Legal structure of a SOPARFI in Luxembourg

1. Concept

A SOPARFI-Financial Holding Company (Société de participations financières) in Luxembourg is a non-regulated Trading Company in Luxembourg which is fully liable to tax.  It benefits from the “inter-corporate privilege” of the parent subsidiary Directive and is able to carry on Holding activities in addition to its financial activities. A “Holding” describes a parent organisation which can take the following forms: Operational Holding; Management Holding; Finance Holding and Organisational Holding.

The purpose of a SOPARFI in Luxembourg is predominantly the acquisition, management and realisation of investments in companies in or outwith Luxembourg. A SOPARFI is permitted to carry on all types of commercial activities insofar as they are consistent with the articles of association or Luxembourg’s statutory provisions.

2. Formation

A SOPARFI in Luxembourg is formed through the recording of its articles of association by a notary. The articles of association will subsequently be published in the Official Bulletin (Mémorial C) and lodged with Luxembourg's Trade and Companies Register. A natural or legal person of any nationality,  regardless of where they are resident, is required and authorised for the formation.

A SOPARFI in Luxembourg is formed as a corporation as, for example, a Public Limited Company (PLC., Corp./SA.), a Limited Liability Company (LLC., Ltd./SARL) or a Partnership Limited by Shares (SCA). In practice in Luxembourg, the legal form of the Public Limited Company (PLC., Corp./SA) is  the preferred form for the formation of a SOPARFI. This is particularly so due to it being possible to issue bearer shares which can be easily transferred.

It is a mandatory requirement that a SOPARFI in Luxembourg carrying on commercial activities as its primary or secondary activity obtains prior written consent (a trade licence, autorisation d ́établissement) from Luxembourg's Ministry of Small and Medium-Sized Businesses.

Tax advantages of a SOPARFI in Luxembourg

1. Exemption from tax of dividends and sale and liquidation proceeds from investments

Since January 1st, 2013, the rate of corporate taxation on the distribution of dividends and sale and liquidation proceeds to a SOPARFI in Luxembourg has been 29.22% (21% or 20% corporation tax, plus the Solidarity Surtax at a rate of 7% as well as the Municipal Business tax at a rate of 6.75%). All corporations resident in Luxembourg which do not require a trade licence and whose assets, securities and bank balance together exceed 90% of its total balance sheet are required to pay only the minimum corporate taxation of 3,210 EUR (3,000 EUR plus the 7% Solidarity Surtax).

Notwithstanding this, in the context of the application of the „inter-corporate privilege“, the dividends and sale and liquidation proceeds distributed to a SOPARFI in Luxembourg are exempt from tax upon satisfaction of the following requirements:

1.1.    Requirements for the parent company

The parent company (SOPARFI) must be either a corporation resident in Luxembourg with unlimited tax liability or the permanent establishment in Luxembourg of an EU Company within the meaning of the parent subsidiary Directive or must be a corporation resident in a country which  has agreed a double taxation agreement (DTA) with Luxembourg. Furthermore, the parent company is required to hold at least 10% of the capital of the subsidiary company or to have acquired the said investment for at least 1.2 million EUR (or 6 million EUR for sale profits) and at the time of the making available of the dividends, the investment must have been held for an uninterrupted period of at least 12 months or a commitment existed to do so.

1.2. Requirements for the subsidiary company

The subsidiary company must either be a corporation which has its registered office in Luxembourg with unlimited tax liability or a foreign corporation with unlimited tax liability which is liable to a tax comparable to Luxembourg's corporation tax or be an EU-subsidiary company fully liable to corporate taxation (congruity with Luxembourg's rate of corporation tax is not mandatory) within the meaning of the parent subsidiary Directive.


If these requirements are not met, dividends can be at least 50% tax exempt if they are distributed by a corporation which is resident in Luxembourg with unlimited tax liability or a foreign corporation which is liable to corporate taxation (corresponding with Luxembourg’s rate of corporation tax) and which has its registered office in a country which has agreed a DTA with Luxembourg or an EU-Subsidiary Company within the meaning of the parent subsidiary Directive.

