After the ruling of the European Commission and the transitional
period allowing the 1929 Holding Companies to survive until 31
December 2010, the 1929 Holding Company tax regime will soon
disappear and the 1929 Holding Companies will, as from 1 January
2011, become fully taxable companies. In certain cases such change
of status will, on the one hand, not have any major impact on the
tax situation of such "newly" taxable company, whereas,
on the other hand, such change may have substantial impact on the
tax situation of the concerned companies and further tailored tax
planning would definitely be advisable.
Doing nothing will have consequences in that a 1929 Holding
Company will lose its tax exempt status as of 1st January 2011 and
become, a fully taxable company subject to:
(i) corporate income tax and municipal business tax at the
current aggregate rate of 28.59% (expected to rise to 28.80% in
2011) and to
(ii) net worth tax at a rate of 0.5% levied on the net assets of
the company as at 1st January of each year.
Instead of simply awaiting the automatic conversion, conversion
would be done beforehand. This would permit the choice of the newly
transformed company and avoid unexpected company or tax law
surprises.
Depending on the existing structure, the investments and the
needs of the shareholders, different choices can be made. The 1929
Holding Company can indeed simply be transformed into a Soparfi
(and benefit from a "step-up" of its assets) or into a
family wealth management company (the SPF, i.e.
Société de gestion de patrimoine familial). While it
does not seem necessary to present the already known
"Soparfi", a word on the SPF could be useful in order to
recall the basics: the SPF preserves many of the same tax exemption
benefits as the 1929 Holding Company regime, although it is more
clearly defined as only serving private investors and narrows to
some extent the definition of passive investments.
Other solutions can consist in the transfer of the registered
office of the 1929 Holding Company to another jurisdiction. Such
transfer of registered office would also have some tax
implications. In particular, such transfer is considered as a
liquidation for Luxembourg tax purposes.Such a decision should
therefore imply further analysis in particular from a tax
perspective.
The liquidation of the 1929 Holding Company could also be a
solution although a more "radical" one. The tax impact of
such liquidation should be considered form the perspective of the
shareholders of the 1929 Holding Company. At the level of the 1929
Holding Company itself, such liquidation should be tax neutral.
Another possibility that may be considered is the merger the
1929 Holding Company. Although this may seem at first glance a more
burdensome solution, it often offers advantages that may be worth
considering.
Luxembourg offers several legal and fiscal solutions to find a
positive outcome to the end of the 1929 Holding Company regime. The
needs of the investors, an international context, a maximum of
flexibility and mitigating, any tax leakage maximum should be kept
in mind in this respect.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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