soparfi - Luxembourg for Finance

SOPARFI
Foreword
ABOUT LUXEMBOURG
The Grand-Duchy of Luxembourg is small independent country of
500,000 inhabitants located in the heart of Europe. Luxembourg is
a founding member of the European Union and is the host country
of several EU institutions, such as the European Court of Justice, the
European Investment Bank, the European Investment Fund, Euratom,
the European Communities Publication office and the European Court
of Auditors.
Luxembourg is a constitutional monarchy. Members of Luxembourg
parliament are elected every five years. The government is traditionally
a coalition between the two most representative political parties.
Over the years, successive Luxembourg governments have shown
constant commitment to the development of the financial activities in
Luxembourg by creating a flexible and innovative legal framework that
takes into consideration the needs and expectations of both the local
and, importantly, the international financial markets. This policy began
in the year 1929 with the creation of the 1929 holding company, which
has since been replaced, and continues today, as illustrated by the rapid
transposition of the UCITS Directives and by legislation such as the
law on SICAR (2004), Securitisation (2004), the Specialised Investment
Fund (2007), the Private Wealth Management Company-SPF (2007)
and the law introducing a partial exemption on royalty income (2008).
The flexible approach of the government and the authorities, combined
with their willingness to listen to the concerns of the financial sector, as
well as other factors such as a highly qualified and multilingual workforce, make Luxembourg an attractive international financial centre that
has reached overall leadership in some of its sectors.
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Luxembourg provides two types of holding company in order to perform
financing and holding activities. Formerly, these were the 1929 holding company and the SOPARFI. The 1929 holding company has been
replaced by the SPF.
1929 HOLDING COMPANIES AND SPFs
Following the repeal of the 1929 holding company, the Law of 11 may
2007 introduced a new investment vehicle in Luxembourg for private
wealth management: the SPF. The aim was to replace the 1929 holding
regime for the private wealth management sector, which was the sector most impacted by the abolition of the 1929 holding regime.
SOPARFIS
In 1990, the Luxembourg legislator implemented the European Union
Parent-Subsidiary Directive1 for Luxem­bourg fully taxable resident
corporations. As a result, the so-called “participation exemption” for
dividends and capital gains derived from significant shareholdings
was introduced into Luxembourg law. This law gave rise to a new type
of Holding Company that was soon to be known under the name of
“Société de Participations Financières” (hereafter “Soparfi”).
The Soparfi is a fully taxable Luxembourg resident company that takes
advantage of the participation exemption in Luxembourg and that may
benefit from double taxation treaties signed by Luxembourg as well as
the provisions of the EU Parent-Subsidiary Directive.
In this brochure, key legal aspects of the Soparfi are described in the
first section. In the second section, its tax treatment is analysed.
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ouncil Directive of 23 July 1990, as amended by the Council Directive of 22 December 2003
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on the common system of taxation applicable in the case of parent companies and subsidiaries
of different Member States (90/435/EEC).
Contents
3
GENERAL
4
LEGAL FRAMEWORK
5
TAX FRAMEWORK
7
CONCLUSION
Luxembourg for Finance thanks ATOZ for granting permission to reproduce this brochure.
LFF and ATOZ cannot be held responsible for any errors or omissions or for the results obtained from the
use of the information contained in this brochure. Interested parties should seek the advice of qualified
professionals before making any decision.
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GENERAL
DEFINITION
There is no legal definition of a “Société
de participations financières” or Soparfi
in the sense that it is most used. This is
because Soparfi is a term of convenience
rather than a precise legal concept.
Literally, a Société de partici­pations
financières could be translated as a
Financial Holding Company. The term
Soparfi is generally used to describe a
company that has the following two
features:
ACTIVITIES OF A SOPARFI
• it is a normally taxed Luxembourg
company (as opposed to an exempt SPF
or a regulated investment fund, etc.);
• its primary activity is a holding and / or
financing activity and thus it benefits
from the so called “participation exemption” in respect of some or all of
its investments.
In this publication, we have focused on
companies that have these two features
and have not, for example, focused on
companies that have a primary activity
(such as an industrial or banking activity)
and also benefit from the participation
exemption.
A Soparfi is a normal commercial com­
pany and as such may have a more or
less specific corporate purpose defined
in its statutes. There are no prohibited
activities or assets as such. Provided
the statutes are not specially drafted in
such a manner as to remove the company from the normal corporate tax law,
the company will be normally taxable
and will be eligible for the participation exemption in respect of qualifying
participations.
