Luxembourg is a popular country known for its savvy jurisdiction management, holding, financing, IP rights activities, and private wealth management. Foreign investors from other European countries set up a SOPARFI without restrictions and typically establish a public limited liability company or a private limited liability company. Luxembourg has contracted double tax treaties with more than 44 European nations, with EU member nations reaping benefits from the Parent Subsidiary Directive and Interest and Royalties Directive, to name a few.
The main goal of setting up a standard holding company in Luxembourg (SOPARFI) is to establish tax efficiency of a company’s return of profits to its investors and intragroup financing activities. A SOPARFI company benefits from the reduction of corporate income tax, as well as the dissolution of capital duty and withholding tax on dividends paid to entities for companies whose home countries signed a double tax treaty with Luxembourg.
EU Parent-Subsidiary Directive (EUPSD) and its Influences on Luxembourg SOPARFIs
The EU Parent-Subsidiary Directive enacted in 1990 is applicable to fully taxable Luxembourg-resident companies that includes all SOPARFIs. The directives contained within the EUPSD is designed to eradicate tax issues in profit distributions among groups of companies doing business within the EU. Its main goal is to prevent double taxation on parent companies for profits generated by its many subsidiaries.
The scope of activities offered by the SOPARFI business structure has widened considerably. Companies that take the SOPARFI business structure are allowed to perform the following:
- Financing activities
- Purchase, sell, and utilization of intellectual property rights
- Acquisition of real estate shares and direct real estate purchase
Leveraging Double Tax Treaties for Further SOPARFI Expansion
Luxembourg has concluded a massive amount of double tax treaties (DTT) with more than 80 countries within and outside the EU bloc. It is working to expand its treaty network with countries under current negotiations with the Grand Duchy. In Europe alone, there are more than 50 DTTs in force, with SOPARFIs gaining all access to all provisions, so long as relevant conditions are met.
With these benefits, Luxembourg has firmly positioned itself in the international business scene with its introduction of tax measures that inspires both inbound and outbound investments. To learn more about Luxembourg tax treaties and successful company formation in Luxembourg, reach out to a Damalion expert today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
