New law on non-profit organisations and foundations

On 28 June 2023, Parliament adopted a new law on non-profit organisations and foundations (the “Law”).

The Law aims to simplify and modernise the legal framework created by the century-old law of 21 April 1928, by replacing its outdated provisions.

The main changes introduced by the Law are as follows:

  • Significant simplification of the administrative procedures for incorporating and managing non-profit organisations. In particular, among other repealed obligations, the Law abolishes the obligation to file an annual list of the non-profit organisation’s members with the Luxembourg Trade and Companies Register (Registre de commerce et des sociétés, “RCS”). From now on, it will be sufficient to maintain an up-to-date list of the members at the organisation’s registered office. The Law also entirely removes the requirement to obtain court approval in certain circumstances. Similarly, the Law introduces more flexibility into the governance rules with an option to hold board meetings and general meetings remotely.

  • Categorisation of organisations and targeted accounting regimes. The Law introduces a new accounting regime, based on a differentiated and proportionate approach to the extent of obligations by categorising non-profit organisations according to their size. Non-profit organisations are divided into three categories: small, medium-sized and large (including organisations recognised as a public utility). For small organisations, simplified accounting will be sufficient. Large organisations, on the other hand, will be obliged to submit their accounting documents to an approved auditor. Non-profit organisations will be categorised in accordance with the following criteria: (i) number of full-time employees on average during a fiscal year, (ii) total revenue of the organisation, and (iii) total assets at the end of a fiscal year. All foundations, whatever their size, will be subject to the accounting regime applicable to large non-profit organisations.

  • New restructuring mechanisms to avoid voluntary dissolution. The legal framework for restructuring non-profit organisations and foundations is modified to permit them to (i) carry out a conversion by retaining their legal personality and without giving rise to a dissolution, or (ii) proceed to a merger by transferring their assets and liabilities to the new or absorbing non-profit organisation or foundation via a dissolution without liquidation. The members of a non-profit organisation that ceases to exist will automatically become members of the organisation resulting from the merger. It is important to bear in mind that these restructuring mechanisms may have significant tax consequences, depending on each specific case.

  • Reduction of initial endowment for foundations. The initial endowment to a foundation is reduced from 250,000 euros to 100,000 euros, with the option of using up the assets on condition that net assets do not fall below 50,000 euros. The aim is to bring the system into line with economic reality and give foundations greater flexibility.

  • Implementation of procedure for administrative dissolution without liquidation for non-compliance with RCS filing and publication requirements. To provide the RCS with up-to-date information, a procedure for administrative dissolution without liquidation has been introduced. The procedure is initiated by the Luxembourgish Business Register (the “LBR”), which sets two cumulative objective criteria for triggering the procedure: (i) no filing with the RCS for at least five (5) years, and (ii) failure to update the information within six months. If no response is received within this deadline, the procedure for administrative dissolution is triggered.

In summary, the Law simplifies administrative procedures and abolishes certain obligations, whilst also creating new requirements that non-profit organisations and foundations will need to comply with.