LEGAL FRAMEWORK
Depending on the needs of the shareholders or other investors, the Soparfi
can adopt one of the five following
legal forms: “Société anonyme” (Public
limited company), “Société à responsa-
bilité limitée” (Private limited company),
“Société en commandite par actions”
(Partnership limited by shares - “SCA”),
“Société coopérative” (“SC”), or “Société
européenne” (European Company).
The information set out below relates
to the two main legal forms adopted by
holding companies, i.e. “Société anonyme”
(“SA” ) and “Société à responsabilité
limitée” (“Sàrl”).
COMPARISON S.A. / S.A.R.L.
The main characteristics of SA and Sàrl are summarised in the chart below:
Société anonyme
Société à responsabilité limitée
Founders
The public company can be incorporated by one or
more investors, who may be resident or non-resident,
individuals or legal entities.
The limited liability company can be incorporated by
a single member but no more than 40, who may be
resident or non-resident members, individuals or legal
entities.
Share capital
The minimum share capital is approximately EUR 30,000
or the equivalent in another non-euro currency. The minimum must be subscribed in its entirety and paid-up to a
minimum of 25%.
The minimum capital is approximately EUR 12,400 or
the equivalent in another non-Euro currency; the minimum must be fully subscribed and 100% paid-up.
The capital is represented by shares with or without par
(i.e. nominal) value. If the shares have a par value, it may
not be lower than EUR 0,01 or the equivalent in another
non-Euro currency.
Shareholders
contributions
The capital is represented by corporate units similar
to shares with a par value of at least EUR 0,01 or the
equivalent in another non Euro currency.
The contribution may be in cash or in kind:
The contribution may be in cash or in kind:
• in cash: the founders are required to transfer on to the
company’s bank account the funds corresponding to
the paid-up capital. The bank will issue the blocking
certificate required by the notary in order to proceed
with the contribution;
• in cash: the founders are required to transfer on to the
company’s bank account the funds corresponding to
the capital. The bank will issue the relevant blocking
certificate required by the notary in order to proceed
with the contribution;
• in kind: a contribution in kind must be subject to an
opinion by a Luxembourg independent auditor who
will issue a valuation report thereon.
• in kind: for a limited liability company there is currently
no legal obligation to issue an auditors report; however, a
similar report is strongly recommended by the notaries.
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Société anonyme
Société à responsabilité limitée
Shares
The shares may be in registered or bearer form at the
option of the shareholders. However, from the date of
incorporation until the publication date of the company’s statutes in the Luxembourg official gazette, the
shares will remain in registered form, i.e. recorded in the
company’s register of shares.
The units of a limited liability company are always in
registered form.
Management:
A public company may be managed either by a single
body (monistic form) or through the following 2 bodies
(dualistic form):
The company is managed by one or several managers who
need not be members, who are appointed by the general
meeting of members for a limited or an unlimited period
and who can be dismissed at any time by the general
meeting of members.
Board of Directors
(monistic form) or
Management Board
(dualistic form)
• The Management Board;
• The Supervisory Board.
The dualistic form must expressly be provided for in
the statutes of the company. The single member public
company can be administered by a single director. In
the case of a dualistic single member company, a single
director is also possible as long as the share capital is
less than EUR 500,000.
If the company has more than one shareholder, then it
is administered by a Board of Directors (monistic form)
or by a Management Board (dualistic form) of not less
than three members, who may be shareholders or not.
These members are elected for a term, which may not
exceed six years, by the general meeting of shareholders
(monistic form) or by the Supervisory Board (dualistic
form) and can be dismissed at any time by the general
meeting of shareholders.
There are no legal requirements relating to the residence
or nationality of the directors. They may be resident or
non-resident, individuals or legal entities.
The Board of Directors and the Management Board are
entrusted with the management of the company within
the limits of the corporate object, with the exception
of the powers reserved by law or by the statutes to the
general meeting of shareholders or those requiring prior
approval by the Supervisory Board (dualistic form).
There are no legal requirements relating to the residence
or nationality of the managers. They may be resident or
non-resident, individuals or legal entities.
Supervisory Board
(dualistic form)
Société anonyme
Société à responsabilité limitée
The Supervisory Board is composed of not less than
three members, shareholders or not, who are elected for
a term which may not exceed six years by the general
meeting of shareholders and who can be dismissed at
any time by the general meeting of shareholders.
The statutes can authorise the setting up of a Supervisory Board and determine its role, rights, responsibility
and rules.
There are no legal requirements relating to the residence or nationality of the members of Supervisory
Board. They may be resident or non-resident, individuals
or legal entities.
The Supervisory Board shall supervise and exercise an
ongoing control over the management of the company
by the Management Board without interfering in the
management.
