On 19 September 2023, the law dated 7 August 2023 overhauling the centenary law of associations and foundations ("Law") was published in the Luxembourg official gazette.
The Law repeals the law of 21 April 1928 on non-profit associations and foundations.
The Law aims to lighten and modernize the legal framework for non-profit associations ("Associations") and foundations ("Foundations") and provide more accounting transparency to guarantee better control and thus create a new legal framework that meets the current associative and charitable sector's needs.
The Law entered into force on 23 September 2023.
However, existing Associations and Foundations are granted a period of 24 months from the entry into force of the Law to bring their statutes into line with the new provisions (i.e. until 23 September 2025).
The purpose of this alert is to outline the key features of the Law.
For further information on what these developments mean for you or your organization, please get in touch with your usual Baker McKenzie contact.
- Associations and Foundations are entitled to own buildings (even if they are not necessary to achieve their purpose).
- Associations are no longer obliged to file an annual list of members with the Luxembourg Trade and Companies Register ("RCS"). Instead, a register of members must be maintained by the board of directors.
- The composition of the board of directors is monitored, as each member shall satisfy conditions of honourability and may be required to be replaced on this basis.
- The procedure for approval by the district court of changes to the articles of association or of the procedure for dissolving the Association has been removed.
- Governance aims to become more efficient by adapting the system to technological developments and by adding certain flexibilities, such as the introduction of a legal framework for the organization of day-to-day management, the possibility of holding a meeting of the board of directors (video conference and written resolutions) or a general meeting of the members (video conference), or to use electronic means of communication for meeting notices.
- A new accounting system has been introduced with the aim of guaranteeing transparent accounting and thus meeting the requirements of the recommendations of the Financial Action Task Force (FATF). Associations are now categorized according to their size into three categories, namely small, medium and large Associations. Simplified accounts showing all of the Association's income and expenses are provided for small Associations. The medium-sized Associations must maintain accounts according to a system of books and accounts in accordance with the usual rules of double-entry accounting. Large Associations, Associations recognized as being of public utility and Foundations are obliged to submit their accounting documents to an approved company auditor (réviseur d'entreprise agréé). The annual financial information obligations towards the Ministry of Justice has also been clarified.
- New restructuring tools should facilitate the governance by having recourse to a transformation or a merger, which will allow the Association/Foundation to retain its legal personality in the event of transformation, and to transfer the assets and liabilities to the new Association/Foundation or the absorbing Association/Foundation, as the case may be, in the event of a merger. In the case of an Association, the members of the Association that will be terminated automatically acquire the status of member of the Association resulting from the merger.
- A procedure for administrative dissolution without liquidation has been introduced to have up-to-date data with the RCS necessary to meet the FATF's recommendations. Two cumulative objective criteria are set to initiate this procedure, namely (i) the absence of data updates within six months and (ii) the absence of any filing in the file with the RCS for at least five years. In the absence of responses within the time limits, the procedure for administrative dissolution without liquidation will be triggered by the manager of the RCS.
- The initial endowment of the Foundations has been reduced to EUR 100,000 (from the EUR 250,000 initially planned) with the possibility of using up the assets without, however, the net assets falling below EUR 50,000. The minimum EUR 100,000 initial endowment is not applicable to pre-existing Foundations.
In more detail
Luxembourg Business Register's guidance
On 25 September 2023, the Luxembourg Business Register issued a series of guides and supports to help the 219 Foundations and 8,281 Associations in Luxembourg, including 107 recognized as being of public utility (based on figures available as of 30 June 2021) to navigate through their new legal environment:
To be noted that since end of 2022, Associations and Foundations may submit their application for creation or for approval of amendments to their articles of association to the Minister of Justice online through MyGuichet.lu or the MyGuichet.lu mobile application.
Towards a status of a European cross-border Association
On 5 September 2023, the European Commission presented a proposal for a directive aimed at establishing a new status for a cross-border Association operating in several member states at the same time.
As per the European Commission's press release, the new rules aim at:
- Establishing in each member state a new legal form of Associations specifically designed for cross-border purposes (European Cross-Border Association (ECBA)), next to existing national legal forms.
- Allowing automatic recognition of this new legal form across the EU once an ECBA is registered in one member state, thanks to the ECBA certificate.
- Providing for harmonized rules on transfer of registered office, thus allowing Associations to reap the full benefit of the freedom of establishment and the freedom to provide services, goods, and capital in the EU.
- Ensure the ECBA fully enjoys the benefits of the Internal Market regardless of the member state of registration by having free and non-discriminatory access to public funding in each member state it operates.
The implementation of that directive, once adopted, may result in amending the Law to integrate the ECBA and its applicable regime.
We will closely monitor the progress of this directive proposal and keep you posted.