KNOWLEDGE BASE

EUROPEAN HOLDING COMPANIES

The Luxembourg Holding Company

The Soparfi The Sicar Related Resources Luxembourg Key Elements

HOW TO PROCEED

THE SOPARFI

The SOPARFI (Société de Participation Financière) is an ordinary company which beside its holding activity can carry out or take part in any other activity such as financing, real estate, … It falls within the scope of general tax law and may benefit from the double taxation treaties concluded by Luxembourg and the European tax directives.

Legal Form

The SOPARFI can be constituted either as a “société anonyme” (public limited company- SA), a “société à responsabilité limitée” (private limited company- SARL) or a “société en commandite par action” (limited partnership by shares).

Formation

The minimum share capital for incorporation of a Luxembourg Company is €12.500 for a “société a responsabilité limitée”, which must be fully paid up, and €31.000 for a “société anonyme” of which a minimum of 25% must be paid up. A company incorporated as a “société anonyme” may have bearer shares. However, shares are nominative until the entire capital has been paid-up.

Taxation

A SOPARFI is a company fully subject to tax at a normal rate of 29,63% and is eligible to benefit from the double tax treaties concluded between Luxembourg and third countries and from EU directives.

A 1% capital duty is due to the tax authorities on any contributions made to the SOPARFI. However, this tax will not be applied if:

  • Capital increased by incorporation of reserves.
  • Transformations of a SOPARFI into a Holding 1929 or vice versa.
  • Certain transactions as part of a group reorganisation.
  • If transferred assets have already been submitted to capital duty in a member state.

Business tax is not levied on a Luxembourg Company. However, it is subject to a net worth tax of 0,5%.

Income

The taxable income of a SOPARFI is based on the annual financial statements prepared in accordance with generally accepted accounting principles. Expenses incurred exclusively for the purposes of the business are deductible while expenses incurred with exempt income are not deductible.

Income in form of dividends, capital gains on disposal of shares and winding-up exceedents can be exonerated under certain conditions.

Dividends Exemption

To be able to benefit from dividends exemption, the following conditions must apply:

The distributing company must be:

  • A fully taxable resident limited company.
  • A non-resident limited company that is fully liable to tax according to Luxembourg corporate tax.
  • A company resident in another Member State of the EU and covered by art. 2 of the EU Council Directive of 23 July 1990.

The receiving company must be:

  • A limited company that is resident in Luxembourg and fully taxable.
  • A Luxembourg domestic permanent establishment of a company resident in another Member State of the EU and covered by art. 2 of the EU Council Directive of 23 July 1990.
  • A Luxembourg domestic permanent establishment of a limited company that is resident in a state with which Luxembourg has concluded a double taxation treaty.

The holder of the participation must hold or undertake to hold the shares for an uninterrupted period of at least 12 months during which the participation must not fall under a 10% limit and or the acquisition price being under €1,2 million.

Capital Gains Exemption

The conditions for a SOPARFI to benefit from the exemption are similar to those of the exemption of dividends. The only difference is the amount of acquisition price that is €6 million.

Interest and Royalties

See income above.

Some Advantages of the SOPARFI

Besides the common advantages of a holding company, the SOPARFI may also enjoy from the following:

Exemption on Winding-Up

In case of a winding-up of a SOPARFI, dividend payments are transmitted free of withholding tax to the beneficiaries.

Exemption from Withholding Tax on Payment of Dividends

Dividends paid by the SOPARFI are exempt from withholding tax if the distributing company is a fully taxable limited company under Luxembourg law and the receiving company is:

  • A fully taxable resident limited company.
  • A resident in a Member State of the EU and falls under art. 2 of the EU Council Directive of 23 July 1990.
  • A domestic permanent establishment of a limited company resident in another Member State of the EU and falling under the article 2 of the aforementioned Directive.
  • A domestic permanent establishment of a limited company resident in a state with which Luxembourg has agreed a double taxation treaty.

At the date on which the income is made available the beneficiary must hold or undertake to hold directly for an uninterrupted period of at least 12 months a participation of at least 10% in the share capital of the distributing company or an acquisition price of at least €1,2 million.

Exemption from Withholding Tax on Payment of Interest

According to the law, no withholding tax shall be imposed on payment of interest by a Luxembourg company.

Exemption from Withholding Tax on Payment of Royalties

According to the law of 9 July 2004, no withholding tax shall be imposed on payment of royalties by a Luxembourg company, taking effect from the year of 2004.

Exemption from Net Worth Tax

The basis to calculate the net worth tax applicable on fully taxable companies is their net operating assets reflected by the unit value of the company. However, participations can be excluded from the calculation of the unit value of the company if:

The SOPARFI is:

  • A fully taxable resident limited company.
  • A company that is resident in another Member State of the EU and covered by the art. 2 of the EU Council Directive of 23 July 1990.
  • A domestic permanent establishment of a company that is resident in a state with which Luxembourg has agreed a double taxation treaty.

The subsidiary is:

  • A fully taxable resident limited company.
  • A non-resident limited company fully taxable to a tax corresponding to the Luxembourg corporation tax (15% minimum).
  • A company that is resident in another Member State of the EU and covered by the art. 2 of the EU Council Directive of 23 July 1990.

The direct participation must be at least 10% of the share capital or the acquisition price to be at least €1,2 million at the end of the operational year taken into consideration for the calculation of the unit value of the SOPARFI.

