English | Français

fiduciary services in Luxembourg

Luxembourg has been famous as a domicile for holding companies since 1929 when the Grand Duchy of Luxembourg abolished all income taxes and applied only a 0.2% annual subscription tax on share capital and a capital duty of 1% payable on this issue of new shares. However, Luxembourg holding companies that qualify for the above tax exemption do not qualify for any treaty benefit that Luxembourg concluded with other nations. Recently, to increase Luxembourg's attractiveness as a business and financial center, the Luxembourg government passed a law extending Luxembourg's participation exemption, which already existed for dividends, to capital gains if the company, would be subject to Luxembourg's normal corporate tax regime (i.e., companies not exempt from tax under the 1929 Law). For 1991, Luxembourg's national and municipal corporate tax rate is approximately 39%.

The participation exemption exempts cash dividends, dividends-in-kind, hidden profit distributions, capital gains on liquidation distributions, and capital gains on the sale of the qualifying subsidiary.

To qualify for the participation exemption and the tax treaty benefits the following conditions must be met.

  • The parent company must be a resident and fully taxable in Luxembourg
  • For dividends to be exempted, the participation in the foreign subsidiary must equal at least 10% of the subsidiary´s share capital
  • The participation must be held for an uninterrupted period of 12 month prior to the end of the taxable year in which the dividend is received
  • For capital gains to be exempted, the shareholding in the foreign subsidiary must equal at least 25% of the subsidiary´s share capital
  • To qualify for the participation exemption on dividends and capital gains, the nonresident subsidiary must be subject to corporate tax in its home country at a rate of at least 15%. The exemption covers corporate income and wealth tax as well as municipal and local taxes

Public and Private Limited Companies

 Public Limited Company - Société Anonyme (S.A.)Private Limited Company - Société à Resposnsabilité Limitée (Sàrl)
ConstitutionNotarial deed, registered with the Registre of Commerce & published in the MémorialIdem
CapitalMinimum subscribes capital of € 31,000Minimum subscribes capital of € 12,500
SharesNominative or BearerNominative only
Shareholders1 or several persons (individuals or companies)
Luxembourg or foreign nationals
Residents or Non Residents
1 or several associates

Idem
AssemblyThe General Assembly - once a yearIdem if > 25 associates
Administrative CouncilMinimum 3 persons (1 if one shareholder)
OR Conseil de Surveillance & Directoire
1 or several managers
Statutory auditor1 required None if < 25 pIdem if > 25 p
AuditIf the size of the company requires itIdem
AccountsOnce per yearIdem
ReportAuditor's report is requiredNo report is needed

Investment Funds can be organized in the form of a partnership, but are commonly set up as a Fixed (SICAF) or Variable (SICAV) Investment Company. Recently, a new law defined various possibilities for setting up Risk Capital Investment Companies (SICAR). The same law makes it possible to constitute Securitisation Vehicle, which can take one of the above forms or mutual funds.

Holding Companies are not themselves a particular type of company. A special request written in the by-laws determines this status. Usually, a Holding 1929 takes the form of a Public Limited Company, but sometimes a Private Limited Company meets the requirements.

It is not necessary to obtain an official authorization prior to setting up a company, but the law requires certain types of commercial companies to have a business creation permit, available from the Department of Commerce and delivered on the basis of merit and professional qualifications.

Some Financial Sector Professionals come under the supervision of the "Commission de Surveillance du Secteur Financier" (CSSF).

Various rights accompany shares (the right to vote or no right to vote for founding members, other classes… ) Shareholder agreements and pre-emptive rights are also frequently used. The capital of the company can be subscribed in any of the recognized currencies. This also applies for annual return. Shares in a Public Limited Company can be either nominal or bearer shares.

Transnational mergers can go ahead without any changes to the legal entity. Foreign companies can move to Luxembourg and Luxembourg companies can move abroad, provided the company's by-laws allow for this type of move. Once the registered office transfer is voted by the shareholders, it is published in the official gazette (Mémorial). This operation is not subject to capital duty. For this kind of operation, latent capital gain or the company's reserves are not taxed in Luxembourg (except when moving out Luxembourg).

Soparfi

"Société de Participations Financières" (SOPARFI) is a type of holding company which is fully eligible to the benefits offered by Double Tax Treaties (and EC directives).

While a SOPARFI can have all the same activities of a Holding company, it can also have a related commercial activity such as the management of participations (as Holding 1929 or Private Asset Management Company), financing, real estate, etc., or a real commercial/industrial activity in relation to the aim stated in its by-laws.

Therefore, on one hand, a SOPARFI can have a Holding activity and on the other hand, an activity subject to VAT. This is called a mixed holding.

Dividends received by a resident company (a SOPARFI, for instance) are corporation tax exempt:

  • The SOPARFI must own a minimum of 10% of the subsidiary (or 1.2 million Euros in investments)
  • The subsidiary may be resident or non resident, but is subject to a similar tax regime (min.11% corporate tax)
  • The Soparfi must have owned the subsidiary for at least 12 months.

For exemption of income taxes on proceed of liquidation received by a SOPARFI, the same rule applies.

Capital gain are exempt of income taxes when the SOPARFI owns 10% (or 6 million Euros worth) of its subsidiary for at least 12 months.

It is worth noting that expenses linked with participations are fully deductible, as long as they do not exceed the annual amount of exonerated income: financing costs, bank charges & fees, audit fees, management fees, auditors, surveys, etc.

Since 1/1/1996, this exemption regime now also applies to non resident companies. No withholding tax is claimed. It is therefore very worthwhile to establish such a branch in order to avoid the withholding tax, if the company is a resident of a country with which Luxembourg has concluded a Double Tax Treaty.

Dividends paid by the Soparfi are exempted of withholding taxes if the mother is resident in the EU and hold the participation in the Soparfi for more then 12 months for at least 10% from 2009).

Others conditions of reduction may apply for companies resident in double tax treaty countries.