to depreciate an advance invoice anticipates a charge that is not due; but forgetting to start depreciation on the day the asset enters service leaves an asset undepreciated for whole financial years. Q&A 21/025 of the accounting standards board deals with exactly that case, a machine delivered and commissioned on the first day of a financial year whose depreciation should have started that same year: the omission is analysed there as an error to be corrected, not as a choice of method.

Which costs go into an asset under construction?

The cost of an asset under construction in Luxembourg depends on its origin: the purchase price, obtained by adding incidental costs to the price paid, where the asset is bought; the production cost, which starts from the materials consumed and adds the costs directly attributable to the asset, where the company builds it itself.

Incidental costs are those without which the asset would not be usable in its intended place. The Guichet.lu portal lists transport and customs duties among the incidental costs of a purchase; the same logic covers assembly costs, technical fees directly tied to the asset and installation costs. They are not a charge of the year: they follow the asset into the balance sheet and will be depreciated with it.

For a self-produced asset the law allows more, subject to conditions. A reasonable proportion of costs only indirectly attributable to the asset may be added to the production cost, to the extent those costs relate to the manufacturing period, and that treatment must be disclosed in the notes. Distribution costs, on the other hand, may not be included in production cost: an asset under construction never carries a commercial cost.

Interest follows a rule of its own, strictly bounded by the manufacturing period. Inclusion in production cost of interest on borrowed capital used to finance the manufacture of fixed assets is permitted to the extent the interest relates to the manufacturing period. In other words, capitalisation stops on the day the asset is ready: interest for the following period becomes a financial charge of the year again. It is an option, not an obligation, and the choice made must stay consistent from one year to the next like the rest of the valuation methods.

When does depreciation start after commissioning?

Depreciation of an asset in Luxembourg starts when it is put into service, and that is the date on which the balance of the assets-under-construction account switches to the final account: the accumulated cost becomes the depreciable base, spread over the asset's usual useful life.

That date is a matter of fact, not a closing option. It is documented as such: acceptance minutes, a commissioning record, an operating permit, the first production run. We regularly see files where the supplier's final invoice serves as the commissioning date by default, when the two can be months apart on a building site or a technical installation. The document fixing that date belongs in the permanent file, just like the records behind bookkeeping and the balance sheet.

The length then depends on the type of asset. The Guichet.lu portal gives as examples of usual useful lives twenty years for an industrial building, ten years for office furniture and four years for a vehicle, as illustrations rather than as a binding scale; the detail of lives and methods belongs to the depreciation schedule of each individual asset.

Two tax mechanisms are worth knowing before a depreciation schedule is set up. Article 34 of the income tax law allows assets to be written off in full against the year of acquisition where their useful life does not exceed one year or where their acquisition price does not exceed EUR 870 per asset and the owner is also the user, a rule that does not apply to fixed assets acquired on the transfer of a business.

And since the 2017 reform, paragraph 1a of article 32 opens a deferred depreciation: on a request filed with the tax return, the taxpayer may deduct the permitted depreciation in full, in part only, or waive it for the year, the remainder staying deductible in a later year, as circular L.I.R. no. 32/1 of 15 May 2018 explains.

Is an advance paid on a fixed asset already a fixed asset?

An advance paid on a fixed asset does sit in fixed assets in Luxembourg, under the same item as assets under construction, and not among receivables: it is not depreciated, since no asset is yet in use, and is carried at the amount net of recoverable tax.

The classification is not a presentation nicety. An advance filed under receivables distorts the reading of the lower balance sheet, inflates current assets and moves the line between long-term resources and the short term, when the advance is immobilised by nature: it will not turn back into cash, it will turn into a machine or a building. That position in the balance sheet bears directly on the ratios a banker reads when the time comes to prepare the annual accounts.

Value added tax, for its part, runs on its own timetable, faster than the accounting one. Where advances are paid before the supply of goods or services has taken place, the tax becomes chargeable at the time of collection, up to the amount collected, and the right of deduction arises at the moment the tax becomes chargeable. A company can therefore deduct the tax on an advance for a machine that does not yet exist, provided it holds a compliant document. The amount capitalised in the assets-under-construction account is the amount net of that deductible tax, never the amount inclusive of tax.

