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SOPARFI – Holding company in Luxembourg

Why Luxembourg?

Luxembourg is a very attractive jurisdiction for holding companies and many major multinational groups have indeed located a holding vehicle in Luxembourg (the commonly called Société de Participations Financières or SOPARFI).

SOPARFI is the most common vehicle dedicated to holding and financing activities in Luxembourg. The company may also carry out other activities, since they are provided for in the bylaws and a business license is obtained if required. Any undertaking or private person can be eligible as an investor.

A SOPARFI is a fully taxable unregulated company, not subject to any supervisory authority. It does not require authorisation unless quoted and/or commercial activities are carried out.

Participation exemption for dividends received

In order for a Luxembourg company to be entitled to the participation exemption for dividends received and for capital gains realized on shares, two sets of requirements must be met:

The first set of requirements concerns the shareholding in the subsidiary, i.e. the participation held by the Luxembourg parent must be important (i.e. it may not be a portfolio investment). The Luxembourg holding company must own either a participation of 10 percent in the share capital of the subsidiary or, alternatively, a participation with an acquisition value of at least €1.2 million (this threshold is however higher for the capital gains exemption, i.e. € 6 million). This qualifying participation must be held for a period of one year.

The second set of requirements pertains to a (relatively complex) subject-to-tax test imposed on the subsidiary. Under the Luxembourg participation exemption regime, a subsidiary will be deemed to pass this test if it is either:

  • (i) a qualifying Luxembourg resident entity fully subject to Luxembourg income tax; or
  • (ii) an EU entity covered by article 2 of the Parent-Subsidiary Directive; or
  • (iii) a capital company that is subject in its country of residence to an income tax which is “comparable” to the Luxembourg corporate income tax (i.e. a tax rate of at least 10.5 percent and a comparable tax base).

Legal form a SOPARFI can assume incorporations aspects

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).

The minimum share capital for incorporation of a Luxembourg Company is €12.000 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.

Every SOPARFI company is required to appoint a local domiciliation agent to perform the registration procedure and establish a local business address.

SOPARFIs do not necessarily need to obtain audits or file accounts with the Luxembourg government. A public SA however, must have its own independent auditor to check and verify annual business accounts.

If you wish to learn more about SOPARFI or need assistance on how to set up and manage your SOPARFI in Luxembourg, please contact one of our business development managers.

SOPARFI Luxembourg holding advantages

SOPARFI is extremely popular as it offers numerous tax exemptions, takes various forms to perfectly match the needs of shareholders.

Contrary to misconceptions, SOPARFI is not a specialty company but is categorized as a standard commercial entity that follows common law. While it does not afford shareholders special tax regime, it can however greatly reduce the tax burden by limiting its activity to holding and structuring investments, enabling participation companies can take advantage of the rules under the European union Directive in tax regime applicable to Parent-Subsidiary companies.

Consequently, all forms of commercial activity hosted by a SOPARFI are subjected to corporation income tax and value added tax. Since SOPARFI is subject to tax, it takes advantage of prevailing double tax treaties in Luxembourg. The major characteristics of SOPARFI makes it an attractive vehicle for operating holdings for a group of businesses. To date, it is also considered the best holding and financing vehicles for private equity and venture capital investments.

Most relevant benefits

Foreign investors can own up to 100% of shares.
You only need at least one shareholder to incorporate a SOPARFI.
There are no requirements for audits.
Companies that are not operating in Luxembourg are required to pay a flat annual tax fee amounting to Eur 4,815. Foreign investors however should report their income to their respective country’s tax agencies.
A SA or Société Anonyme may be created with individually registered shares or held by nominees that can be easily transferred without full public disclosure.
It can hold all types of real estate within Luxembourg or in any other country.
It can hold various intellectual property rights, including patents, designs, copyrights, domain names, and brands.
Presents tax exemptions on capital gains by meeting specific conditions and requirements.

Dividends and capital gains on shares – double taxation relief

One of the major advantages that are afforded to SOPARFIs is the non-double taxation in terms of dividends and capital gains. In essence, SOPARFIs fall under the domestic participation regime based on the EU Parent Subsidiary Directive, which means that dividends will be exempted from taxes when the conditions mentioned below are fulfilled:

  • The organization also called as qualifying subsidiary paying the dividend must be under the Parent Subsidiary Directive imposed by the EU and pays corporate income tax in its country of residence.
  • Income tax exemption on dividends received is distributed to a SOPARFI at the time when the dividend or liquidation distribution has held continuous operations for at least 12 months with direct participation of 10% or greater nominal capital by the subsidiary. In the event of lower participation rate, an organization must have a direct participation with an acquisition price of at least EUR 1.2M.

If these two general conditions are met, a SOPARFI is considered automatically qualified for 50% exemption.


Dividends paid by a SOPARFI are subject to Luxembourg dividend tax at a rate of 15% unless a prevailing tax exemption or a lower tax treaty rate is applicable. Lower dividend tax or tax exemption is also applicable for SOPARFIs formed through Luxembourg tax transparent entity. Additionally, reduced dividend tax is given to a shareholder with a direct investment equal to is pro-rated tax transparent net assets.