Interim Dividend
distribution
CONDITIONS
CONDITIONS
• the statutes authorise the board of directors to distri­
bute an advance dividend;
• t he statutes authorise the board of managers to
distribute an advance dividend;
• interim accounts must be drawn up showing sufficient
funds available for distribution;
• interim accounts are drawn up showing that the funds
available for distribution are sufficient;
• the decision of the board of managers to distribute an
advance dividend may not be taken more than two
months after the date at which the interim accounts
referred to above have been drawn up;
• t he decision of the board of managers to distribute an
advance dividend may not be taken more than two
months after the date at which the interim accounts
referred to above have been drawn up;
• an independent auditor shall verify that the above
conditions have been satisfied;
•n
o requirement for an independent auditor;
• ratification by the following annual shareholder meeting.
MAXIMUM DISTRIBUTABLE AMOUNT
The maximum distributable amount is computed as
follows:
• ratification by the following annual shareholder meeting.
MAXIMUM DISTRIBUTABLE AMOUNT
The maximum distributable amount is computed as
follows:
+ profit for the period
+ profit for the period
+ profits carried forward, or
+ profits carried forward, or
- losses carried forward
- losses carried forward
- 5% allocated to the legal reserve, until the legal reserve
amounts to 10% of the share capital
- 5% allocated to the legal reserve, until the legal reserve
amounts to 10% of the share capital
- additional reserves required by law or the statutes
­- unamortised establishment costs.
EXCESS PAYMENT
Where the payments on account of advance dividends
exceed the mount of the dividend subsequently decided
upon by the general meeting, they shall, to the extent
of the overpayment, be deemed to have been paid as an
advance on the next dividend.
- additional reserves required by law or the statutes
­- unamortised establishment costs.
EXCESS PAYMENT
Where the payments on account of advance dividends
exceed the amount of the dividend subsequently decided
upon by the general meeting, they shall, to the extent
of the overpayment, be deemed to have been paid as an
advance on the next dividend.
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Control of the
company
Société anonyme
Société à responsabilité limitée
Depending on the size of the company, it must be supervised either by a statutory auditor (small company) or
by an independent auditor (medium and large company):
If the number of members is between 1 and 25, then
a statutory auditor is not compulsory. Sàrls with more
than 25 members require the appointment of a statutory auditor, who may be an individual or a legal entity.
• the statutory auditor may be one or several individuals
or legal entities, that may, but do(es) not need to be
shareholder(s) and who is/are appointed by the general
meeting. The statutory auditor can be dismissed at any
time. The term of the mandate is fixed by the general
meeting of shareholders for a period that may not
exceed six years.
• an independent auditor is required by law if two of the
following three criteria are fulfilled by the company
during two successive years:
An independent auditor is required by law if two of the
following three criteria are fulfilled by the company
during two successive years:
• total balance sheet: exceeds EUR 3,125 million
• net turnover: exceeds EUR 6,25 million
• average number of employees: exceeds 50
The independent auditor must be member of the Institut
des Réviseurs d’Entreprises in Luxembourg.
- total balance sheet: exceeds EUR 3,125 million
- net turnover: exceeds EUR 6,25 million
- average number of employees: exceeds 50
The independent auditor must be a member of the
Institut des Réviseurs d’Entreprises in Luxembourg.
Annual general
meeting
Each year, at a date determined in the statutes, the board
of directors is required to convene the share­holders to
an annual general meeting which will deliberate on the
annual accounts.
This meeting must be held within a six month period
after the close of the financial year.
Dividend
distribution
Within a six month period after the year-end closing of
the financial year, the member(s) have to approve the
annual accounts.
No precise date for the members meeting is required by
law.
The maximum distributable amount is computed as
follows:
The maximum distributable amount is computed as
follows:
+ profit for the period
+ profit for the period
+ profits carried forward, or
+ profits carried forward, or
- losses carried forward
- losses carried forward
- 5% allocated to the legal reserve; until the legal reserve
amounts to 10% of the share capital
- 5% allocated to the legal reserve; until the legal reserve
amounts to 10% of the share capital
- additional reserves required by law or the statutes
- additional reserves required by law or the statutes
­- unamortised establishment costs.
­- unamortised establishment costs.
FINANCIAL STATEMENTS
An annual balance sheet, a profit and loss
account and notes to the accounts must
be prepared in the form required by the
law of December 19, 2002 and submitted for shareholders’ approval within six
months after the financial year­end. Furthermore, the following documents have
to be filed with the Trade Register within
a month after the approval of the annual
accounts by the shareholders:
• the balance sheet and the notes to the
accounts including the appropriation of
profit or loss;
• audit report;
• the list of directors and auditors
(if necessary);
• the list of shareholders who have not
yet fully paid up their shares, together
with an indication of the amounts for
which they are still liable.