One reservation applies to the rest of the VAT timetable. The law organises an adjustment of tax deducted on capital goods where their use changes afterwards; the length of that adjustment period and its mechanics depend on the type of asset and could not be verified here against the coordinated text. An investment project whose use or right of deduction may change, a mixed-use building for instance, is therefore handled with the text at hand.

Delayed or abandoned project: what to do at the closing?

A delayed or abandoned project is still not depreciated in Luxembourg, but it is written down: accounting law requires value adjustments on fixed assets, whether or not their useful life is limited, where the diminution in value is judged to be permanent at the balance sheet date.

That distinction is the key to closing a troubled project. Depreciation spreads a cost over a useful life, and it waits for commissioning; a value adjustment for permanent diminution records a loss of value, and it waits for nothing. Serviced land whose project is frozen, an installation whose technology was overtaken before it was assembled, an advance paid to a failing supplier are all handled through this second route, with the permanent nature of the fall documented.

The notes make these movements visible, and that is where the switch at commissioning can be read. Movements in the various fixed asset items must be shown in the notes, starting from the purchase price or production cost and disclosing separately, for each item, the additions, disposals and transfers of the year on the one hand, and the cumulative value adjustments and their corrections on the other. A transfer from the in-progress account to the final account therefore appears in that column: a table showing none over several years, while the company is investing, signals that the switch was never made.

Finally, the tax timetable of a multi-year project is settled before it starts. The modernised investment tax credit, applicable from the 2024 financial year, rests on an eligibility certificate and a certification issued on request, and the Guichet.lu portal's frequently asked questions state that only investments and expenditure made after that request has been filed are taken into account, the request being due within two months after the end of the financial year. Costs incurred before the request are therefore lost for the credit: on a multi-year project the request is prepared with the capital expenditure budget, not at the closing that follows the invoice.

What errors do we see on assets under construction?

Three errors keep coming back in files we take over: the assets-under-construction account never cleared after commissioning, site costs expensed straight away, and a cost capitalised inclusive of tax or without splitting land from building.

The first is the most expensive because it compounds. A balance left in account 224 after commissioning produces two effects at once: the asset is never depreciated, so the result is overstated year after year, and the balance sheet total stays inflated by an amount that should have migrated and shrunk, while that total is one of the criteria governing, among other things, the consolidated accounts thresholds. The check fits in one line and belongs at the closing: every assets-under-construction balance must be tied to an asset not yet in service, with the acceptance document behind it. Failing that, it switches.

The second is quieter and surfaces at the first audit. Architect's fees, assembly costs or preparatory works expensed in the year reduce taxable income by an amount that was not deductible, since these were the costs of an asset to be capitalised. We regularly see this error on projects spread over two financial years, where the first year carries no invoice for an asset and everything goes into overheads. The useful arrangement is a project sheet opened with the first euro committed and kept alongside the general ledger, which we put in place as part of our work as an authorised accountant.

The third is technical and is fixed in the settings. Capitalising an amount inclusive of tax where the tax has been deducted, or lumping land, building and equipment into a single line, makes the depreciation schedule impossible to build on the day of commissioning: the invoices then have to be reconstructed one by one, work we bill as a file take-over and not as an ordinary closing. These checks are part of the closing the firm handles, from EUR 250 excl. VAT per month for a company, under the schedule published on the fees page.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, authorised accountant (authorisation 10077274). The balance sheet items carrying unfinished assets, systematic depreciation over the useful life, the value adjustment for permanent diminution in value, the composition of purchase price and production cost, the limitation of interest to the manufacturing period, the starting point of depreciation, the EUR 870 threshold, deferred depreciation, the chargeability of tax on an advance and the timetable of the eligibility certificate request were verified on 20 October 2026 against the sources below.