2. Deduction of investment-related expenses

Investment-related expenses are deductible to the extent they exceed the tax-free income generated from investment in the respective year. This also applies to value adjustments as well as losses suffered from the sale of investments.

3. Exemption from net wealth tax

The net wealth tax in Luxembourg applies, in principle, at a rate of 0.5%. Notwithstanding this and in accordance with the following requirements, the value of an investment remains exempt from the  net wealth tax. For the application of the parent subsidiary privilege herein, no minimum holding period is prescribed:

The parent company (SOPARFI) in Luxembourg must hold at least 10% of the capital of the subsidiary company or must have acquired the investment for a sum amounting to at least 1.2 million EUR and the subsidiary company must have been a resident or non-resident corporation with unlimited tax liability

4. Exemption from withholding tax

4.1.    Withholding tax on dividend distributions

In principle, the dividend distributions of a SOPARFI in Luxembourg are subject to withholding tax at a rate of 15%. However, the said tax will not be levied if the following requirements are satisfied:

Firstly, the company distributing the dividends must be a resident legal person with unlimited tax liability. The benefiting company must also be a resident corporation with unlimited tax liability or a corporation resident in an EU member state within the meaning of the parent subsidiary Directive or the resident permanent establishment of a parent company with its registered office in a country which has agreed a DTA with Luxembourg. In addition, the benefiting company is required to have an investment in the SOPARFI in Luxembourg amounting to at least 10% of the company's share capital or of a purchase price amounting to at least 1.2 million EUR and which has been held for a period of 12 months or a commitment existed to do so.

In the case of the dividends of a SOPARFI in Luxembourg being distributed to companies from countries outwith the EU yet which have agreed a DTA with Luxembourg, there exists a reduced rate of withholding tax of 5%.

4.2. Withholding tax on royalty payments, interest and liquidation proceeds

Royalty payments, interest payments as well as the distribution of liquidation proceeds are also exempt from withholding tax in Luxembourg.

4. Double taxation agreements (DTA's)

Moreover, a SOPARFI in Luxembourg can benefit from Luxembourg's multiple double taxation agreements (DTA's) due to the use of the tax exemptions arising from the „inter-corporate privilege“ not affecting the general tax liability of a SOPARFI

5. Value-added tax (VAT)

If the business activity of a SOPARFI in Luxembourg is not exclusively limited to the holding of investments, it will be liable to value-added tax (VAT)  and is consequently required to register for value-added tax (VAT). Luxembourg's rate of value-added tax (VAT) is 15%. A reduced rate applies to certain goods and services (e.g 3% on e-books).

LEGAL and TAX ADVICE and SUPPORT

Our lawyers and tax experts stand ready to advise you personally and free of charge during the decision-making process and throughout the formation/incorporation/setting up process of a SOPARFI-Financial Holding Company in Luxembourg.

Please contact us by telephone through the following telephone number

00352 250 345 27

(Monday - Friday between 9am and 4pm)

or by e-mail at the following e-mail address
info(at)startup-luxembourg.com

or simply use our online contact form.

TIME REQUIRED FOR FORMATION/INCORPORATION/SETTING UP

The formation/incorporation/setting up of a company in Luxembourg takes place within a few days.

EFFECT OF REGISTRATION IN LUXEMBOURG'S TRADE AND COMPANIES REGISTER

For the formation/incorporation/setting up of a corporation in Luxembourg, a corporation (e.g. a Public Limited Company (PLC., Corp./SA) or a Limited Liability Company (LLC., Ltd./SARL)) must be registered in the Trade and Companies Register. However, in contrast to other legal systems, the said registration is entirely declaratory. This means that a corporation in Luxembourg already exists subsequent to and already has full legal capacity following the recording of its articles of association by a notary.