Inventory valuation in Luxembourg: the LuxGAAP rules

Inventory valuation in Luxembourg: what is the basic rule?

Inventory valuation in Luxembourg rests on a single rule: current assets, inventories among them, are valued at purchase price or production cost, then written down so as to give them the lower market value or, in special circumstances, another lower value to be attributed to them at the balance sheet date.

The governing text is the amended law of 19 December 2002 on the commercial and companies register and on the accounting and annual accounts of undertakings, the consolidated version consulted being dated 23 December 2025. A bill recasting Luxembourg accounting law, filed on 28 July 2023, renumbers these rules without changing their substance on inventories; it was not in force at the date of writing.

The rule looks simple and is nonetheless decided three times each year. First the entry cost: purchase price for goods bought in, production cost for goods made. Then the method, as soon as the units held are fungible and no individual cost can be attached to them. Finally the value at the closing date, which may call for a write-down. All three decisions move the balance sheet total, hence the size criteria and the presentation adopted in LuxGAAP accounting.

Purchase price or production cost: what goes into each?

In Luxembourg the purchase price of inventory is the buying price increased by incidental expenses, whereas production cost is obtained by adding to the purchase price of raw materials and consumables the costs directly attributable to the product in question.

The law then allows one addition and sets one exclusion. The addition: a reasonable proportion of costs only indirectly attributable to the product in question may be added to production cost, to the extent that those costs relate to the period of manufacture. The exclusion is categorical: distribution costs may not be included in production cost.

Three consequences follow. The reasonable proportion is an option, not a duty: an undertaking that takes it up sticks with it from one year to the next, under the consistency of methods principle. Excluding distribution costs means separating inbound freight, which belongs in cost, from outbound freight, which does not. And the period-of-manufacture condition rules out the costs of idle capacity: a plant standing still produces no inventory value.

The error we see most often when taking over a file sits exactly there: an overhead rate applied to closing inventory, computed over all structural costs, selling and administrative expenses included. Inventory comes out inflated, the result with it, and the correction is paid for in the first year the method is put straight.

Fungible items: weighted average, FIFO or LIFO?

For fungible items, Luxembourg allows three ways of computing the cost of inventory: weighted average prices, first in first out and last in first out. The choice is not neutral for the value of closing inventory.

The consolidated text is explicit: the purchase price or production cost of stocks of goods of the same category as well as of all fungible items, investments included, may be calculated either on the basis of weighted average prices or under the first in first out or last in first out methods. Directive 2013/34/EU of 26 June 2013 opens that option to Member States, which could also allow a method reflecting generally accepted best practice; the Luxembourg legislator kept all three.

The choice binds. Consistency of methods sits among the general valuation principles, and the Commission des normes comptables, in its question and answer 21/024 on changes in accounting methods, valuation methods and accounting estimates, accepts framed exceptions, in particular where new texts introduce options an undertaking means to rely on. An exceptional change is explained in the notes, together with its effect on assets, liabilities, financial position and results: method is not a lever for steering the result. A change of estimate, by contrast, always has prospective effect.

Lower market value: when must inventory be written down?

Inventory must be written down in Luxembourg as soon as market value at the balance sheet date falls below its purchase price or production cost. The text refers to the lower market value or, in special circumstances, another lower value to be attributed at that date.

That entry is a value adjustment on the asset, not a provision on the liabilities side. The distinction is not formal: a provision may not be used to adjust the value of asset items, as our article on provisions for liabilities and charges sets out. Both entries give the same net result, but not the same balance sheet total and not the same net assets, which feeds straight through to the size criteria.

The write-down is not final. The consolidated text states that valuation at the lower value may not be maintained if the reasons for the value adjustments have ceased to exist. Inventory written down on a commodity price that collapsed in December and recovered the following year is therefore reversed. The review is annual, product line by product line.

What establishes it in the file is always the same set of three: a quoted or market price observed at the closing date, an expected net selling price where no quotation exists, and a turnover analysis for lines without an active market. The special circumstances the text refers to cover precisely those cases where the market says nothing: a spare part for a discontinued model has no price, it has a probability of being sold.

These rules assume a going concern, itself one of the general valuation principles. Where that assumption breaks, the framework changes before the valuation does, and the realisable value of the assets then governs what is left to distribute, namely the liquidation surplus.

Annual inventory count: what the law requires

Every undertaking in Luxembourg must draw up once a year a full inventory of its assets and rights of every kind and of its debts, obligations and commitments of every kind. The duty sits in the Code de commerce and depends neither on legal form nor on size.

That inventory is not a formality running alongside the accounts: it is the document that gives the inventory figure on the balance sheet its evidential weight. A count that is dated, quantified, tied to a storage location and signed off by an identified person can be defended. A reconstruction drawn up after the closing date from software movements alone cannot be defended in the same way, because it observes nothing: it recalculates.