A notice must be published in the
Memorial that these documents have
been filed with the trade register.
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TAX FRAMEWORK
The Soparfi is a fully taxable company
subject to the common tax regime in
Luxembourg. As a result, taxation can
occur at different stages of the existence
of the Soparfi (from its incorporation
until its liquidation) or in the case of
particular events.
Provided certain requirements are fulfilled, some types of income realised by
the Soparfi will benefit from the “participation exemption”. Furthermore, the
Soparfi is entitled to benefit from the
reduced withholding tax rates provided
for in double tax treaties concluded by
Luxembourg.
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DUTIES
CORPORATE INCOME TAX
Since 2009, the Soparfi is no longer
subject to the 0.5% capital duty that was
formerly levied on the value of the assets
contributed to the Soparfi upon incorporation and capital increases. Contributions
of real estate assets situated in Luxembourg are however now subject to the
following regime:
A Soparfi is subject to Corporate Income
Tax (hereafter “CIT”). CIT is levied at a
rate of 21%. A surcharge of 4% is payable to the unemployment fund. As a
result, the effective CIT rate applicable
is 21.84%. A Soparfi is taxed on its
worldwide income.
• contributions remunerated by shares
are subject to a 0.6% registration duty
+ a 0.5% transcription tax;
• contributions remunerated by other
means than shares are subject to a
6% registration duty + a 1% transcription tax (4% for Luxembourg city);
The taxable profit for the year is calculated by using a balance sheet approach,
i.e. by comparing the net worth of the
company at year-end to the net worth
as of the end of the previous year.
Allowable expenditure includes all
expenses that were incurred exclusively
and directly for the business activity of
the company. However, certain types of
• transfers made in the context of a corbusiness expense are not deductible1.
porate restructuring (i.e. contributions
In principle, Luxembourg companies
of all assets and liabilities, contributions
may credit the foreign withholding tax
of one or more branches of activities as
suffered against Luxembourg corporate
well as contributions of all assets and
income tax. This tax credit is limited to
liabilities of the 100% held subsidiary)
the extent of the Luxembourg corporate
are exempt from proportional duties.
income tax that is due on this foreign
The transfers have however to be mainly
income.
remunerated (i.e. more than 50%) with
securities that represent share capital of
the companies involved.
he most important non-deductible expenses are : directors’ fees, self-insurance provisions, creditable foreign taxes and expenses
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connected with “exempt” income, e.g. dividends or capital gains.
DEBT -EQUITY RATIO
Foreign taxes that are not creditable
against Luxembourg tax may be deducted as operating expenses as long
as they do not relate to exempt income
(e.g. dividends). Withholding taxes paid
in Luxembourg are considered to be an
advance payment on income tax finally
due. If the final income tax due is lower
than the withholding taxes suffered in
Luxembourg, then the balance will be
reimbursed.
There are some tax credits available for
certain types of investment in tangible/
fixed assets for use within the Grand
Duchy of Luxembourg. Losses can be carried forward indefinitely, but not back.
MUNICIPAL BUSINESS TAX
Municipal Business Tax (hereafter “MBT”)
is due on profits derived from business activities carried out by companies resident
in Luxembourg. The basic rate of 3% is
multiplied by a factor that varies between
Provided the conditions necessary in
140% and 300% depending upon the
order to benefit from the participation
exemption regime are fulfilled, dividends municipality.
or liquidation proceeds received by a
The taxable basis of the MBT is essenSoparfi as well as capital gains realised
tially equal to the basis applied for CIT
upon the sale of shares in its subsidiary
purposes.
will be exempt (Please refer to sections
3.6.1 and 3.6.2 for more details).
The above rates result in an overall tax
rate on income (including CIT, MBT and
the contribution to the unemployment
fund) of 28.80% for 2011 in Luxembourg
City.
As far as a Soparfi is concerned, practice
has shown that a 85/15 debt-equity ratio
is acceptable to the Luxembourg tax
authorities. Within this limit, interest on
debt paid or accrued is tax-deductible
and payments do not suffer Luxembourg
withholding tax.
Should this ratio be exceeded, then the
tax authorities may consider part of
the shareholder’s loan to be equity. The
related interest payments would then be
recast as a hidden dividend payment. This
would imply that such payments are not
deductible for tax purposes. In addition,
withholding taxes would apply, depending upon the country of residence of the
recipient.
