Luxembourg SOPARFI Financial Holding Company
The SOPARFI in Luxembourg is predominantly formed as a Public Limited Company (SA). The SOPARFI may also, however, be formed as a Limited Liability Company (Ltd/SARL) or as a Partnership Limited by Shares.
Upon the formation of a SOPARFI, registered shares as well as bearer shares may be issued. A share register is not required. The transfer of the shares is effectuated through simple delivery. The shares of a SOPARFI may be divided into mere property and usufructuary rights.
Accordingly, the legal ownership of a share in a SOPARFI may be transferred to a natural or legal person. Therein, the usufructuary rights hereto may be simultaneously transferred to a different person.
The voting right may be allocated to the owner as well as the usufructuary. In this way, the succession may be settled in order to ensure the continued existence of a company or to distribute its current income.
A SOPARFI in Luxembourg is formed primarily for the acquisition of financial investments in all types of companies within or outside Luxembourg as well as for the management and realisation of the said investments. In addition, a SOPARFI may simultaneously carry on industrial and commercial activities as its primary or secondary activity.
Corporate income tax
If a parent company in Luxembourg (SOPARFI) generates profits from dividends, sales or liquidation from a subsidiary company, the said profits will be exempt from corporation tax under the following conditions:
Status of the parent company
A corporation with its registered office in Luxembourg with unlimited liability to tax; or
Status of the subsidiary company
Other foreign subsidiary – it is required that it always be liable to a rate of corporation tax corresponding to Luxembourg’s rate of tax on the comparable income (in practice this is generally at least 15%).
Extent of the investment
At least 10% of the capital or acquisition costs of at least 1,200 EUR for dividends or acquisition costs of at least 6,000 EUR for sale profits.
Minimum period of ownership
12 months on the day of the distribution of the dividends (or on the day of the realisation of the income) or an undertaking to hold the investment of the required extent uninterrupted for a period of at least 12 months. The said requirements must be satisfied for the extent of the investment as a whole (there is no individual assessment of each share).
The deduction of expenses
Expenses related to an inter-corporate privilege investment (e.g. interest expenses) are deductible only to the extent which they exceed the tax-free income generated from the investment in a particular year.
Partial write-offs to the going value of the inter-corporate privilege investment are deductible. A sale profit potentially exempt from tax shall be liable to tax insofar as it has been attributed in connection with the investment-related expense or previous partial write-offs which have influenced Luxembourg’s basis of assessment and which has not been neutralised by an interim appreciation.
Special provisions apply in connection with distribution-related partial write-offs which effectively result in the partial write-off being deductible, the related dividend being liable to tax and the possibility that future appreciations may be realised tax-free.
In assessing the tax-free sale profits, value adjustments to claims against subsidiary companies will be treated as partial write-offs of the value of the investment. This means that they will be taken into account when calculating the tax-free sale profit.
Net wealth tax
Investments are excluded from the basis of assessment for net wealth tax if they correspond to 10% of the capital of a corporation (resident in or outwith Luxembourg) with unlimited liability to tax or the purchase price thereof amounts to at least 1,200 EUR.
If a reserve for the next five tax years is shown in the balance sheet, the net wealth tax may be reduced by 1/5 of the said reserve. This reduction is limited to corporate income tax inclusive of the solidarity surtax.
On distributed dividends
In general, dividends distributed by a SOPARFI are liable to withholding tax at a rate of 15%. Notwithstanding this, a SOPARFI is exempt from withholding tax upon satisfaction of the following conditions:
- The distributing company is resident with unlimited liability to tax;
- The receiving company is resident with unlimited liability to tax or is a corporation resident in an EU member state to which Council Directive 90/435/EC applies, is the permanent establishment of an European Company in Luxembourg within the meaning of Council Directive 90/435/EC or a resident permanent establishment of a parent company which is resident in a country with which Luxembourg has agreed a DTA;
- The receiving company has held an investment in a SOPARFI or an undertaking exists to so do for a period of at least one year. It is required that the said investment corresponds to at least 10% of the company’s capital or amount to 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.
On interest payments
Interest payments are not liable to withholding tax in Luxembourg.
On liquidation proceeds
In the case where a SOPARFI is liquidated, the distribution of the liquidation proceeds are free from withholding tax – irrespective of the recipient’s tax status.
Double taxation agreements
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