The profit and loss account shows how your company made, or lost, money over the year. Here is its structure under the PCN 2020, the five lines to read first, and what the firm watches.
In short. The income statement, known in Luxembourg as the profit and loss account, sums up your company's income and expenses over a financial year and arrives at its result, a profit or a loss. It is part of the annual accounts, alongside the balance sheet and the notes, and follows the standard chart of accounts PCN 2020: expenses in class 6, income in class 7. For a director, reading it does not require being an accountant: five lines are enough to understand where the result comes from, and why rising turnover does not guarantee a profit.
The balance sheet says what your company owns at a given date. The income statement tells what it did during the year: what it sold, what that cost, and what is left. It is the document directors look at most, and often read least well, because they stop at the bottom line. Here is how it is built in Luxembourg, the five reading levels that really matter, and what a good manager spots in it before you do.
What is the income statement in Luxembourg?
The income statement is a statement that traces, over a full financial year, income (what the business earned) and expenses (what it spent), to arrive at the result for the period. In Luxembourg it keeps its historic name of profit and loss account and forms, together with the balance sheet and the notes, the set of annual accounts most companies prepare and file each year.
The difference with the balance sheet comes down to one word: time. The balance sheet is a photo taken on the last day of the year; the income statement is the film of the twelve months that passed. The first shows a state, the second a movement. We cover reading the first in our article on reading your balance sheet in Luxembourg; the two are read together.
Income and expenses: the structure under the PCN 2020
The presentation is not free. It follows from the PCN 2020, which files every transaction in a class of accounts. Two classes feed the income statement directly: class 6 for expenses, class 7 for income. The layout itself is set by grand-ducal regulation, issued under the amended law of 19 December 2002 on the trade register and accounting. We set out this class logic in our guide to the standard chart of accounts.
In Luxembourg, the income statement is presented by nature: expenses are classified by their nature (purchases, staff, depreciation) rather than by their function (production, sales, administration). Here are the main blocks, from top to bottom.
| Block | PCN class | What you find there |
|---|---|---|
| Turnover and other income | Class 7 | Sales, services, own work capitalised, other operating income |
| Purchases and external charges | Class 6 | Raw materials and goods, subcontracting, rent, professional fees, energy |
| Staff costs | Class 6 | Gross salaries and employer social contributions |
| Value adjustments | Class 6 | Depreciation and impairment of assets |
| Financial income and charges | Classes 6 and 7 | Interest paid, interest received, exchange differences |
| Taxes on the result | Class 6 | CIT and municipal business tax for the year |
Each block brings together income and expenses of the same nature. It is this arrangement that lets you read the result in layers, rather than as a single figure at the foot of the page.
The five lines a director should read
An income statement reads as a cascade: each level removes one category of expense and refines the result. Five levels are enough to understand your year.
Gross margin first. It is what is left of turnover once the purchases and external charges directly tied to the activity are removed. It says whether your model is profitable even before paying salaries. The operating result next: gross margin minus staff costs and depreciation. This is the real thermometer of the activity, the one that depends on neither the banks nor the tax office. The financial result, third level, isolates the cost of your financing (loan interest) and your financial income. The result before taxes combines operations and finance. Finally, the result for the year, the bottom line, once tax is removed: it is this figure that joins equity on the balance sheet.
The useful reading is not the amount of the bottom line, but the place where the result is made or lost. A company can show fine turnover, a decent gross margin, and a negative operating result because its overheads have slipped. A positive net result driven by a one-off gain, meanwhile, says nothing about the health of the activity. It is by reading the layers, not just the bottom, that you understand what is happening.
Want us to read your latest income statement with you and show you where your margin is really made? We do it without jargon.
Have your accounts readFull account or abridged layout: what company size changes
Not every company publishes the same level of detail. The law lets smaller entities draw up an abridged profit and loss account, in which the first items (turnover, change in inventory, other income, purchases and external charges) are grouped into a single gross margin line. In practice, a small company does not publicly disclose its turnover: the outside reader sees the gross margin, not the detail of sales.
