An SPF stands for “Société de gestion de Patrimoine Familial” (SPF) is a type of private wealth management company in Luxembourg. It is a popular vehicle for managing and preserving wealth and assets, providing individuals and families with a range of investment and financial planning options.
SPFs offer a range of investment services, including portfolio management, financial planning, and tax optimization strategies. Unlike other investment funds, an SPF is specifically designed to cater to the needs of wealthy families who wish to protect and maintain their assets for future generations.
SPFs provide wealthy families with a platform to safeguard their wealth and assets, ensuring that they are preserved for future generations. The legal framework for an SPF in Luxembourg is regulated by the Law of 11 May 2007 on SPF (SPF Law).
Features of a Luxembourg SPF
The main characteristics of a Luxembourg SPF are:
- Consolidation of assets: an SPF enables families to consolidate their assets into a single entity, which simplifies the management and administration of their wealth.
- Diverse asset holdings: it can hold a range of assets, such as financial instruments, real estate, and other investments.
- Separate legal personality: it has a completely separate legal personality from its settlers, which provides protection for personal assets.
- Limited liability: on this, the personal assets of shareholders are safeguarded from any liability incurred by the SPF, offering a layer of protection and security for their wealth and assets.
- Private character: it has a private character and can be a substitute for the traditional holding company, without requiring direct capital investment.
- Board of directors and registered office: it must have a board of directors and a registered office in Luxembourg. It must also appoint a qualified and experienced management company to manage its activities.
- Confidentiality and data protection: it is subject to strict rules on confidentiality and data protection, ensuring that details of its shareholders and activities are not publicly available.
- Simple registration: it has a simple business registration procedure and requires a low share capital. It is also easier to incorporate.
- Privacy: it provides a high degree of confidentiality and privacy, which is important for wealthy families.
Overall, the Luxembourg SPF offers an attractive structure for managing and preserving private wealth. With its diverse asset holdings, limited liability, and strong confidentiality and data protection rules, the SPF is an excellent option for families seeking to protect their assets for future generations.
The Luxembourg SPF: Who is it designed for?
The SPF is primarily designed for:
- High net worth individuals and families who wish to consolidate and manage their private wealth in a more effective manner.
- Individuals who want to safeguard their assets and have a high net worth.
- Individuals who want to manage their wealth in a flexible and efficient manner, and ensure their wealth is preserved for future generations.
- Intermediaries (including fiduciaries) operating on behalf of private individuals managing their own wealth and private wealth management entities.
- Intermediaries providing management solutions can also establish SPFs in Luxembourg to provide fiduciary services.
- Non-professional investors who are interested in providing asset management services.
Moreover, it can be used by investing clubs and investors who would like to explore their relationships with potential co-investors.
The SPF investment structuring
The SPF investment structure is known for its flexibility in allowing shareholders to hold a diverse range of assets and pursue various investment strategies. Below are some of the notable features of an SPF’s investment structuring:
- It is capable of holding a wide range of assets, including financial instruments like equities, as well as alternative investments like private equity and hedge funds.
- It is capable of implementing different investment strategies, including long-term buy-and-hold strategies and active trading strategies.
- It is can implement different risk management strategies to mitigate risks and preserve capital.
- SPFs can invest in different geographies, including both developed and emerging markets, to gain exposure to various regions and take advantage of global investment opportunities.
- It can offer tax optimization benefits to its shareholders, including a favorable tax regime for investment income and capital gains.
The Limitations of Luxembourg SPF
The unique status of the Luxembourg SPF (Société de gestion de patrimoine familial) also comes with certain limitations that must be observed. These include the following:
- A Luxembourg SPF is not allowed to engage in any commercial or business activities, manage entities it holds a participation in, or enter into life insurance arrangements.
- It is also prohibited from conducting any banking activities, providing professional services such as legal, financial, or accounting services, and owning or managing commercial real estate.
- It is not allowed to own or manage real estate that is used for commercial purposes, such as rental properties or commercial buildings.
- SPF entities in Luxembourg are not permitted to engage in any speculative or trading activities.
- It is also not authorized to enter into life insurance arrangements.
It’s essential to remember that the Luxembourg SPF is subject to strict rules and regulations regarding its investment activities. To ensure compliance and alignment with shareholders’ investment objectives and risk profiles, it’s important to partner with a reputable and experienced financial advisor or asset manager. Damalion can provide assistance in this area.
The SPF Tax regime
The tax regime for an SPF in Luxembourg is one of its key advantages for high-net-worth individuals and families.
Under the Luxembourg tax regime for SPFs, an SPF is subject to an annual subscription tax on its net assets. The subscription tax rate is 0.25% on the first EUR 25 million of net assets and 0.05% on net assets over EUR 25 million. This tax must be declared annually and paid to the registrar’s office for succession estates and subscription taxes every three months.
In addition to the subscription tax, an SPF may be subject to a withholding tax of 15% on dividends paid to non-resident shareholders.
Fiscal Benefits of the Luxembourg SPF
One of the most attractive aspects of the SPF is its favorable tax regime. This investment vehicle offers numerous fiscal advantages to its shareholders, which include:
- Exemption from corporate income tax, which means that the SPF is not required to pay taxes on its investment income or capital gains.
- Exemption from municipal business tax, which is typically imposed by municipalities on companies that operate within their jurisdiction.
- Exemption from net wealth tax, which spares the shareholders from paying tax on their net worth.
These tax benefits make the SPF an ideal investment vehicle for high-net-worth individuals and families looking to consolidate and manage their wealth in a flexible and efficient manner while preserving their wealth for future generations.
SPF: Legal Framework
Investors seeking to establish an SPF (Société de gestion de patrimoine familial) in Luxembourg have a variety of legal frameworks to choose from. These options include:
- Société Anonyme & Société à Responsabilité Limitée (Public and Private Limited Company)
- Société en Commandite Simple & Société en Nom Collectif (Limited and General Partnership)
When establishing a Luxembourg SPF, the share capital required will depend on the chosen structure that will be incorporated. For a Public Limited Company (Société Anonyme or SA), the minimum share capital required is EUR 31,000, whereas a Private Limited Company (Société à Responsabilité Limitée or SARL) requires a minimum share capital of EUR 12,000.
The SPF Administration
Managing an SPF (Société de gestion de patrimoine familial) in Luxembourg requires proper administration to ensure compliance with legal and regulatory requirements. Key functions of SPF administration include:
- Corporate governance
An SPF must have a board of directors that assumes the responsibility of supervising the company’s activities and ensuring that it complies with legal and regulatory requirements. The board also appoints the management team and approves major decisions such as investments and dividends.
- Accounting and financial reporting
An SPF must maintain accurate financial records and prepare regular financial statements in accordance with Luxembourg accounting standards. An auditor must review the financial statements.
- Compliance and regulatory reporting
An SPF is subject to strict rules and regulations.
- Shareholder relations
An SPF is required to maintain good communication and relations with its shareholders and to provide regular updates on the company’s activities and performance. Shareholders are also entitled to attend general meetings and vote on major decisions such as the appointment of directors and approval of financial statements.
Do you require assistance with managing your family wealth or assets? – Get in touch with your Damalion experts today and let us assist you.
