• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 6/20/2014

Luxembourg - Rules for electing use of functional currency regime 

June 20: Luxembourg’s tax authorities this week issued guidance establishing a framework for rules with respect to the functional currency regime that is available under Luxembourg tax law.

Circular L.G.-A n°60 (French) [PDF 109 KB] issued 16 June 2014, allows a corporation to determine its taxable income in the currency of its corporate capital (i.e., other than the euro), provided that the currency thus selected represents the main or principal currency of the corporation’s primary economic environment—in other words, the corporation’s “functional currency.”

By applying these rules, taxpayers may avoid triggering exchange differences between the functional currency and the euro because taxpayers would no longer be required to prepare a tax balance sheet based on the euro.


A taxpayer can elect to apply the functional currency regime by submitting a written request to the Luxembourg tax authorities at least three months before the end of the first financial year for which the election is made (for newly established corporations, the request must be filed before the end of the corporation’s first financial year).

Once made, the election to apply the functional currency regime generally is irrevocable (there may be an exception to this rule when there is a change to the currency that is used for the corporate capital).


The computation of the taxable income will be made in the functional currency. Therefore, certain accounts—i.e., profit or loss, non-deductible expenses, non-taxable income, loss carryforwards triggered under the functional currency regime—will be expressed in that currency. The amount of taxable income thus determined then will be converted into euro at the applicable exchange rate.

Tax credits will be computed in the functional currency and converted to euro at the applicable exchange rate. The carry forward of tax credits, however, will be available only in euro—not in the functional currency.

At this point, various amounts—the amount of tax due, tax assessments, and tax payments and refunds—will be determined in euro.

Read a June 2014 report [PDF 110 KB] prepared by the KPMG member firm in Luxembourg: Tax circular on Luxembourg functional currency regime

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