Soparfi is the collective term referring to a Luxembourg holding and finance company with unrestricted activities but are primarily concerned with financing and holding stakes in other Luxembourg and overseas companies.
In essence, a Soparfi is an unregulated company structure by the Financial Sector Supervisory Commission and is therefore under common tax regulations imposed in Luxembourg. In some instances, Soparfis may also benefit from several tax advantages.
The two most popular legal forms adopted by Soparfis are the Limited Liability Company (S.à r.l.) and Public Liability Company (S.A.). The information below enumerates the key features of these two most popular forms of Soparfi in Luxembourg.
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Public Limited Company (S.A.) |
Limited Liability Company (S.à r.l.) |
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| Company incorporation |
Before a notary public |
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| Minimum Share Capital/ Corporate Capital | € 30,000, in which 100% must be fully subscribed with at least 25% of the nominal value of each share paid up | € 12,000, in which 100% must be fully subscribed and paid up upon incorporation |
| Currency of Share Capital/ Corporate Capital |
Any convertible currency |
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| Number of Shareholders/Members | At least 1 shareholder, with no pre-determined shareholder number | At least 1 shareholder for a single member of a S.à r.l. and a maximum of 100 shareholders |
| Shares/ Units | Registered shares featuring the owner of the shares and the number of shares. |
Registered Units |
| Liabilities of Shareholders/Members | Shareholders have limited liability, which means they each one is only liable up to the total percentage of their contribution to the company share capital. | |
| Legal Forms of Shareholders/Members |
Any natural person and legal entity. |
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| Public Issue of Shares/Units |
Yes |
No, however public bond issuance is permitted. |
| Transferability of Shares/ Units | Free transferability of shares, unless the provisions under the articles of incorporation provide limitations. | Units are transferable during a shareholder’s lifetime to non-members, providing 50% of members agree to the transferability during a general meeting. |
| Management | At least three directors. In the case of a single-member S.A., there should be at least one director. |
One or more managers |
| Residency of Managements |
No fiscal requirement regarding Luxembourg residency or nationality |
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| Registered Office |
Registered office must be in Luxembourg |
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| Supervision/Control |
Require independent auditor if two out of the three criteria have exceeded, during the course of two subsequent years
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| Auditor | Must have at least one internal auditor, unless required to be audited by an independent auditor | Must have an internal auditor if it has more than 60 members, or unless audited by an independent auditor |
| Annual Accounts |
Yes |
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Soparfi Tax Advantages
- Fully taxable company under Luxembourg’s tax regime.
- Where certain requirements are met, a Soparfi may take advantage of Luxembourg’s Participation Exemption Regime.
- Soparfis are entitled to lower withholding tax rates prescribed by double tax treaties that Luxembourg contracted with other countries.
Income Tax (IT)
The 1 January 2016 minimum corporate tax regime was scraped and replaced by minimum Net Wealth Tax. In essence, a Soparfi is assessed with maximum aggregate income tax rate of 24.94%. This includes the following assessments:
- 20% corporate income tax (CIT) for taxable income less than € 15, 000 or 21% of taxable income more than € 15,000.
- 7% solidarity surcharge that foes towards the employment fund
- 75 Municipal Business tax (MBT) for companies based in Luxembourg City
Net Wealth Tax (NWT)
Following the abolishment of Corporate Income Tax, a new minimum Net Wealth Tax was enacted starting 1 January 2016. This provision is also applicable to securitization vehicles and SICARs, which used to be exempted from Net Wealth Tax.
- For legal entities with financial assets, receivables on related entities, transferable securities, and cash at bank more than 90% of total gross assets and assets equal or exceeding € 350,000 will be assessed of minimum Net Wealth Tax of € 4,815.
- All other companies assessed with Net Wealth Tax, the minimum Net Wealth Tax rates are between € 535 and € 32,100, and will be calculated based on progressive tax scale and a company’s balance sheet.
- There are certain exemptions, particularly qualifying participations given all relevant pre-requisites are met.
Withholding Tax on Dividends (WHT)
All dividends distributed by a Luxembourg Soparfi are subject to withholding tax at a rate of 15%, except in cases where Double Tax Treaties or EU Parent-Subsidiary Directive are applicable. Costs directly related to exempted dividends are only deemed tax deductible if they go beyond the except income per fiscal year.
Debt-to-Equity Ratio
Luxembourg tax authorities implement an 85/15 debt-to-equity ratio. Within this limit, withholding tax will not be applied on any interest payments, while interests paid will be automatically tax deductible.
1/99 debt-to-equity ratio, with a € 2m equity cap for intra-group financial activities, including back-to-back loans.
Luxembourg Double Tax Treaties
As Luxembourg Soparfis are fully taxable entities, they may benefit from Luxembourg’s extensive double tax treaties network.
Royalties
Luxembourg’s Intellectual Property Regime, which delivered 80% tax exemption on income for certain intellectual property rights was abolished since 1 January 2016 for Corporate Income Tax and Municipal Business Tax, and also exempted from Net Wealth Tax since 1 January 2017.
A grandfathering approach was introduced for eligible Intellectual Property rights created or bought before 1 January 2016. Their IP rights will continue to benefit from the existing IP regime until 30 June 2021.
Participation Exemption Regime
Given all pre-determined conditions are fulfilled, the Luxembourg Participation Exemption Regime provides the following exemptions:
- All dividends received by a Soparfi are exempt from Municipal Business Tax and Corporate Income Tax assessments.
- Capital gains obtained by a Soparfi on the sale of shares are exempt from Municipal Business Tax and Corporate Income Tax assessments.
- Dividends remitted by a Soparfi are exempt from Withholding Tax.
- Eligible participations are exempt from Net Wealth Tax.
To qualify to the exemptions listed above, a Soparfi must meet the following criteria:
- A Soparfi must hold at least 10% of issued share capital of an underlying subsidiary, a minimum investment worth € 1.2M for dividends received, or € 6m for realized capital gains.
- Fully taxable Soparfi subsidiary based in Luxembourg, a legal entity covered by the EU Parent-Subsidiary Directive, or non-resident corporations subject to a similar tax regime and assessed a minimum of 10.5% Corporate Income Tax.
- Ownership of interest in a subsidiary should be held for at least 12 months.
Our dedicated corporate structuring team at Damalion offers expert consulting for anyone looking to enter the Luxembourg market. Contact our Damalion experts today to learn more about our full suite of service capabilities provide us with a leading edge in providing consulting solutions to foreign legal entities in and outside the EU.
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.