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THE LUXEMBOURG
PARTICIPATION EXEMPTION
REGIME
Finally, it should be mentioned that third • the company must allocate to a special reserve account an amount equal
party debt is generally not subject to any
to five times the amount of net worth
debt-equity limitations, as long as the
tax it wishes to reduce. The net worth
debt is not guaranteed by related parties.
tax to be reduced may not be higher
than the CIT due by the company for
NET WORTH TAX
the given year. The special reserve has
Net Worth Tax (“NWT ”) is levied annually
to be booked in the accounts of the
at a rate of 0.5% on the adjusted net ascompany before the end of the subseset value of a corporation as at January 1st
quent financial year;
of each year. Broadly, the net asset value
is calculated as assets less liabilities and
• the company must commit itself to
corresponds to net equity.The NWT due
maintain the special reserve in its balmay be reduced by a tax credit through
ance sheet for at least five financial
the creation of a special reserve, provided
years. Provided certain conditions are
the following conditions are met:
fulfilled, substantial shareholdings may
• the company has to submit a written
request to the competent tax office.
This request must be attached to the
tax return of the financial year for
which net wealth tax is to be credited;
be exempt from NWT.
Provided certain conditions are met,
the Luxembourg participation exemption regime allows for the following
exemptions:
• dividends received by the Soparfi are
exempt from corporate income and
municipal business tax;
• capital gains realised by the Soparfi
on the sale of shares are exempt from
corporate and municipal business
income tax;
• dividends remitted by the Soparfi are
exempt from withholding tax;
• qualifying participations are exempt
from NWT.
DIVIDEND EXEMPTION
According to article 166 of the Income
Tax Law (hereafter “ITL”) dividends (as
well as liquidation proceeds) are exempt
from corporate income tax and municipal
business tax if the following conditions
are met:
• the beneficiary of the income is:
- a fully taxable collective entity which
is resident in Luxembourg and has
adopted one of the legal forms listed
in the annex of the article 166, paragraph 10 ITL; or
- a fully taxable capital company that
has been incorporated outside of
the EU but which is a resident of
Luxembourg; or
- a Luxembourg permanent establishment of a collective entity referred to
in the article 2 of the Council Directive
of 23 July 1990 on the common system of taxation applicable in the case
of parent companies and subsidiaries
of different Member States; or
- a Luxembourg permanent establishment of a capital company which is
resident in a State with which Luxembourg has concluded a double tax
treaty; or
- a Luxembourg permanent establishment of a corporation or cooperative
company which is resident in an EEA
country other than a EU member
State.
• the distributing subsidiary is:
- a collective entity referred to in article
2 of the Council Directive of 23 July
1990 on the common system of taxation applicable in the case of parent
companies and subsidiaries of different
Member States; or
- a fully taxable capital company which
has been incorporated outside of the
EU but is a resident of Luxembourg; or
- a non-resident capital company which
is liable to a tax corresponding to Luxembourg corporate income tax1.
• at the date the dividend is placed at
the disposal of the recipient company,
the latter holds or commits to hold a
continuous shareholding for at least
12 months. This shareholding should
represent at least 10% of the capital of
the distributing company, or its acquisition price should amount to at least
Euro 1,2 million.
The beneficiary may hold its participation through a tax transparent entity
as defined in article 175(1)2 ITL. The
underlying shareholding will be valued
according to the proportion held in the
net assets of the tax transparent entity.
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L uxembourg tax authorities generally consider that the foreign tax must be assessed at a minimum tax rate of 10,5% on a basis
comparable to the Luxembourg taxable basis (rate applicable since the tax year 2002).
2
eneral partnerships (“sociétés en nom collectif”), limited partnerships (“sociétés en commandite simple”), economic interest groups
G
(“groupements d’intérêt économique”), European economic interest groups (“groupements européen d’intérêt économique”) and
private partnerships (“sociétés civiles”) are considered as tax transparent, with the exception of non-resident entities referred to in the
article 2 of the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of parent companies and
subsidiaries of different Member States.
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Where a dividend is exempt, the amount
of expenses in direct economic connection with this dividend income (e.g. interest expenses that are in relation with the
financing of the shareholding) will not be
deductible, up to the amount of dividends
received. If a write-down of the participation takes place, then this write-down
will only be deductible to the extent that
the write-down exceeds the amount of
dividends received during the current as
well as previous financial years.
Where a write-down of participation was
undertaken in the past and the participation has to be subsequently revalued
above the written down value, then the
income derived from the revaluation
of the participation is deemed to be an
exempt dividend distribution. However
the amount to be exempted may not
exceed the sum of all related expenses
and write-downs, that were considered
to be non deductible in the current and
in previous years, in accordance with the
rules described above.
