Luxembourg SOPARFI (SOciété de PARticipations FInancières) is a popular vehicle for holding and financing activities within Luxembourg. Founded by the Luxembourg law of 10 August 1915 on commercial companies, as amended, SOPARFI is a type of holding and finance company that serves as a centralized structure for managing assets and minimizing administrative costs.
Purpose of the Luxembourg SOPARFI
Luxembourg SOPARFI is a type of holding company incorporated in Luxembourg that is commonly used by multinational corporations and high-net-worth individuals for wealth management and tax planning purposes.
The primary purpose of a Luxembourg SOPARFI is to hold participation and dividends in other entities. It does not engage in commercial or industrial activity but manages a diversified portfolio of financial assets such as shares, bonds, and other securities. It can also own real estate properties and participate in the management of its subsidiaries.
Luxembourg holding company: Uses of Luxembourg SOPARFI
A Luxembourg SOPARFI can be used in various ways depending on the specific needs and objectives of the investor or company. Some of its common uses include:
- As a holding company to own and manage the shares of subsidiaries or other investments.
- As an investment vehicle to hold financial assets such as shares, bonds, and other securities.
- For tax planning purposes, such as optimizing the tax efficiency of cross-border transactions and minimizing tax liabilities on dividends, capital gains, and other types of income.
- As a tool for estate planning, such as transferring assets to the next generation or structuring the ownership of family businesses.
Taxation of a SOPARFI in Luxembourg
The SOPARFI operates under the same corporate tax structure as local corporations, and it will be taxed by the regulations given by Luxembourg’s Law on Commercial Companies.
Here are some details about the SOPARFI taxation in Luxembourg:
- Corporate income tax: A SOPARFI is subject to corporate income tax on its profits, with the standard corporate income tax rate in Luxembourg being 24.94%. However, dividends may be exempt from paying taxes under the domestic participation exemption regime based on the EU Parent-Subsidiary Directive if certain requirements are met.
- Net wealth tax: it is also subject to an annual net wealth tax on its net assets, with the net wealth tax rate depending on the value of the net assets and ranging from 0.5% to 0.7%.
- VAT: it may be subject to value-added tax (VAT) on certain goods and services purchased or sold within the EU, subject to certain exemptions and thresholds.
Note that the corporate tax returns of a SOPARFI must be filed by May 31st of the following fiscal year.
Fiscal benefits of a Luxembourg SOPARFI
The Luxembourg SOPARFI is a company that enjoys favorable tax benefits and exemptions, and these includes the following:
- Participation Exemption: by fulfilling certain conditions, a Luxembourg SOPARFI enjoys participation exemption, which allows the company to receive dividends from subsidiaries in which it holds at least 10% of the capital without paying any tax.
- Capital gains exemption: capital gains realized by a SOPARFI on the sale of shares or other financial assets are also exempt from corporate income tax, provided the assets have been held for at least 12 months.
- Double tax treaties: another advantage is the extensive network of double taxation treaties that Luxembourg has signed with other countries, which can reduce or eliminate withholding taxes on dividends, interest, and royalties received by the SOPARFI from subsidiaries or other investments located in those countries.
- Tax consolidation: additionally, a SOPARFI can benefit from tax consolidation with its subsidiaries, allowing the group to offset losses against profits and reduce its overall tax liability.
SOPARFI conditions for tax exemptions
To be eligible for these tax exemptions, a Luxembourg SOPARFI must fulfill certain conditions.
Some of the key conditions are:
- Holding requirement: it must hold at least 10% of the share capital or voting rights of the subsidiary from which it receives dividends and hold the shares for an uninterrupted period of at least 12 months.
- Income type: the participation exemption applies only to income that qualifies as dividend income, while other types of income may be subject to tax.
- Substance requirements: in addition, the SOPARFI must meet substance requirements, including having a physical presence, employing staff, and conducting operational and management activities in Luxembourg.
