Luxembourg is one of the most representative states forfund domiciliation, as it provides a legal framework advantageous for both local and foreign investors. Luxembourg is amongst thetop five wealthiest countries in the world, with a highly developed economy based on financial, legal and banking industries.
Foreign investors interested in opening a business in Luxembourg can incorporate the company as a SOPARFI (Societe de Participations Financieres), which is a trading company liable to local taxation; our experts can provide you with information on the main benefits of a SOPARFI in Luxembourg.
What is a SOPARFI?
The SOPARFI (Société de Participations Financières) is a type of company that is created for financial and holding activities. It can also undertake commercial activities.
Who can register a SOPARFI?
Local and foreign businessmen
Law applicable to the SOPARFI
The Luxembourg Law on Commercial Companies
Legal entities accepted
- public limited liability company (SA),
- private limited liability company (SARL),
- partnership limited by shares (SCA),
- special limited partnership (SCSp),
- European company (SE).
Minimum capital requirements
The capital of SOPARFI in Luxembourg depends on the selected legal entity: for SARL, the capital requirement is min. EUR12,000, while for the SA - min. EUR30,000.
Institution handling the registration procedure
Trade and Companies Register
Statutory documents of the SOPARFI
Articles of Association
Types of business activities
- financial activities,
- commercial activities
Corporate taxes charged (yes/no)
Shareholding and director requirements
A SOPARFI in Luxembourg can have minimum 1 shareholder, if it is registered as a SARL or SA, and 2 shareholders (1 general partner and 1 limited partner) for a SCA.
15% withholding tax on dividends (reductions or exemptions are available)
Capital gains tax (yes/no)
No (but the tax can be charged in some conditions)
Trading license required (yes/no)
Yes, if the company carries out commercial operations.
VAT obligations in Luxembourg
For holding and financial activities, no, but it can be charged when the SOPARFI develops commercial operations.
Advantages of the SOPARFI in Luxembourg
- access to the double tax treaty network,
- it qualifies for the tax advantages provided by the EU Parent-Subsidiary Directive,
- it can be registered under different legal entities,
- it can develop multiple types of business operations,
- it can hold many types of assets (real estate, stocks, bonds, cash, currencies, etc.).
Characteristics of a SOPARFI in Luxembourg
A SOPARFI is a financial holding company which is fully liable to taxation on income, such as the corporate income tax or value added tax. In order to minimize the taxes to which a SOPARFI is liable to, the company can reduce its business activities to holdings investments.
Under the Luxembourg legislation, a SOPARFI is allowed to carry on various commercial activities, as stated in the articles of associations of the company. If the company carries out commercial or industrial activities, it is compulsory to obtain a trading license from the Ministry of Small and Medium Sized Businesses, Tourism and Housing.
More details on the SOPARFI in Luxembourg are available in the video below:
A SOPARFI in Luxembourg can be incorporated by a natural or legal person, regardless of the place where the person is tax resident; you can receive more information on the tax residency from our financial specialists in Luxembourg. The legislation applicable to a SOPARFI is the Law on Commercial Companies; since the SOPARFI has the legal statute of a regular company, it can benefit from the provisions of the double taxation treaties signed by Luxembourg.
Legal forms of SOPARFI in Luxembourg
Investors interested in opening a SOPARFI in Luxembourg should know that they can incorporate the company under one of the following legal forms: public limited company, private limited liability company, partnership limited by shares, cooperative set up as a public limited company and a European company. Below, you can find out some of the basic characteristics of the private limited liability company, a common way to incorporate a business in this country:
this type of company can have minimum 1 to maximum 100 shareholders;
it can be set up with a minimum share capital of EUR 12,000 and the liability of the shareholders will be limited to their participation at the company’s capital;
the shares of the company are not freely transferable and if the transfer of shares to third parties occurs, the shareholder will need the consent of the other shareholders;
the shares can’t be listed on the Stock Exchange and public offerings are not allowed;
as a general rule, the company does not have to be audited, but this procedure may be required if certain thresholds are met.
Although the private limited liability company is a common way to register a business here, those who want to open a Luxembourg fundor another type of company that operates in the financial industry will generally prefer to incorporate a public limited company (or the joint stock company), as it provides certain advantages, including the possibility of public offerings.
This company type can be used for a SOPARFI in Luxembourg, but in this case, the investors will need a capital of EUR 30,000. The company can be incorporated by minimum one shareholder, whose liability will be limited to the capital contribution as well, just like in the case of a private limited company. However, this company type needs to have its accounts and financial documents audited, unless there is an exemption granted in this case.
Another benefit of the public limited company is that the company’s shareholders are allowed to transfer the company’s shares which belong to them without any restrictions, and such shares can also be listed on the Stock Exchange, while the public offering is also possible. As a general rule, the highest ruling body of the company is the board of directors or the management supervisory board.