A full withholding tax exemption is applicable if the parent company is verified as a fully taxable company established in the European Union, EAA, or a treaty country, that:

  • has held uninterrupted operations for at least 12 months or
  • has committed to continue to hold until a continuous 12 months of uninterrupted period has elapsed a direct participation no less than 10% of the nominal capital of the paid-up capital of the SOPARFI.
In the case of a lower percentage participation, a direct participation with an acquisition price of EUR 1.2M is to be met in terms of dividends and liquidation proceeds. In 2016, after further amendment of the EU Parent Subsidiary Directive, an anti-abuse rule has been created to prevent non-genuine arrangements that does not reflect economic from obtaining exemption of dividend and withholding tax. Another anti-abuse provision was introduced stating that taxable profit distributions or dividends under the EU Subsidiary directive will not be given benefits from participation exemption.

Capital gains

Capital gains and losses of a SOPARFI are deemed taxable for corporate income tax. The same participation exemption rules on dividends are also applicable to capital gains when disposal of shares resulting in capital gains happen under these conditions:

  1. A SOPARFI running for an uninterrupted period of at least 12 months; and
  2. A SOPARFI with direct participation of no less than 10% of nominal paid capital of the subsidiary. In the case of entities with lower percentage participation (less than 10%), a direct participation at an acquisition price of EUR 6M is a requirement.

Additionally, tax exemption on capital gains is also applicable to participations that are approved as a result of tax-transparent entities. Capital gains generated from qualifying subsidiaries are taxable provided that related expenses, including interest loans from financing the purchase of shares are deducted from non-exempted profits in the past few years.

Liquidation proceeds

SOPARFI liquidation proceeds, or advance payments are generally not assessed with dividend withholding tax.


The Grand Duchy of Luxembourg does not impose any withholding tax on royalties that may be held by a SOPARFI.


The tax law of Luxembourg does not have any provisions for debt-to-equity ratio. For holding activities. However, it is commonplace to follow compliance with a standard 85:15 debt-to-equity ratio for related parties in the event that debt financing is approved by a shareholder to ensure tax deductibility of interest of interest payments made by the payer.

Interest and Royalties

An arm’s length, fixed, or floating rate interest payments are not assessed with Luxembourg’s withholding tax rules. In some cases, sharing interest paid on certain debt instruments may be subjected to a 15% withholding tax , unless any lower tax treaty is deemed applicable, or a tax exemption may be applicable.

SOPARFIs do not necessarily need to obtain audits or file accounts with the Luxembourg government. A public SA however, must have its own independent auditor to check and verify annual business accounts.

Corporate and Tax status

A SOPARFI is fully subject to Luxembourg income tax and net worth tax. Additionally, its profit distributions are subject to dividend tax.

Profit taxes

The SOPARFI is a fully taxable company which is liable to 24.94 % corporate income tax on its trading revenues and therefore enjoys the benefits of European Directives and double tax treaties signed by Luxembourg with foreign countries.

Net worth tax

Please note for your information that there is an annual minimum net wealth tax of EUR 4 815 on finance and holding companies. In fact, companies whose aggregate financial assets, transferable securities, and cash deposits exceed:

  • 90 percent of their overall balance sheet; and
  • EUR 350,000 will be subject to a minimum lump-sum NWT of €4,815. Companies that do not achieve the criterion mentioned above are liable to a minimum NWT ranging from EUR 535 to EUR 32,100, depending on their total financial sheet.

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). The standard VAT rate is 16%. The standard VAT rate generally applies for all goods and services for which no exemption, 0% or one of the reduced VAT rates is foreseen.

The first reduced VAT rate is 13%. This reduced rate applies to some types of wine, certain types of fuel and other means of energy, advertising brochures and management and custody of credit guarantees, among others.

The second reduced VAT rate is 7%. This reduced rate applies, in general, to some types of energy (such as electricity and gas), plants and other floricultural products, bicycle repair services, shoes and other leather products, and cleaning and hairdressing, among others.

In addition, there is a reduced VAT rate of 3%. This reduced rate applies, in general, to food products, pharmaceuticals, books, magazines and newspapers, children’s clothing and shoes, restaurant services, passenger transport and admission to cultural events, among others.

Double taxation treaties

Luxembourg has signed 86 DTTs, most of which include provisions of article 26.5 of the Organisation for Economic and Co-operation Development (OECD) model agreement on exchange of information between tax authorities.

SOPARFI structure – resume

It is usually established as a Public Limited Liability Company (SA) or a Private Limited Liability Company (SARL) even if other legal forms can be adopted (i.e., Partnership Limited by Shares (SCA), Special Limited Partnership (SCSp), Société cooperative (SC or SOCOOP), European company (SE), Simplified Public Company (SAS)).

Registered Office address must be in Luxembourg.

Board meetings must be held in Luxembourg, unanimous consent resolutions may be used.
Annual financial statements must be filed every year with the Luxembourg Trade and Companies Register.
Tax returns must be filed annually with the Luxembourg Tax authorities.
Approximately four (4) to five (5) days for incorporation, from the receipt of the share capital in the company bank account and the due diligence documents.
Official corporate documents furnished within approximately four weeks by the Luxembourg Trade and Companies Register.
For any further information you may need before you take your decision, our business management team will be ready to guide and assist you.

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