Benefits of setting up a Luxembourg SOPARFI
Setting up a Luxembourg SOPARFI offers several benefits to investors and companies. Some of the key benefits are listed next:
- First and foremost, it is highly flexible in terms of governance structure and not required to have a board of directors or a management team.
- It can hold a wide range of assets, such as shares in other companies, real estate, and intellectual property.
- It can also benefit from a range of tax exemptions and deductions.
- It provides a high level of flexibility in terms of governance structure, as it is not required to have a board of directors or a management team.
- It can be established in several different countries, making cross-border investments easier.
- It also offers a high level of confidentiality and privacy, as SOPARFIs are not required to disclose financial information to the public, and the names of the investors can be kept confidential.
- Furthermore, it qualifies for the European “parent-subsidiary” classification and is not subject to supervision by the Commission de Surveillance du Secteur Financier (CSSF) unless the participation it holds is quoted and it carries out commercial activities.
The Luxembourg SOPARFI: To whom is it addressed?
A Luxembourg SOPARFI is typically addressed to investors and companies who are looking to:
- Optimize their tax planning
- Consolidate their investments
- Access EU markets through Luxembourg
- Benefit from Luxembourg’s flexible corporate law
- Enjoy Luxembourg’s stable political and economic environment
However, it is important to note that the use of a SOPARFI may not be appropriate for everyone, and seeking professional advice from experts with experience in Luxembourg structures is advisable to determine its suitability for your specific circumstances and objectives. At Damalion, we can help you in this aspect.
SOPARFI: Legal Framework
A Luxembourg SOPARFI is a company incorporated under Luxembourg Company Law, which provides for various types of corporate entities such as:
- (SA & SARL) public and private limited liability companies,
- (SCA) partnerships limited by shares,
- (SCSp) special limited partnership,
- (SCS) common limited partnership,
- (SC) cooperative company, and
- (SE) European company.
The choice of corporate entity will depend on the specific needs and objectives of the investor or company.
Share capital
A SOPARFI must have a minimum share capital of €31,000 if it is incorporated as an SA or an SCA, or €12,500 if it is incorporated as a SARL. The share capital can be in any currency and must be fully paid up at the time of incorporation.
Management and Disclosure Requirements
- The company is administered by a board of directors and must have at least one director and one shareholder.
- The director(s) can be of any nationality, but at least one board member must be a Luxembourg resident.
- The shareholders can be individuals or legal entities of any nationality.
- The directors are personally liable to the company for any faults in management.
Aside from management, a SOPARFI must acknowledge certain disclosure requirements, which includes maintaining a register of shareholders and directors and filing yearly financial statements with the Luxembourg Trade and Companies Register. Once established, the company’s bylaws must be published in the official journal of Luxembourg within one month of the beginning of the activity.
SOPARFI Investment Policy
The primary objective of a SOPARFI is to hold and manage investments rather than carry out commercial activities.
The SOPARFI has an unrestricted investment policy and may invest in a wide range of assets, including shares, bonds, real estate, funds, derivatives, and other financial instruments. Additionally, there is no defined debt-to-equity ratio.
Benefits of a SOPARFI in Luxembourg
There are several reasons why one might choose to open a SOPARFI holding company in Luxembourg.
- Tax advantages: Luxembourg provides a favorable tax regime for holding companies, with a participation exemption regime that can significantly reduce the tax burden on dividends and capital gains earned by the holding company.
- Flexible legal framework Luxembourg also offers a flexible legal framework that allows for a wide range of activities, financing to group companies, and limited liability protection to shareholders.
- Political stability: the country is politically stable and economically prosperous, which provides a stable environment for the holding company’s operations and investments.
- Reputation: Luxembourg is known for its strong regulatory framework, which can enhance the reputation of the holding company and provide reassurance to investors and other stakeholders.
Overall, a Luxembourg SOPARFI can be an attractive option for investors and companies. However, it’s essential to seek professional advice to determine whether it’s suitable for your specific circumstances and objectives. If you require more information on the SOPARFI or any other types of investment funds in Luxembourg, contact your Damalion experts now. We can assist you in establishing a company based on your business interests.
