Impairment of participations in Luxembourg
Impairment of participations in Luxembourg is required as soon as the depreciation is expected to be lasting. Trigger, notes disclosure, mandatory reversal and the deferred tax cost.
When must you recognise impairment of participations in Luxembourg?
Impairment of participations in Luxembourg is required at the closing date where the depreciation is expected to be lasting: article 55(1)(c)(bb) of the amended law of 19 December 2002 then obliges the company to give the financial fixed asset the lower value to be attributed to it at the balance sheet date.
The obligation leaves no discretion in principle. The Commission des normes comptables restates that value adjustments cover every correction intended to account for the depreciation, whether definitive or not, of assets ascertained at the closing date. The judgement bears on whether the fall in value will last, never on whether to draw the consequence.
A participation is a non-depreciable fixed asset: it does not lose value through a depreciation plan, but through events. A value adjustment is therefore the only accounting instrument available to record that loss, and its trigger is neither a single day's price nor the subsidiary's cash position, but a deterioration expected to last.
In a company whose assets are participations, the value adjustment is often the only entry that moves the result for the year. The wider framework is set out on our LuxGAAP accounting page.
| Question | Applicable rule |
|---|---|
| Accounting trigger | Depreciation expected to be lasting at the balance sheet closing date |
| Legal basis | Article 55(1)(c)(bb) of the amended law of 19 December 2002 |
| Nature of the entry | A value adjustment, never a systematic depreciation charge |
| Profit and loss caption | Value adjustments in respect of financial fixed assets and of investments held as current assets |
| Reversal | Mandatory for participations as soon as the cause of the adjustment disappears |
| Ceiling on the value retained | The acquisition or production cost of the participation |
| Tax deduction | Conditional on a going-concern value below the acquisition price |
What lasting adds to a simple fall in value
Lasting depreciation of a participation in Luxembourg is a loss of value whose recovery is not expected at the balance sheet closing date, rather than a passing valuation gap that the following year would erase on its own.
The distinction sits in the structure of the text. The duty to record a value adjustment for lasting depreciation does not replace the duty of systematic depreciation: the Commission des normes comptables presents it as complementary, and it applies principally to fixed assets whose use is not limited in time, financial fixed assets first among them.
In practice, the question to document is not "is the participation worth less?" but "will the fall last?". Start-up losses over one year, in a subsidiary whose business plan still holds, are not enough. Negative equity over three years, an activity that has stopped or a lost dispute point the other way.
The contrast with current assets is instructive. Current assets are written down to the lower market value at the closing date, with no condition as to duration; fixed assets, participations included, are written down only where the depreciation is expected to be lasting.
Where impairment of a participation appears in the annual accounts
Impairment of participations in Luxembourg is shown in the profit and loss account under the caption "Value adjustments in respect of financial fixed assets and of investments held as current assets", a single caption since the schemes aligned with directive 2013/34/EU.
On the asset side, the participation is carried at its net value. Gross value and cumulative adjustments do not disappear for that reason: undertakings other than small undertakings disclose in the notes the movements in the various fixed asset items, including additions, disposals, transfers and cumulative value adjustments.
The notes carry a second duty, more specific to companies holding participations: article 65(1)(2°) requires the participations held to be disclosed. Small undertakings are in principle exempt, but the Commission des normes comptables holds, in its Q&A 17/015, that the disclosure cannot be omitted where it is material for the true and fair view.
The consequence is concrete for a company filing abridged accounts. The value adjustment booked on a participation is then readable in the notes, subsidiary by subsidiary, rather than inside a global balance that would tell the reader nothing. Filing form and deadlines are covered on our annual accounts page.
| Item | Presentation |
|---|---|
| Charge for the year | Caption "Value adjustments in respect of financial fixed assets and of investments held as current assets" |
| Participation in the balance sheet | Net value, with gross value and cumulative adjustments moved to the notes |
| Movements in fixed assets | In the notes, for undertakings other than small undertakings |
| Participations held | Disclosure required by article 65(1)(2°) |
| Small company with a financial activity | Exemption unavailable under Q&A CNC 17/015 |
| Reversal for the year | Same profit and loss caption, in the opposite direction |
Reversing the value adjustment is not optional
Reversing an impairment of a participation in Luxembourg is mandatory as soon as the cause behind it disappears, whereas an adjustment on another asset may in principle be kept for as long as that asset does not leave the balance sheet.
The rule bites at both levels. In accounting terms, valuation at the lower amount cannot be maintained once the reasons that prompted it have ceased to exist. In tax terms, the Administration des contributions directes is more explicit still: a participation already part of the invested net assets at the previous closing must be valued at its going-concern value even where that value exceeds the previous carrying amount.
The asymmetry is worth stating, because it runs against the instinct of prudence. Guichet.lu notes that a value adjustment that has lost its purpose may in principle be kept for as long as the provisioned asset does not leave the balance sheet, collection of a receivable being the example given; value adjustments relating to participations, by contrast, must be reversed if their cause disappears.
The ceiling remains the entry cost: valuation is made at acquisition or production cost, the going-concern value being retained only where it is lower. A subsidiary that recovers beyond its acquisition price generates no income, and the reversal is taxable up to the deduction previously allowed.
