Luxembourg offers a variety of investment options for corporations and wealthy individuals, including SOPARFIs.
SOPARFI, short for “Société de Participations Financières,” in French, is a type of investment holding company widely utilized in Luxembourg for international tax planning and investments. SOPARFI companies present several benefits, such as favorable tax treatments, adaptable corporate structures, and access to Luxembourg’s comprehensive network of double tax treaties. While SOPARFIs are mainly employed for investments, they also have the ability to participate in financing activities.
Main features of the SOPARFI
SOPARFI: purpose and Structure
– Luxembourg SOPARFI is a financial holding company established under Luxembourg law.
– Its primary purpose is to hold and manage participations (investments) in other companies, whether domestic or foreign.
– It has the option to be established either as an independent entity or as a subsidiary of a different corporation.
– It can hold both voting and non-voting shares in other companies.
Legal Framework
– It is founded by the Luxembourg law of 10 August 1915 on commercial companies, as amended
– It has the flexibility to adopt different legal structures, including a public limited company (SA) or a private limited company (SARL).
Taxation
– SOPARFI companies benefit from Luxembourg’s extensive network of double tax treaties, which helps to minimize withholding taxes on dividends, interest, and royalties.
– Luxembourg’s participation exemption regime allows SOPARFI to receive dividends and capital gains from qualifying subsidiaries tax-free or at reduced rates.
– SOPARFI is subject to corporate income tax (CIT) on its taxable income but can benefit from various tax deductions, exemptions, and credits.
– The standard CIT rate in Luxembourg is 24.94%, including the municipal business tax.
Holding and Investment Activities
– SOPARFI can hold various types of assets, including shares, bonds, real estate, intellectual property rights, and other financial instruments.
– It can engage in investment activities such as portfolio management, financing, intra-group loans, and provision of guarantees.
– SOPARFI can distribute dividends received from subsidiaries to its shareholders or reinvest them in the company.
Reporting and Compliance
– SOPARFI must prepare annual financial statements in accordance with Luxembourg accounting principles and file them with the Luxembourg Register of Commerce and Companies.
– The company’s financial statements are generally audited by a Luxembourg-approved auditor.
– SOPARFI may be required to submit tax returns and other related reports to the Luxembourg tax authorities.
Registering a SOPARFI in Luxembourg
When it comes to registering a SOPARFI in Luxembourg, the process involves choosing a legal entity recognized by the country’s laws. In Luxembourg, a SOPARFI can be registered under several legal entities, including:
- Public limited company (S.A.)
- Private limited company (S.à R.L.)
- Partnership limited by shares (S.C.A.)
- Cooperative in the form of a public limited company (CoopSA)
- European company (SE)
Furthermore, in addition to these options, SOPARFI in Luxembourg can also exist as non-corporate entities like a limited liability partnership or a cooperative (SC).
Registering a limited liability company (SARL) to set up your Luxembourg SOPARFI
Characteristics of the Private Limited Company (SARL):
A Private Limited Company (SARL) in Luxembourg mandates a minimum share capital of €12,000 and is limited to a maximum of 100 shareholders. The shares cannot be freely transferred, and the company is not permitted to issue different classes of shares. At least one director is required for a SARL, and the management can either be carried out by the shareholders themselves or by a separate management board. This type of company is commonly chosen for smaller businesses with fewer shareholders and simpler management structures. And it is subject to corporate income tax in Luxembourg, but the tax regulations for holding companies are advantageous.
Process of Registering a limited liability company (SARL) to set up your Luxembourg SOPARFI
To register a limited liability company (Société à Responsabilité Limitée – Sàrl) in Luxembourg for setting up a SOPARFI (Société de Participations Financières), applicants will need to follow these general steps:
- Choose a company name: selecting a unique name for the Sàrl that complies with the naming conventions set by the Luxembourg authorities will come first. Applicant can check the availability of the name through the Luxembourg Business Registers website.
- Draft the articles of association: the next step involves the preparation of the articles of association, which outline the objectives of the company, its share capital, organizational structure, and other important details.
- Appoint a manager: applicant must also nominate at least one manager who will be responsible for the daily operations of the company. The manager can be a resident or non-resident of Luxembourg. Multiple managers can also be appointed if desired.
- Establish a registered office: a registered office in Luxembourg where official correspondence can be sent is required. This address must be a physical location, but alternatively, the business owner can use the services of a domiciliation agent in Luxembourg.
- Capital requirements: the business owner must determine the company share capital, whereby a minimum of 25% must be paid upon the company formation.
- Open a bank account: next is opening a bank account for the company in Luxembourg in which to deposit the share capital. Applicant is advised to contact different banks to compare their services and requirements. Some banks may ask for additional documentation, such as the articles of association and identification of shareholders.
- Notarial deed and registration: to finalize the incorporation process, the articles of association must be signed before a Luxembourg notary. The notary shall undertake the preparation of the notarial deed, which will subsequently be duly registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés).
- Obtain tax identification numbers: after registration, obtaining a tax identification number (Numéro d’Identification Fiscale – NIF) for the company and for each shareholder is necessary. The business owner can apply for these numbers with the Luxembourg tax authorities.
Ongoing compliance and licensing requirements
Following the registration process, the business is required to adhere to various ongoing responsibilities, which include the submission of annual financial statements, conducting general meetings, and maintaining accurate accounting records.
Also, depending on the activities of the SOPARFI, obtaining additional licenses or permits from the relevant authorities might be necessary. This requirement can vary based on the specific nature of the business.
If you are interested in structuring your investments in Europe from Luxembourg and want to use a SOPARFI, please contact your Damalion expert now.