CAPITAL GAINS EXEMPTION
According to the Grand Ducal Decree
of 21 December 2001, related to article
166 ITL, the capital gains realised upon
the disposal of shareholdings are exempt
from corporate income tax, provided the
following conditions are met:
• the seller is:
- a fully taxable collective entity which
is resident in Luxembourg and has
adopted one of the legal forms listed
in the annex of the article 166, paragraph 10 ITL; or
- a fully taxable capital company that
has been incorporated outside of the
EU but which is a resident of Luxembourg; or
- a Luxembourg permanent establishment of a collective entity referred to
in the article 2 of the Council Directive
of 23 July 1990 on the common system of taxation applicable in the case
of parent companies and subsi­diaries
of different Member States; or
- a Luxembourg permanent establishment of a capital company which
is resident in a State with which
Luxembourg has concluded a double
tax treaty; or
- a Luxembourg permanent establishment of a corporation or cooperative
company which is a resident of an EEA
country other than an EU member
State.
• t he subsidiary whose shares are disposed of is:
• at the date of the disposal, the seller
has held or commits itself to hold for
an uninterrupted period of 12 months,
- a collective entity referred to in the
a shareholding that amounts to either
article 2 of the Council Directive of
10% of the shares issued by the
23 July 1990 on the common system
company or to an acquisition cost of
of taxation applicable in the case of
at least EUR 6 million. The beneficiary
parent companies and subsidiaries of
entity may hold its participation in
different Member States; or
one of the above-mentioned qualifying subsidiaries through a transparent
- a fully taxable capital company which
entity as defined by article 175(1)1
has been incorporated outside of the
EU but is a resident of Luxembourg; or ITL. The shareholding will be valued
according to the proportion held in the
- a non-resident capital company which
net assets of the transparent entity.
is liable to a tax corresponding to
Notwithstanding what is mentioned
Luxembourg corporate income tax;
above, the capital gains realised upon
disposal of a participation are subject
to a “recapture rule”. According to this
recapture rule, capital gains will remain
subject to tax up to the sum of all
related expenses that were deducted
for tax purposes in the year of disposal
or in previous financial years. Expenses
include, for instance, interest expenses
on loans used to purchase the shares or
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any write-downs of the participation.
This recapture rule merely implies that
in certain cases the deduction of related
expenses will give rise to a tax deferral
rather than to an absolute saving.
WITHHOLDING TAX EXEMPTION
Dividends distributed by a Luxembourg
company are in principle subject to a
withholding tax at a rate of 15%, unless
a reduced rate under the provisions of
a double tax treaty applies. However, a
general exemption from withholding tax
applies if the following conditions are
fulfilled:
• the distributing company is:
- a fully taxable collective entity which
is resident in Luxembourg and has
adopted one of the legal forms listed
in the annex of the article 166, paragraph 10 ITL; or
eneral partnerships (“Sociétés en nom collectif ”), limited partnerships (“Sociétés en commandite simple”), economic interest
G
groups (“groupements d’intérêt économique”), European economic interest groups (“groupements européen d’intérêt économique”)
and private partnerships (“Sociétés civiles”) are considered as not having a distinct legal personality from its partners, except for
the non-resident entities referred to in the article 2 of the Council Directive of 23 July 1990 on the common system of taxation
applicable in the case of parent companies and subsidiaries of different Member States.
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- a fully taxable corporation (i.e. SA ,
Sàrl or SCA) which has been incorporated outside the EU but is a resident
of Luxembourg .
• the beneficiary of the dividends is:
- another collective entity referred to
in article 2 of the Council Directive of
23 July 1990 on the common system
of taxation applicable in the case of
parent companies and subsidiaries of
different Member States; or
- a fully taxable corporation which is
a resident of Luxembourg and not
listed in the annex of the article166,
paragraph 10 ITL; or
- the State, a municipality, a municipal
union or a Luxembourg state organisation; or
1
- a fully taxable collective entity1 which
is a resident of a country with which
Luxembourg has concluded a double
tax treaty;
- a permanent establishment of a collective entity referred to above; or
- a Luxembourg permanent establishment of a capital company which is
resident in a State with which Luxembourg has concluded a double tax
treaty; or
• at the date the dividends are placed at
the disposal of the beneficiary company,
the latter holds or commits to hold for a
continuous period of at least 12 months
a direct shareholding of at least 10% in
the capital of its subsidiary, or a shareholding that was acquired for at least
EUR 1,2 million.
The beneficiary may hold its participation
through a transparent entity as defined by
article 175(1) ITL. The underlying shareholding will be valued according to the
- a corporation or cooperative company proportion held in the net assets of the
which is a resident of an EEA country transparent entity.
other than an EU member State and
which is liable to a tax corresponding
to the Luxembourg corporate income
tax;
- a permanent establishment of a corporation or cooperative company which
is a resident of an EEA country other
than an EU member State.