Going-concern value: the presumption that governs the tax deduction
The tax deduction of an impairment of a participation in Luxembourg requires a going-concern value below the acquisition price, and that going-concern value is presumed to match the purchase cost where the asset is a non-depreciable fixed asset.
The definition comes from article 27 of the amended law of 4 December 1967 on income tax: the going-concern value of an asset is the price that an acquirer of the whole business would attribute to that asset within the overall acquisition price, the acquirer being assumed to continue the business. It is therefore neither a liquidation value nor an instantaneous market price.
The presumption shifts the burden of proof. Since the going-concern value of a non-depreciable fixed asset is presumed equal to its purchase cost, it falls to the company deducting the adjustment to establish that the presumption is rebutted at the closing date. An entry with no file behind it is not evidence.
The file that holds up, in our practice, comes down to five documents dated within the year: the subsidiary's accounts, a statement of its equity, a note setting out the cause of the depreciation, the calculation retained and the record of the management body's decision. Built at the closing date, it takes an hour.
| Point | Rule applied by the Administration des contributions directes |
|---|---|
| Default valuation | Acquisition or production cost |
| Going-concern value defined | Price an acquirer of the whole business would attribute to the asset, the business being continued |
| Non-depreciable fixed asset | Going-concern value presumed to match the purchase cost |
| Condition for the deduction | Going-concern value below the acquisition price, established at the closing date |
| Participation already in the previous balance sheet | Valued at going-concern value even where it exceeds the previous carrying amount |
The deferred cost: recapture and charges linked to exempt income
An impairment of a participation in Luxembourg deducted from taxable profit is paid for later: the exempt capital gain on disposal becomes taxable up to the charges and impairment deductions previously allowed on that participation.
The Administration des contributions directes publishes a worked example. A company bears interest charges of 100 on its participation over years 1 and 2, then sells it in year 3 for a gain of 270: the gain is taxable up to 100 and exempt for the balance, those 100 having already reduced earlier bases. Impairment deductions enter the same computation.
A second rule bites earlier, without waiting for a disposal: charges economically connected with exempt income lose their deductible character in principle. An adjustment booked on a participation that has paid an exempt dividend in the same year runs into that limit at once.
Tracking is therefore a standing exercise, participation by participation, carrying the acquisition price, the adjustments booked and reversed, the charges deducted and the exempt income of each year. The recapture mechanism on disposal is set out in our article on the recapture of deducted charges, and the wider framework on our SOPARFI taxation page.
Three errors we meet when taking over a file
Three errors come back in almost every holding company file we take over: lasting depreciation never recorded, a value adjustment never reversed, and an adjustment deducted with no going-concern value file behind it.
The first comes from prudence read backwards. Booking nothing looks prudent; it in fact keeps a participation above its value, overstating net assets and the reserves the meeting believes it can distribute.
The second is more frequent still, and it is silent. The subsidiary recovers, the cause of the depreciation has gone, and the adjustment stays on the balance sheet year after year because nobody revisits it at the closing date. For a participation, keeping it is allowed neither by the accounting law nor by the Administration des contributions directes.
The third is paid for on audit. The adjustment is deducted, but nothing on file establishes that the going-concern value was below the acquisition price at the closing date. We regularly see the file assembled after the event, from documents postdating the year and lighting up the position of the day, not the one that had to be assessed at the balance sheet date.
Sources and verification
Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). The principles, dates, thresholds and references in this article were verified on 10 September 2026 against the official sources listed below.
The doctrine of the Commission des normes comptables, for the definition of value adjustments and for the rule in article 55(1)(c)(bb) of the amended law of 19 December 2002 on the trade and companies register and on the accounting and annual accounts of undertakings, a duty that complements systematic depreciation and applies principally to assets whose use is not limited in time. Q&A 17/015 of the same Commission, for the disclosure of participations held required by article 65(1)(2°) and for the impossibility, in a small undertaking with a mainly financial activity, of relying on the exemption in article 66. Q&A 16/010, for the single caption devoted to value adjustments in respect of financial fixed assets and of investments held as current assets. The guichet.lu pages on methods for the preparation of annual accounts and on the operating result of a sole trader or transparent partnership, for the mandatory reversal specific to participations. The Administration des contributions directes pages on going-concern value and on non-depreciable fixed assets, for the definition in article 27 of the amended law of 4 December 1967 on income tax, for the presumption equating that value with purchase cost and for the duty to value at going-concern value a participation already part of the invested net assets at the previous closing. The Administration des contributions directes page on the exemption of capital gains on the disposal of securities and the guichet.lu page on the parent-subsidiary regime, for the recapture of charges and impairment deductions previously deducted and for the loss of deductibility of charges connected with exempt income.
Three limits must be flagged. The coordinated text of articles 55 and 65 of the law of 19 December 2002 was not read in its consolidated version: legilux.public.lu and cnc.lu are unreachable from our drafting environment, and those articles were consulted through indexed extracts and through the restatement given by guichet.lu. The numbering of the standard chart of accounts entries used for these adjustments could not be verified. Finally, the treatment of such an adjustment for net wealth tax purposes is not covered here, no official source consulted addressing that point; readers can confirm these items on legilux.public.lu, on cnc.lu and with their tax office.
This article states the law as it stands at the date of publication. Thresholds, rules and timetables change, and any decision committing your structure must be verified as at the date you rely on it. Report an error to contact@financialservices.lu: the correction is dated in the article.
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