This lighter format depends on the size thresholds (balance-sheet total, net turnover, headcount) assessed under the law. It changes nothing in your internal bookkeeping, where the detail always exists: it only concerns the filed version. To steer the business, you obviously want to read the full account, the one that shows each block, not the condensed version meant for filing.
From the accounting result to the taxable result
Beware a common shortcut: the result of the profit and loss account is not directly the basis of your tax. To obtain the taxable result, you start from the accounting result and add back the charges the law does not allow, beginning with the company's own taxes (corporate income tax, municipal business tax, net wealth tax) and a few other excluded expenses. This is why a company can show a modest accounting result and pay a tax that looks high against that figure.
We explain which charges qualify and which do not in our article on deductible expenses of a company in Luxembourg, and the calculation of the three taxes in the one on corporate tax in Luxembourg. Above all, remember that the income statement and the tax return are two distinct steps, linked but never identical.
Reading it while it still helps, not eight months later
Most directors only discover their income statement at closing, the following spring. By then, it serves to record a finished year, not to correct it. That is exactly what our model changes. We keep your books in the Odoo we set up for Luxembourg, so your income statement builds as you go: your sales, purchases and costs feed classes 6 and 7 continuously, and you read the margin and result of the current month, not those of last year.
No classic accounting firm touches your management tool, and no integrator keeps your books. We do both in the same system, which gives a result you can read at any time. The same data then feeds the financial dashboard and the filing of the annual accounts. The full framework of our approach is set out in our guide to accounting firms in Luxembourg, and its cost in our article on what an accounting firm costs. The fixed fee starts from €325 per month, all included.
Frequently asked questions
What is the difference between the income statement and the balance sheet?
The income statement traces income and expenses over a whole financial year and arrives at the result. The balance sheet is a snapshot of net worth at a given date: what the company owns and owes. The first shows the movement, the second the state. Together with the notes, they form the annual accounts.
What does profit and loss account mean in Luxembourg?
It is the Luxembourg name for the income statement. It refers to the same document: the statement that groups income (class 7 of the PCN 2020) and expenses (class 6) for the year to arrive at the profit or loss.
What is gross margin in an income statement?
It is what is left of turnover after the purchases and external charges directly tied to the activity, before salaries and depreciation. In the abridged format allowed for small companies, it groups the first items of the account into a single line, which hides the detailed turnover from the outside reader.
Is the income-statement result the basis for tax?
Not directly. The accounting result is the starting point, but non-deductible charges are added back, beginning with the company's own taxes (corporate income tax, municipal business tax, net wealth tax), to reach the taxable result. The two figures almost always differ.
How often should I look at my income statement?
Ideally more than once a year. With real-time bookkeeping, an interim income statement can be viewed at any time and lets you track the margin and result during the year, while there is still time to act.
Read more
- Reading your balance sheet in Luxembourg: assets, liabilities and how to read it
- The standard chart of accounts in Luxembourg (PCN 2020): a guide
- Deductible business expenses in Luxembourg: what qualifies and what doesn't
- Corporate tax in Luxembourg: CIT, municipal business tax and net wealth tax
- Accounting firm in Luxembourg: the complete guide for an SME
Why Advena?
We are the only Luxembourg accounting firm that keeps your books inside the management tool it deployed for you. Your income statement builds continuously, you read it when you need it, and the fixed fee starts from €325 per month, all included. We inform you of accounting and tax rules, we do not replace tailored advice, and we tell you plainly when our model is not right for you.
Want an income statement you can read whenever you like, not once a year? Let's talk.
Talk about your bookkeepingInformation up to date as of July 2026, based on the amended law of 19 December 2002 on the trade and companies register and on accounting and annual accounts, and on public resources from Guichet.lu. This article is for information and does not constitute tailored accounting or tax advice.