L uxembourg tax authorities generally consider that the foreign tax must be assessed at a minimum tax rate of 10,5% on a basis
comparable to the Luxembourg taxable basis (rate applicable since the tax year 2002).
NET WORTH TAX
A shareholding will be exempt from
NWT at the level of the shareholder
provided that the following conditions
are met:
• the shareholder is:
- a fully taxable collective entity which
is resident in Luxembourg and has
adopted one of the legal forms listed
in the annex of article 60, paragraph
4 of the Evaluation Act of 16 October,
1934; or
- a Luxembourg permanent establishment of a collective entity referred to
in article 2 of the Council Directive of
23 July 1990 on the common system
of taxation applicable in the case of
parent companies and subsidiaries of
different Member States; or
- A Luxembourg permanent establishment of a corporation or cooperative
company which is resident of an EEA
country other than an EU member
State.
- a fully taxable capital company (i.e. SA,
• the subsidiary is:
Sàrl, SCA or European Company) which
has been incorporated outside the EU
- a collective entity referred to in
but is a resident of Luxembourg; or
article 2 of the Council Directive of
23 July 1990 on the common system
of taxation applicable in the case of
parent companies and subsidiaries of
different Member States; or
- a fully taxable capital company which
is a resident of Luxembourg and
not listed in the annex of article 60,
paragraph 4 of the Evaluation Act of
16 October, 1934; or
- a non-resident capital company which
is liable to a tax corresponding to
Luxembourg corporate income tax.
• the shareholder holds a participation
of at least 10% in the subsidiary or a
shareholding that was acquired for at
least EUR 1,2 million. The holding of a
company through a transparent entity
will be considered as a direct participation, in proportion to the net assets
held in the transparent entity.
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19
DOUBLE TAX TREATIES
Luxembourg has signed double tax treaties with 64 other countries, many of
which follow the OECD Model Tax Convention (See II for a list of the countries
that have concluded a double tax treaty
with Luxembourg).
As Soparfis are fully taxable resident
companies they benefit from the protection of double tax treaties1. In this
context the Luxembourg tax authorities
will issue resident certificates.
Broadly speaking, double tax treaties
provide that corporate entities are subject to tax on their world-wide income
in the country in which they are resident (the Treaties contain “tie-breaker”
clauses to resolve cases in which both
countries assert residence), except in
the case where an entity which is resident
in one country maintains a permanent
establishment in the other country.
In such cases, the profits from that
permanent establishment are taxed in
the other country. Most Luxembourg
treaties then exempt the profits from
that foreign permanent establishment2
in Luxembourg.
Double tax treaties normally provide
for a withholding tax on dividends at
a lower rate than the usual internal
rate. Furthermore, in the case where a
company holds an important stake in a
subsidiary in another country (usually
25% or greater), an even lower or zero
rate is applied.
Likewise, reduced rates of withholding
tax are applied to interest and royalty
payments (although, in principle, Luxembourg does not apply withholding tax to
interest or to most royalties payments3).
Withholding tax paid in one country
normally reduces the income tax due on
the same income in the other country
(tax credit mechanism). Income from
real estate property is usually taxed in
the country in which it is situated.
In addition to withholding tax relief,
a number of Luxembourg tax treaties
contain a treaty based participation
exemption which, in some cases, is more
favourable than the internal participation exemption. In such a case the most
favourable provisions of the treaty apply,
as a double tax treaty may only improve
on the tax treatment of a Luxembourg
resident.
VALUE ADDED TAX
The mere acquisition and holding of
shares is not regarded as an economic
activity for VAT purposes. In the same
vein the disposal of such holdings does
not in itself constitute an economic
activity. As a consequence, a purely
“passive” Soparfi whose sole purpose
is to hold shares in other undertakings
does not have the status of taxable
person for VAT purposes.
1
he one exception could be under the “limitation of benefits” clause in the US/Luxembourg double tax treaty, which contains
T
restrictions on treaty benefits depending on factors such as the shareholders of the Soparfi, erosion of the Soparfi’s tax base etc.
2
Prior to 1 January 2001, the old US/Luxembourg double tax treaty was an exception to this rule.
3
In accordance with the EU Savings Directive, Luxembourg currently levies a withholding tax (at a rate of 35%) on interest paid to
individuals who are resident in another EU Member State (Council Directive 2003/48/EC of 3 June 2003 on taxation of savings
income in the form of interest payments).
