Luxembourg is well-known for its favorable business environment and attractive tax regime. And as such it offers wide variety of investment structures.
Among these are the SOPARFI (Société de Participations Financières) and the SPF (Société de Gestion de Patrimoine Familial). These are two popular corporate structures used in Luxembourg for wealth management and investment purposes.
Both entities offer unique benefits and serve distinct purposes, but the one chosen by investors depend on the goals, preferences, and circumstances of the investor.
Stated next are the characteristics and some differences between both.
Understanding the differences between the Luxembourg SOPARFI and the Luxembourg SPF
Luxembourg SOPARFI:
The SOPARFI is a Luxembourg company specializing in holding and financial services. It was established following Luxembourg’s adoption of the EU Parent-Subsidiary Directive in 1990, which aimed to promote investment activities and facilitate cross-border transactions within the European Union. The SOPARFI company complies with the legal regulations outlined in the Commercial Companies Law of 10th August 1915.
Luxembourg SPF:
The SPF is a privately-owned company that specializes in the management of family wealth. It was established in Luxembourg in accordance with the regulations stipulated by the Law of 11 May 2007. And it provides a simplified and tax-efficient structure for individuals and private wealth management entities to structure their estates and manage financial assets.
In comparison, the Luxembourg SOPARFI is a holding company specializing in holding and financial services, established to facilitate cross-border transactions, while the Luxembourg SPF is a privately-owned company specializing in family wealth management, providing a tax-efficient structure for individuals and private wealth management entities.
The SOPARFI focuses on holding and financial services, while the SPF focuses on managing and preserving private family wealth.
Purpose:
SOPARFI:
The SOPARFI is a holding company established in Luxembourg primarily for the purpose of holding and managing participations in other companies. It is widely used for investment and asset protection purposes, including tax planning, wealth management, and consolidation of group companies.
SPF:
The SPF is a wealth management vehicle whose main purpose is to manage and preserve private family wealth, including financial assets, real estate, and other investments. SPF is not intended for active trading or commercial activities.
Comparing both, the Luxembourg SOPARFI is primarily used as a holding company for investment and asset management purposes, including tax planning and consolidation of group companies. While, the Luxembourg SPF is specifically designed as a wealth management vehicle for managing and preserving private family wealth, with a focus on long-term asset management and succession planning.
Tax Regime:
SOPARFI:
- SOPARFI operates as a fully taxable entity in Luxembourg and is liable for corporate income tax on its profits. Its corporate income tax rate is 24.94%.
- Additionally, businesses are required to pay an annual net wealth tax based on their net assets, ranging from 0.5% to 0.7% depending on the asset value.
- Value-added tax (VAT) may also apply to certain goods and services bought or sold within the European Union
- Fiscal Benefits: By structuring its activities to benefit from the EU Parent-Subsidiary Directive, a SOPARFI can significantly reduce its tax burden. This regime allows for exemptions on dividends received from subsidiaries and capital gains from the sale of holdings, provided certain conditions are met.
Conditions for tax exemptions
In order to qualify for these tax exemptions on dividends, the SOPARFI entity must possess a minimum of 10% shares in a fully taxable corporation for a duration of at least one year.
Exemptions may still apply if the purchase price of shares exceeds EUR 1.2 million for dividends and EUR 6.0 million for capital gains, even when the 10% threshold is not met.
Also, the minimum amount for wealth tax is 4,815 euros under certain conditions, and there are no withholding taxes on interest or liquidation bonus payments.
Furthermore, SOPARFIs can also take advantage of Luxembourg’s extensive network of double taxation treaties as well as the benefits provided by the EU Parent-Subsidiary Directive.
SPF:
Tax Regime: an SPF (Société de Gestion de Patrimoine Familial) in Luxembourg operates under a unique tax framework.
The SPF is not liable for corporate income tax, wealth tax, municipal business tax, or VAT reporting requirements. However, it is obligated to pay an annual subscription tax determined by the total of paid-up share capital, share premium, and indebtedness exceeding eight times the combined amount of share capital and share premium.
When comparing the two companies, there are distinct differences in their tax obligations. SOPARFI is liable for corporate income tax, net wealth tax, and value-added tax (VAT) in Luxembourg. On the contrary, SPF enjoys exemptions from corporate income tax, wealth tax, municipal business tax, and VAT reporting requirements within Luxembourg.
Both structures offer specific fiscal benefits that can be advantageous depending on the investment objectives and activities of the entities.
To whom are they addressed?
Luxembourg SOPARFI:
A Luxembourg SOPARFI is not specifically addressed to any particular group of individuals or businesses. Rather, it is a versatile structure that can be utilized by various types of investors and companies.
Luxembourg SOPARFIs are commonly employed by multinational corporations, private equity firms, investment funds, and high-net-worth individuals seeking to optimize their international investments and take advantage of Luxembourg’s favorable tax and legal framework.
The Luxembourg SPF:
The Luxembourg SPF is open to the following:
- Individuals looking to manage their wealth.
- Wealth management entities that solely handle the assets of one or more individuals, whether they are residents or non-residents.
- Intermediaries, including fiduciaries, who act on behalf of the individuals referred to in (i) and (ii) above
Although the name suggests that it is exclusively for families and their members, the SPF is available to anyone who wants to access private wealth. Family ties are not required.
Additionally, the SPF can serve as an investment tool for investing clubs, as well as amateur and non-professional investors who want to test their connections with potential co-investors.