Back to top

THE SICAR

Definition

The SICAR (Société d’Investissement à Capital Risque) is a company which is ruled by the Law of 15th June 2004. It falls in the scope of general law and benefits from the EU Directives or double taxation treaties concluded by Luxembourg. Its activities are restricted to investment in venture capital and it is restricted to “well informed” investors. Venture capital is defined by law as any direct or indirect injection of capital to entities in view of their launch, development, listing,...

The SICAR may benefit from the double taxation treaties concluded by Luxembourg.

Legal Form

The SICAR can be constituted either as a “société anonyme” (public limited company- SA), a “société à responsabilité limitée” (private limited company- SARL), a “société en commandite par action” (limited partnership by shares), a “société en commandite simple” (limited partnership) or a “société coopérative sous forme de société anonyme” (cooperative company).

Formation

The minimum subscribed share capital of a SICAR must reach €1 million within 12 months after the authorization by the CSSF. The capital must be fully subscribed but each share must only be paid up for at least 5% (not applicable if incorporated as a limited partnership). Contributions may be in cash or in kind. No legal reserve has to be maintained. The capital may be variable under certain conditions.

The Supervisory Authority

The SICAR must be authorised by the “Commission de Surveillance du Secteur Financier” (CSSF), the Luxembourg supervisory authority for the financial sector. The custodian, as well as the directors or the managers must submit to a CSSF clearance.

The Custodian

The assets of the SICAR have to be safeguarded by an appointed custodian. It should be a regulated financial institution established in Luxembourg. His role will be to act independently and exclusively in the interest of the investors.

Nevertheless, the custodian does not verify the conformity of the investment decisions to the investment policy defined in the prospectus of the SICAR.

The Investors

The SICAR investors can be professional investors (i.e. investment funds, professional investors, pension funds, other commercial companies) or all “informed” investors.

An investor will be classified as “informed” if:

  • He declares that he complied with the expertise and knowledge expected from a professional investor; and
  • He invests a minimum €125.000 or
  • He delivers a written confirmation by a professional from the financial sector (i.e. credit institutions, investment companies) that he has the expertise and knowledge to apprehend investment in vesture capital.

No investment rules are provided by law (i.e. risk spreading or diversification rules).

Income

The SICAR benefits from a special tax regime.

Income Exemption

Income from movable assets (sale, contribution or liquidation) is exempt from income tax in the SICAR.

Capital Gains Exemption

Non-resident investors are not subject to Luxembourg income tax on capital gains on disposal of shares in the SICAR.

Some Advantages of the SICAR

Besides the common advantages of a holding company, the SICAR may also enjoy from the following:

Exemption from Withholding Tax on Payment of Dividends

Dividends paid by the SICAR are exempt from withholding tax, regardless the place of residence of the shareholder.

Exemption from Withholding Tax on Payment of Interest and Royalties

Interest and royalties paid to non-residents are not subject top withholding tax.

Other Advantages

  • No wealth tax is applied.
  • The SICAR is not obliged to create any legal reserve.
  • The SICAR is subject to a fixed capital duty of €1.250 maximum.

RELATED RESOURCES

Double Tax Treaties

Back to top

LUXEMBOURG KEY ELEMENTS

Formation
Legal Form: Société anonyme (SA/NV);
Société privé a responsabilité limitée (SPRL/BVBA)
Minimum Subscribed Capital: €31.000 (SA)
€12.500 (SARL)
Minimum Paid-Up Capital: €7.750 (SA)
€12.500 (SARL)
Number of Shareholders: 2 (SA)
1 to 40 (SARL)
Type of Shares: Registered or bearer (SA)
Registered (SARL)
Substance Requirements: Nil
Taxation
Capital Duty: 1% maximum
Net Worth Tax: 0.5%
Corporate Income Tax: 30,38% (including 7,5% municipal business tax and 4% unemployment tax)
Double Tax Treaties: 47
Dividends Exemption: 100%
Holding Requirements: 10% or €1,2M for 1 year;
15% corporate tax
Capital Gains Exemption: Yes
Holding Requirements: 10% or €6M for 1 year
Tax Credit: Yes
Relief of Losses: Carry forward indefinitely
CFC Rules: No
Debt-to-Equity Ratio: 6:1
Withholding Taxes
Dividends: EU Parent Co- 0%2
Treaty Countries- 0%2-15%
Others- 20%
Interest: 0%
Royalties: 0%
Liquidation: 0%

2 if conditions are met.

Back to top
FREE INITIAL CONSULTATION

A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation, for a Free Initial Consultation.

The experienced consultant listed below has particular expertise in this area and will gladly assist with advice on how to approach your particular challenge.

To make contact with a consultant at one of our offices who speaks your language, click here for a full list of our office contact details.

OCRA (Luxembourg) S.A.
Parc d'Activité Syrdall 2
18-20 rue Gabriel Lippmann
L-5365 Munsbach
Luxembourg

Tel: 
Fax: 
Email: 
+352 224 286
+352 224 287
luxembourg@ocra.com

Languages spoken in this office:Languages Spoken: English, Dutch, French, Italian, German and Spanish

REQUEST A CALLBACK

Joao Ferreira (Managing Director)
LUXEMBOURG OFFICE
Tel: 
Fax: 
+352 224 286
+352 224 287
Email: ferreira@ocra.com
Legal Warnings | Privacy Policy | Feedback     OCRA Worldwide 1995 -
Disclaimer: Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other
professional advice. OCRA Worldwide does not accept any responsibility, legal or otherwise, for any errors or omission.