If the SOPARFI in Luxembourg will be incorporated as a partnership limited by shares, then there must be at least two partners – at least one limited partner and one general partner. The minimum capital is of EUR 30,000 as well, and the limited partner will be liable only to the extent of his or her participation at the company’s capital, while the general partner has a broader liability.
The shares of the limited partner can be easily transferred and listed, but the shares of the unlimited (general) partner can be transferred only in specific conditions. Our team of financial specialists can offer more information on the conditions applicable when opening an investment fund in Luxembourgunder this company type.
Registration aspects for SOPARFI in Luxembourg
A SOPARFI can be opened in Luxembourg with the purpose of performing investment activities in other companies located in this country or in another jurisdiction. The procedure of company incorporation in Luxembourg states that the SOPARFI can undertake commercial activities as well. However, such activities must follow the provisions established under the company’s statutory documents. The SOPARFI’s statutory documents are the articles of association, which must be signed in front of a public notary inLuxembourg, that should further on be registered with the Trade and Companies Register.
Requirements to open a SOPARFI company in Luxembourg
Foreign investors are allowed to set up SOPARFI holding companies as long as they meet the following criteria: they choose a unique company name which bears the AG or SA shortcuts determining the type of structure used and they appoint at least one shareholder for the SOPARFI company.
They must also have a local registered address which will be used as a legal address and they must appoint a director or a board of directors to manage the company – the managing body will be chosen based on the share capital of the company. Apart from the requirements presented here, the investors must also appoint aLuxembourg domiciliation agent to complete the company registration procedure.
Withholding taxes for SOPARFIs in Luxembourg
Foreign investors interested in opening an investment fund in Luxembourg may establish a SOPARFI, which designates a financial holding company. A SOPARFI is generally taxed as a company, but it carries out holding or financial activities. As a general rule, companies taxed inLuxembourg are imposed with withholding taxes, which can vary in value depending on the specific category in which the respective company enters.
Although the SOPARFI is taxed as a company, it can be exempted from paying the withholding tax on dividends if the beneficiary owns 10% of the company’s capital for a minimum period of 12 months. However, there are other numerous conditions in which the withholding tax on dividends will not apply and our team of financial representativescan provide further advice on this matter.
Capital gains for a SOPARFI in Luxembourg
Businessmen interested in wealth management in Luxembourg should know that they can benefit from numerous tax exemptions when investing in this country. In a SOPARFI, the capital gains are not taxable and this regulation takes into consideration all types of related operations. At the same time, it is important to mention that the company’s profits may be exempted from the corporate tax, if specific conditions are met, related to the situation of the parent company, its subsidiary and the ownership aspects.
What are the general tax principles for a SOPARFI in Luxembourg?
The SOPARFI in Luxembourg represents a fully liable corporate entity, which follows the corporate tax system applicable to local businesses (which means that although it is set up in the financial sector, it will not fall under the regulations addressed to those who want to open a Luxembourg fund, as different rules of law apply in that case and other tax principles). The taxes applicable to this structure have fluctuated over the years and, starting with 2019, the following taxes are applicable:
the overall corporate tax applicable to a SOPARFI in Luxembourg is of 24.94%;
the corporate income tax is comprised of 2 basic corporate incomes – one refers to a corporate income tax charged at a rate of 17%, to which a solidary surcharge is applied at a rate of 7% (which will lead to an overall tax of 18.19% charged as an effective corporate income tax);
the other pillar for the calculation of the corporate tax is given by the municipal business tax, which can vary based on the region but in Luxembourg City the tax is charged at 6.75%;
this type of fund is also liable to the payment of the wealth tax, charged at a rate of 0.5% on the net wealth, but if the net wealth is above EUR 500 million, the excess value will be charged with a reduced rate of 0.05%;
as a general rule, the SOPARFI in Luxembourg is not liable to the payment of the VAT, but this can depend on the business activities of the company (for instance, when it is not a pure holding company) and in this situation, the company will be liable to the payment of the VAT, charged at a rate of 17%.
Why open a SOPARFI holding in Luxembourg?
There are plenty of reasons for which an investor can open an investment fund in Luxembourg as a SOPARFI. Apart from the tax benefits a Luxembourg SOPARFI company offers, foreign investors also take into account the aspects presented below, but more details can be presented at length by our team of specialists:
privacy – the holding company offers enhanced protection to both the shareholders and the directors of the company;
the easy registration procedure – Luxembourg is one of the most advanced countries in Europe when it comes to the easiness of incorporating a business;
the minimum company registration requirements – as mentioned above one shareholder and one director suffice to open a SOPARFI company;
the SOPARFI company is ideal for issuing financial instruments, for listing shares on the Stock Exchange or for raising capital by investment.
If you need further information on the SOPARFI in Luxembourg, please contact our financial specialists, who can provide you with assistance for the incorporation of a company according to your business interests. Our team can represent you on the procedure of opening a Luxembourg fund, regardless of the type you are interested in.
Setting up an investment fund in Luxembourg can be difficult since it involves such complex procedures. The team from StartLuxembourgFund.com is very qualified and benefits from extensive expertise in this area.