Where a Soparfi is directly or indirectly
involved in the management of its subsidiaries, then it could become a taxable
person, and may need to register for VAT.
This could for instance be the case where
a Soparfi renders administrative or management services for a consideration.
“Intangible” services (e.g. services of a
legal, advisory or consulting nature) rendered to a Luxembourg taxable person by
a taxable person established abroad are
deemed to be supplied in Luxembourg.
In practice an active Soparfi may need to
register for VAT if and when it receives
intangible services from suppliers outside
A distinction must therefore be made beLuxembourg.
tween an “active” and a “passive” Soparfi.
An “active” Soparfi may be entitled to
The granting of interest bearing loans
the deduction of input VAT incurred on
also falls within the scope of VAT, even if
goods and services used for the purposes
this activity is exempt from VAT. The VAT
of its economic activity as well as VAT
status of a Soparfi can have an impact on
incurred on its general overhead costs.
the place of supply of certain services it
receives.
Whether it is “active” or “passive” a
Soparfi must register for VAT purposes
when they perform intra-community
acquisitions of goods in Luxembourg.
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21
CONCLUSION
Since 1990, the Soparfi has developed
into a widely used corporate investment
vehicle. For many global and regional
holding and financing activities it has
come to be regarded as an “industry
standard”. This is due to a track record
of continuous improvement in its tax
and legal regime and a strong supporting infrastructure at all levels.
Insofar as the Soparfi fulfils the requi­
rements provided by the Luxembourg
participation exemption regime, the
Company may be exempt on the
following income:
• income received from its shareholdings;
• capital gains realised upon the sale of
shares in its holding.
Furthermore, dividend distribution to
corporate shareholders will also be
exempt from withholding tax under
certain conditions.
In cases where the Parent-Subsidiary Directive does not reduce withholding tax
rates to zero, the Soparfi will be entitled
to benefit from the reduced withholding tax rates provided by the double tax
treaties signed by Luxembourg or by
domestic law.
As regards the net wealth tax applicable
to a Soparfi, the exemption of qualifying
participations will, in practice, substantially reduce or eliminate any taxes due.
Depending on the circumstances, VAT
due by a Soparfi may be an important
source of cost. Therefore, the VAT situation of each Soparfi needs to be analysed
carefully in order to assess and efficiently
manage opportunities for VAT savings.
Map of double tax treaties
as at April 2012
Double tax treaties in force
Armenia
Austria
Azerbaijan
Bahrain
Barbados
Belgium
Brasil
Bulgaria
Canada
China
Czech Republic
Denmark
Estonia
Finland
France
Georgia
Germany
Greece
Hong Kong
Hungary
Iceland
Indonesia
Ireland
Israel
Italy
Japan
Latvia
Malaysia
Malta
Mauritius
Mexico
Moldavia
Monaco
Mongolia
Morocco
Netherlands
Norway
Panama
Poland
Portugal
Qatar
Rumania
Double tax treaties pending
Russia
San Marino
Singapore
Slovakia
Slovenia
South Africa
South Korea
Spain
Sweden
Switzerland
Thailand
Trinidad and Tobago
Tunisia
Turkey
United Arab Emirates
United Kingdom
USA
Uzbekistan
Vietnam
Sri Lanka
Albania
Syria
Argentina
Tajikistan
Cyprus
Ukraine
Croatia
Uruguay
Egypt
India
Kazakhstan
Kyrgyzstan
Kuwait
Lebanon
Liechtenstein
Macedonia
New Zealand
Oman
Pakistan
Saudi Arabia
Serbia and Montenegro
Seychelles
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23
Luxembourg for Finance
Agency for the Development of the Financial Centre
Luxembourg for Finance is a public-private partnership
between the Luxembourg Government and the Luxembourg
Financial Industry Federation (PROFIL). It consolidates the
efforts made by the public authorities and principal actors
of the financial sector to ensure the development of an
innovative and professional financial centre through a
coherent and structured communications policy.
Thus Luxembourg for Finance works to enhance the
external presentation of the financial centre, communicating the advantages of its products and services to a
wider public and highlighting the numerous opportunities
available to investors and clients, whether institutional
or private, from around the world.
Luxembourg for Finance organises seminars in international financial centres and takes part in selected world
class trade fairs and congresses.
The agency also develops its contacts with opinion
leaders from international media and is the first port
of call for foreign journalists.
Agency for the Development of the Financial Centre
12, rue Erasme • P.O. Box 904
•
L-2019 Luxembourg
•
Tel. (+352) 27 20 21 1
•
Fax (+352) 27 20 21 399
•
E-mail lff@lff.lu
© LFF April 2012
www.luxembourgforfinance.lu