The gap we meet most often when taking over a file lies there. The inventory figure carried into the accounts comes from the theoretical stock report in the management software, with no annual physical count, sometimes for several years. At the first real count the difference appears all at once, and it relates to a period whose accounts have already been filed. The correction is then taken in the year the difference is found, which shifts a result that belonged to another one.

The filing chain does not change for all that: annual accounts are prepared on the eCDF platform then filed with the commercial and companies register, the trial balance following the standard chart of accounts set by the grand-ducal regulation of 12 September 2019, whose class 3 carries inventories and work in progress.

Where does inventory sit on the balance sheet and in the notes?

In Luxembourg inventories form the first heading of current assets in the balance sheet layout, with four sub-items: raw materials and consumables, work in progress, finished goods and goods for resale, and payments on account.

Question and answer 16/010 of the Commission des normes comptables, on the balance sheet and profit and loss layouts introduced in 2016, adds a point a literal reading misses: the work in progress item covers not only products being manufactured but also orders and services in progress. The European layout uses a different wording at that place, work in progress on products and orders, hence a difference in label between the two texts.

Work in progress of a service or construction business therefore belongs under that item, and payments received on account under creditors. The same commission has dealt with offsetting the two: the Luxembourg layout contains a specific item for those payments, but both elements must still be presented separately in the trial balance filed with the register.

The notes, finally, carry the method. Undertakings are required to state there the accounting methods and valuation methods applied to the items of the annual accounts: disclosing that inventories are valued at weighted average cost, or first in first out, is not a courtesy to the reader, it is the counterpart of the choice the law leaves open. Small undertakings file abridged notes, which does not release them from that disclosure.

Inventory on the tax balance sheet: cost or going-concern value?

On the Luxembourg tax balance sheet, current and liquid assets, inventories among them, are to be valued at purchase price or cost of production; where the going-concern value is lower, valuation may be made at that lower value. The rule sits in article 23 of the income tax law.

The definition of that value is written down: the going-concern value of an asset is the price an acquirer of the undertaking as a whole would attribute to the asset within the overall acquisition price, the acquirer being assumed to carry on the business. The verb matters as much as the definition: on the tax balance sheet valuation at the lower value may be made, whereas on the commercial balance sheet the value adjustment is owed. The two treatments part company less on the principle than on whether it is compulsory.

On methods, the tax authorities follow the same logic as accounting law. Guichet.lu notes that a business cannot in practice attach an individual purchase cost to each unit of a fungible asset and that the taxpayer may choose between three approximate valuation methods, weighted average cost among them. The same source uses purchase cost for a trading business and production cost for a manufacturer, allows indirect production costs at the business owner's option, and accepts a write-down where the market price is below purchase cost.

Two habits keep an adjustment off the assessment. The first is a dated calculation note: the method applied, its application to each product line, the source of the price used for any write-down. The second is consistency over time, since taxable income is built on a commercial balance sheet itself subject to consistency of methods. The calendar is that of the corporate tax return.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). Sources verified on 14 October 2026: every rule, method, date and legal reference cited was checked that day against an official Luxembourg or European source, with no figure taken from memory.

The sources, all read on 14 October 2026, fall into three sets. Accounting law: the consolidated text of the amended law of 19 December 2002 on the commercial and companies register and on the accounting and annual accounts of undertakings, version of 23 December 2025, for the valuation of current assets, purchase price and production cost, the exclusion of distribution costs, the methods available for fungible items and the compulsory reversal of value adjustments; the Code de commerce, for the annual inventory; the grand-ducal regulation of 12 September 2019, for the standard chart of accounts; Directive 2013/34/EU of 26 June 2013.

Accounting doctrine: questions and answers 16/010 and 21/024 of the Commission des normes comptables and its publication on offsetting orders in progress and payments received on account. Tax law: the coordinated text of the income tax law published by the Luxembourg direct tax authorities, for article 23 and the going-concern value, and the Guichet.lu pages on methods for preparing annual accounts, accounting obligations and operating profit.

Five points could not be verified. The network used for writing did not allow the consolidated texts to be opened directly: the quotations come from extracts of those official sources. The consolidated numbering of the articles carrying the accounting rules cited could therefore not be confirmed, and it is deliberately absent from the article; nor could the number of the article of Directive 2013/34/EU opening the option on cost formulas; nor the account numbers of the 2020 standard chart of accounts for inventories, class 3 alone being confirmed;

the progress of bill 8286, filed on 28 July 2023, remains undetermined; and no source consulted confirmed a duty to disclose in the notes the difference between the carrying amount of inventories and their last known market price, a rule sometimes cited in practice, which the article therefore does not state. Readers can check these points on Legilux, on the website of the Commission des normes comptables, on Guichet.lu and in the coordinated text published by the direct tax authorities.

This article sets out the state of the law at the date of publication and is not personalised accounting or tax advice: a specific situation calls for its own review, in particular to settle the method applicable to fungible items, to establish market value at the closing date and to assess the proportion of indirect costs that may be included. Report an error to contact@financialservices.lu: the correction is dated in the article.