The sources consulted are the following. From Legilux, the amended law of 19 December 2002 on the commercial register and on the accounting and annual accounts of undertakings, in its consolidated version.

It was read for the value adjustments calculated to write off the value of fixed assets systematically over their useful life, for the value adjustments required where the diminution in value is judged permanent whether or not the useful life is limited, for the purchase price obtained by adding incidental costs to the price paid, for production cost and the reasonable proportion of indirectly attributable costs to the extent they relate to the manufacturing period, for the inclusion of interest on borrowed capital limited to the manufacturing period, for the exclusion of distribution costs, and for the disclosure in the notes of movements in the various fixed asset items with additions, disposals and transfers of the year.

From the Commission des normes comptables: its Q&A 16/010 on the balance sheet and profit and loss account layouts, for item C.II.4 of tangible fixed assets and for the addition of intangible assets under construction to item C.I.4 for the sake of parallelism; its Q&A 16/007 on land and buildings under LuxGAAP, for the fact that systematic depreciation of an asset with a limited life cannot be set aside, for the permanent separation of land and building and for the absence of depreciation on land;

its Q&A 21/025 on the correction of errors, for the example of a machine depreciable from its commissioning. From the Administration des contributions directes: circular L.I.R. no. 34/1 of 19 June 1998, for depreciation to be taken as soon as the taxpayer can make economic use of an acquired asset and, for a self-produced asset, as soon as it is ready for use, as well as for the full write-off in the year of acquisition of low-value assets;

circular L.I.R. no. 32/1 of 15 May 2018, for the deferred depreciation of article 32 paragraph 1a and the request to be filed with the tax return; the consolidated version of the amended income tax law of 4 December 1967 that it publishes, for article 34 and the EUR 870 threshold per asset; its page on the investment tax credit, for the modernised regime applicable from the 2024 financial year.

From the Guichet.lu portal: its page on acquiring or leasing fixed assets, for depreciation calculated in principle from the purchase or the commissioning, for the usual useful lives given as examples and for the incidental costs of a purchase; its page on the modernisation of the investment tax credit and the related frequently asked questions, for the eligibility certificate, for only investments made after the request has been filed being taken into account and for the two-month deadline after the end of the financial year.

From the Portail de la fiscalité indirecte, the amended value added tax law of 12 February 1979, for the chargeability of tax on collection of an advance paid before the supply and for the right of deduction arising when the tax becomes chargeable. From the Chamber of Commerce, the published versions of the standard chart of accounts, for accounts 214 and 224 and their subdivisions.

Five points could not be verified against an official source at this date. The primary texts first: the domains legilux.public.lu, guichet.public.lu, impotsdirects.public.lu, pfi.public.lu, cnc.lu and cc.lu are blocked by the network proxy of our editorial environment, and these pages were read through indexed extracts using a search restricted to official domains; the statements above reproduce those extracts without extrapolation.

Next, the final numbering of accounts 214 and 224 in the annex of the standard chart of accounts applicable to financial years beginning on or after 1 January 2020, determined by the grand-ducal regulation of 12 September 2019: it was read in the draft versions published by the Chamber of Commerce, the annexed text itself not being readable from our environment. Next, the exact wording of the balance sheet layout items in force, set by the grand-ducal regulation of 18 December 2015, whose ranks C.I.4 and C.II.4 come from the accounting standards board's Q&A and not from the text itself.

Next, the pro rata rule applicable to the first year of depreciation, which none of the sources consulted states for the year of commissioning. Finally the length of the adjustment period for tax deducted on capital goods under the VAT law, whose coordinated text could not be consulted. These points can be checked on legilux.public.lu, on cnc.lu, on impotsdirects.public.lu and on pfi.public.lu.

This article sets out the state of the law at the date of publication and is not personalised legal or tax advice: the commissioning date retained, the costs capitalised, the depreciation period and the treatment of an interrupted project depend on the documents available, the accounting framework applied and the company's own situation. Texts, regulations and practice change, and any decision binding your structure should be verified at the date you rely on it. Report an error to contact@financialservices.lu: the correction is dated in the article.