TBA & Associates

Luxembourg SOPARFI
Financial Holding Company

General Overview

The SOPARFI structure in Luxembourg, known formally as “Societe de Participations Financières,” is a well-established corporate entity specifically created for financial investments. SOPARFI entities in Luxembourg are governed by the general legal and tax regulations applicable to trading companies. Additionally, they enjoy specific advantages linked to Luxembourg’s “inter-corporate” privilege.

Legal Structure

SOPARFI entities in Luxembourg are primarily structured as Public Limited Companies (SA). However, they can also take the form of a Limited Liability Company (Ltd/SARL) or a Partnership Limited by Shares.


SOPARFI entities can issue both registered and bearer shares without the need for a share register. Share transfers are straightforward, and these shares can be divided into property rights and usufructuary rights, enabling separate ownership and voting rights.

Company Objectives

The primary purpose of a SOPARFI in Luxembourg is to acquire financial investments within and outside Luxembourg and manage these investments. Additionally, SOPARFIs can engage in industrial and commercial activities, either as their primary or secondary function.

Tax Benefits

Corporate income tax

Corporate income tax treatment for a parent company in Luxembourg (SOPARFI) earning profits from dividends, sales, or subsidiary liquidation is contingent upon the following conditions:

For the Parent Company:

The parent company must be a corporation based in Luxembourg, subject to unlimited tax liability.

Alternatively, it can qualify if it operates as a permanent establishment in Luxembourg for an EU Company within the scope of the parent subsidiary Directive. Or, it can be a corporation situated in a country that has a double taxation agreement (DTA) with Luxembourg.

For the Subsidiary Company:

The subsidiary company must be a corporation registered in Luxembourg, also subject to unlimited tax liability.

Alternatively, it can be an EU subsidiary company, as defined by the parent subsidiary Directive, with an obligation to pay corporate taxes (the specific rate does not need to match Luxembourg’s rate). It can even be a foreign subsidiary, provided it is consistently subject to a corporate tax rate corresponding to Luxembourg’s rate on comparable income (typically at least 15%).

Investment Requirements:

The parent company should hold a minimum of 10% of the capital or have acquisition costs of at least €1,200 for dividend income, or acquisition costs of at least €6,000 for profits from sales.

Ownership Duration:

Ownership of the investment should be maintained for at least 12 months, commencing from the day of dividend distribution or income realization. This requirement applies to the entire investment; individual share assessments are not conducted.

If a company in Luxembourg does not qualify for the inter-corporate privilege, dividends distributed to it are generally subject to a corporate tax of 29.22%, encompassing municipal business tax and the solidarity surtax. Nevertheless, a 50% tax exemption may be granted for dividends if they are distributed by:

A corporation located in Luxembourg, subject to unlimited tax liability.

A foreign corporation adhering to a corporate tax rate corresponding to Luxembourg’s rate for comparable income (usually at least 15%), and it is resident in a country with a Luxembourg DTA.

An EU-Subsidiary Company, as delineated by the parent subsidiary Directive, obligated to pay corporate tax (with no mandatory requirement for the rate to align with Luxembourg’s equivalent rate).

Deductions and Net Wealth Tax Exemptions

Regarding deductions and net wealth tax exemptions, the following principles apply:

Expenses tied to an inter-corporate privilege investment (such as interest expenses) are deductible only when they surpass the tax-free income generated from the investment within a specific year.

Partial reductions in the recorded value of the inter-corporate privilege investment can also be deducted. When considering a potentially tax-exempt profit from a sale, taxation is applied in cases where it’s associated with investment-related expenses or prior partial reductions that have affected Luxembourg’s assessment basis, and haven’t been offset by an interim appreciation.

Special regulations come into play concerning partial reductions linked to distributions. These can lead to deductible partial reductions, taxable dividends, and the potential for future gains to be realized without taxation.
When assessing tax-free sale profits, adjustments to the value of claims against subsidiary companies are treated as partial reductions of the investment’s value. This adjustment is factored in when calculating the tax-free sale profit.

Net Wealth Tax

Investments are exempted from the net wealth tax calculation if they equal at least 10% of a corporation’s capital, regardless of whether it’s based within or outside Luxembourg, and is subject to unrestricted tax liability. Alternatively, the exemption applies if the purchase price of these investments is at least 1,200 EUR.

In cases where a reserve is indicated in the balance sheet for the upcoming five tax years, the net wealth tax can be reduced by one-fifth of that reserve. However, this reduction is capped at the total of the corporate income tax, including the solidarity surtax.

Withholding Tax

In the context of withholding tax, the following guidelines apply:

Dividend Distribution

Typically, SOPARFI’s dividends are subject to a 15% withholding tax. However, SOPARFI can be exempt from withholding tax if the following criteria are met:

  • The distributing company maintains residence with unlimited tax liability.
  • The receiving company either has residence with unlimited tax liability or is a corporation based in an EU member state eligible for the Council Directive 90/435/EC. It can also be the permanent establishment of a European Company within Luxembourg, per the Council Directive 90/435/EC, or a resident permanent establishment of a parent company located in a country that has a Double Taxation Agreement (DTA) with Luxembourg.
  • The receiving company has held an investment in a SOPARFI, or there is a commitment to do so, for a minimum of one year. This investment should constitute at least 10% of the company’s capital or have a purchase price of 1,200 EUR.

If a SOPARFI in Luxembourg distributes dividends to companies outwith the EU, these will most often be liable to withholding tax at the reduced rate of 5% insofar as there exists a DTA between Luxembourg and the relevant country.

Interest Payments

Interest payments, when made in Luxembourg, are not subject to withholding tax.

Liquidation Proceeds

IIn the event of a SOPARFI’s liquidation, the distribution of liquidation proceeds is exempt from withholding tax, regardless of the recipient’s tax status

Double Taxation Agreements

Double taxation agreements (DTAs) that Luxembourg has established also extend to SOPARFI companies. These agreements apply because the inter-corporate privilege tax exemptions do not impact the overall tax liability of these companies.

Our company licensing services

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Our company is EXCLUSIVELY engaged in assisting worldwide clients, either individuals or corporate entities, to get duly and properly licensed with local Regulators and Financial Authorities to get respective official licenses to legally carry out their cryptocurrency or financial related business activities.

TBA & Associates Tax Business Advisors does not provide or carry out any sort of Cryptocurrency or Financial services!

Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.

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