Luxembourg is renowned as a major hub for investment funds in Europe. It is well-known for its favorable business environment and attractive tax system, offering a diverse range of investment options.
One of the popular investment structures used in Luxembourg is the SOPARFI, which stands for “Société de Participations Financières”. SOPARFI is primarily designed to act as a specialized entity that focuse on the facilitation of holding and financing activities within Luxembourg.
The Luxembourg SOPARFI
SOPARFI is commonly used as an investment vehicle in Luxembourg due to its flexibility and tax efficiency in managing investments. It provides a versatile framework for managing investments and engaging in various financing activities, and can be used to establish various types of funds, including UCIs, AIFs, retail funds, hedge funds, and real estate investment funds.
It is established under the Luxembourg law of 10 August 1915 on commercial companies, and can take different legal forms, including public limited companies (SA) or private limited companies (SARL).
It acts as a holding company, holding shares and dividends in other entities, and can engage in various financing activities such as providing loans, issuing bonds, and granting financial support to related or third-party entities. It can invest in a wide range of assets, including securities, real estate, intellectual property, and financial instruments. Additionally, it allows any type of investor, whether institutional or individual, to participate.
SOPARFI is also generally not subject to supervision by the CSSF (Commission de Surveillance du Secteur Financier) and typically does not require specific authorization, except when it holds quoted participations or engages in commercial activities.
It might qualify as an Alternative Investment Fund (AIF) if it meets certain standards and will therefore be subject to the application of the AIFM Law, including the duty to appoint an AIFM (Alternative Investment Fund Manager).
On taxation, it is subject for Municipal business tax and Corporate income tax. However, it enjoys certain tax advantages on dividends, liquidation proceeds, and capital gains that arise from a Qualifying Subsidiary, as per the provisions of the Parent-Subsidiary Directive.
SOPARFI serves as an ideal vehicle for various financing activities. It allows for earning or granting finance, raising capital for investments, issuing bonds or debt securities, listing on the Luxembourg Stock Exchange, investing in intellectual property, and co-investing with other institutional investors or family offices. These opportunities make it a versatile tool for capital mobilization and investment strategies.
Registering a public liability company (SA) to set up your Luxembourg SOPARFI
When planning on setting up a Luxembourg SOPARFI, there are various legal forms to chose from depending on your capital, management control, and share transferability preferences, and these includes a public limited liability company (société anonyme – S.A.), S.à r.l. (private limited liability company), public limited liability partnership (S.C.A.), Scop (cooperative), or cooperative organized as a public limited company (CoopSA).
Among these options, the public limited liability company (S.A.) is particularly popular. It provides limited liability protection to shareholders and offers the following features:
- Public Limited Company (SA): This legal structure is typically favored by larger businesses that have multiple shareholders and sophisticated management setups. To meet the requirements for registration, it requires a minimum share capital of €30,000 and has the ability to have an unlimited number of shareholders. Shares can be freely transferred, and different classes of shares with varying rights can be issued. Furthermore, it is mandatory for the company to have a board of directors and appoint a statutory auditor.
Registering a public liability company (SA) to set up your Luxembourg SOPARFI: steps involved
The SOPARFI can be registered by either a legal entity or a natural person in Luxembourg, and they may be a resident of Luxembourg or another country.
Investors interested in starting a SOPARFI in Luxembourg are required to register the chosen legal entity (S.A) with respect to the provisions applicable to the respective structure.
Although, the registration requirements for a SOPARFI in Luxembourg may vary depending on the specific circumstances and intended activities of the company, it usually involves the following process:
- Legal form: choose the appropriate legal form for your SOPARFI, which in this case is a public limited liability company (Société Anonyme – SA).
- Articles of Association: prepare the Articles of Association, outlining the purpose, share capital, structure, and other key details of the SOPARFI. The Articles should comply with Luxembourg’s legal requirements.
- Minimum share capital: make sure that it meets the mandatory minimum share capital requirement. As of present, the minimum share capital for an SA is €30,000.
- Registered office: have a registered office location within Luxembourg to serve as the designated address for receiving official correspondence.
- Management and directors: appoint qualified directors and specify their roles and responsibilities within the company.
- Banking requirements: open a bank account in Luxembourg for the SOPARFI.
- Notary involvement: depending on the legal form chosen, involve a Luxembourg notary in the registration process. The notary may be required to notarize certain documents and oversee the incorporation procedures.
- Registration with the Luxembourg Trade and Companies Register (RCS): submit the necessary documents, including the Articles of Association, to the RCS for registration.
- Compliance obligations: meet the continuous compliance responsibilities which include fulfilling tasks such as preparing and submitting annual financial statements, maintaining accurate accounting records, filing tax returns, and adhering to other pertinent regulatory requirements.
Depending on the specific activities of the ccompany, it may also require additional licenses or permits from regulatory authorities, such as the Luxembourg Financial Regulator.
Benefits of establishing a SOPARFI company
A SOPARFI serves as an investment vehicle primarily involved in acquiring stakes in both Luxembourgish and foreign companies. Key advantages of setting one up include:
- Favorable tax treaties: as a taxable Luxembourg company, SOPARFI can take advantage of the extensive network of tax treaties and tax-related EU Directives that Luxembourg has established, providing potential benefits in terms of favorable tax treatment.
- Investment flexibility: it faces no restrictions on the type of investments it can undertake and is not bound by risk-spreading requirements. It provides the freedom to hold various assets, including participations, real estate, intellectual property (IP), and more.
- Tax exemptions: under certain conditions for participation exemption, dividends and capital gains derived from participations held by a SOPARFI are exempt from income taxes in Luxembourg. As a result, profits repatriated by the SOPARFI can be strategically structured in a manner that optimizes tax efficiency.
- IP tax regime benefits: by possessing eligible intellectual property (IP) assets, a SOPARFI has the potential to enjoy significant advantages under Luxembourg’s IP tax regime. This includes the possibility of an 80% exemption on royalties pertaining to those assets.
In conclusion, it serves as an attractive option for investors looking to optimize their investment strategies and take advantage of the opportunities available in the Luxembourg market.
Tax Regime of SOPARFI
While it is subject to all taxes as per the law, certain exemptions and rates apply:
- Registration tax: setting up a SOPARFI and making amendments to its articles of incorporation are subject to registration tax.
- Corporate income tax and Municipal business tax: it is liable for corporate income tax and municipal business tax, which results in a combined income tax rate of 24.94%.
- Net wealth tax (NWT): it is also subject to NWT, which amounts to 0.5% of the net asset value annually. But if the net wealth of a company surpasses EUR 500 million, it becomes eligible for a reduced rate of 0.05% under the Net Wealth Tax (NWT) scheme.
- Tax treaty benefits: being a company subject to taxation, the SOPARFI can capitalize on Luxembourg’s broad tax treaty network. Also, it can benefit from the advantages presented by tax-related EU Directives, including the Parent-Subsidiary Directive and the Interest and Royalties Directive.
If you’re interested in establishing a fund in Luxembourg and wish to use a SOPARFI, contact your Damalion expert now and let us help.