In comparison, while the Luxembourg SOPARFI has a broad target audience that includes multinational corporations, private equity firms, investment funds, and high-net-worth individuals, the Luxembourg SPF is primarily intended for individuals and entities involved in wealth management, including individuals managing their own wealth, wealth management entities, and intermediaries.
Eligible assets:
SOPARFI:
The SOPARFI has the flexibility to invest in a wide range of assets, both within Luxembourg and internationally.
SPF:
The SPF is exclusive to the acquisition, ownership, management, and divestment of financial assets.
Comparing both, the Luxembourg SOPARFI has a broader scope of eligible assets, allowing for investments in various asset classes, including financial assets, real estate, and shares in other companies.
On the other hand, the Luxembourg SPF is exclusively dedicated to the acquisition, ownership, management, and divestment of financial assets, focusing on the management of private family wealth through financial instruments.
Legal Forms and Incorporation Costs:
SOPARFI:
- Legal Forms: a SOPARFI can be established under various legal forms, providing flexibility to suit different business needs.
The available legal forms include
- Special Limited Partnership –“SCSp”,
- Partnership Limited by Shares –“SCA”,
- Common Limited Partnership –“SCS”,
- Private Limited Liability Company –“SARL”,
- Cooperative Company –“SC”,
- Public Limited Liability Company –“SA”,
- and European Company –“SE”.
- Incorporation Costs: The minimum required capital differs based on the chosen legal form. For instance, the minimum capital for SA and SCA is EUR 31,000, while for SARL, it is EUR 12,000.
Luxembourg SPF:
- Legal Forms: An SPF can be established as either a public limited company (SA) or a private limited company (SARL) under Luxembourg law. There are also additional options available, such as the “SCA” and Cooperative in the form of a public limited company- “ScoSA”. Among these choices, the SARL structure is the most commonly adopted.
- Incorporation Costs: Similar to SOPARFI, the minimum capital for establishing an SPF varies based on the legal structure, such as S.A./S.C.A.: €31,000; S.àR.L.: €12,000.
In brief comparison, both SOPARFI and SPF offer various legal forms for establishment, but the available options differ. SOPARFI provides a broader range of legal forms compared to SPF. The minimum required capital also varies depending on the chosen legal form, with specific amounts specified for each form.
Administration
Luxembourg SOPARFI:
The administration of a SOPARFI involves the following key elements:
- Board of Directors: a board of directors must be established by the company to oversee its overall management.
- Shareholders’ Meetings: SOPARFI companies are required to hold annual general meetings of shareholders to discuss matters such as financial statements, and appointment of directors.
- Company Secretary: while not obligatory, it is customary for SOPARFI entities to designate a company secretary to provide support with administrative responsibilities.
- Registered Office: A SOPARFI company is required to maintain a registered office address in Luxembourg, which serves as the official location for the company.
Luxembourg SPF:
The administration of an SPF involves the following:
- Management Company: it is required to appoint a licensed management company in Luxembourg to oversee its operations and compliance with regulatory requirements.
- Shareholders’ Meetings: while not mandatory, SPF companies may hold annual general meetings or investor meetings to provide updates and gather input from investors.
- Registered Office: similar to SOPARFI, an SPF must have a registered office address in Luxembourg for official correspondence and as a point of contact for regulatory authorities.
Comparing both companies , they have key differences which lies in the management structure. A SOPARFI has a board of directors responsible for overall management, while an SPF appoints a management company to oversee its operations.
Furthermore, SOPARFI companies must conduct annual general meetings as a mandatory requirement, whereas SPF companies have the flexibility to decide whether or not to hold such meetings.
Both types of companies require a registered office address in Luxembourg for official correspondence and regulatory purposes.
Advantages of each companies
SOPARFI
- Tax optimization: Luxembourg has a well-developed tax system that offers various tax benefits, including participation exemption and double taxation avoidance agreements (DTAAs).
- Holding and investment activities: SOPARFIs are commonly used as holding companies or investment vehicles, which can hold shares, both domestically and internationally.
- Asset protection and risk management: by holding assets through a SOPARFI, individuals and businesses can separate their personal or operational assets from their investment assets.
- Access to EU Directives: Luxembourg is a member of the European Union (EU) and benefits from various EU Directives, such as the Parent-Subsidiary Directive and the Interest and Royalties Directive.
- Intellectual poperty (IP) management: Luxembourg offers favorable IP regimes that can be leveraged through a SOPARFI structure.
The SPF
Here are some advantages associated with establishing an SPF:
- Wealth planning and asset protection: the SPF is designed specifically for wealth management and asset protection purposes.
- Tax optimization: Luxembourg’s SPF regime offers attractive tax benefits, including exemptions from corporate income tax, and municipal business tax. These favorable tax conditions make them exceptionally efficient vehicles for wealth management.
- Flexibility in wealth management: it offer flexibility in managing family assets.
- Confidentiality: Luxembourg has a tradition of safeguarding individuals personal information and maintaining a strong commitment to privacy.
- Estate Planning and Succession: the SPF provides a reliable framework for estate planning and succession.
Conclusion
Both of these companies offer unique advantages and cater to different needs in terms of holding and managing assets.
SOPARFI is an attractive option for investors seeking active investment management, flexibility in shareholder composition, and potential tax optimization through Luxembourg’s participation exemption regime. On the other hand, SPF caters specifically to families looking to preserve and manage their wealth while benefiting from tax-exempt status on qualifying financial assets.
The choice between both will depend on the investor’s goals and preferences.
If you want to setup a SPF or SOPARFI in Luxembourg, please contact your Damalion expert now.
