1 WHY LUXEMBOURG?

  • Fully developed infrastructure of financial services and support functions
  • Multilingual and skilled workforce
  • Founding member of the European Union
  • Political and financial stability (AAA rating)
  • Effective tax system within the European Union and fully compliant with OECD standards
  • Extensive double tax treaty network
  • Attractive tax framework for holding and finance companies: Luxembourg is a traditional platform and hub for cross-border investments made by large corporates, sovereign wealth funds and private equity funds
  • Attractive tax and legal framework for structured finance transactions and securitisations
  • Attractive tax environment for high-net-worth individuals
  • Lowest standard VAT rate in the European Union
  • Largest cross-border investment fund industry, including UCITS, alternative, hedge, venture capital and private equity funds

2 WHAT IS A SOPARFI?

A Soparfi is a fully taxable ordinary commercial company, whose corporate purpose is limited to the holding of participations and related activities.

A Soparfi has full treaty access and benefits from all EU directives. The key benefits of a Soparfi are the participation exemption on dividends, capital gains and wealth tax (subject to inter alia, certain holding and threshold conditions), a withholding tax exemption on dividends paid to qualifying shareholders (subject to minimum holding and threshold conditions), no withholding tax on interest payments or on payments of a liquidation bonus.

3. TAXATION OF A SOPARFI: GENERAL PRINCIPLES

CORPORATION TAXES

The overall combined rate of corporation taxes is 27.08% in Luxembourg-City1. Corporation taxes include (i) a 19% corporate income tax (impôt sur le revenu des collectivités) on which a 7% solidarity surcharge (contribution au fonds pour l'emploi) is added, leading to an effective corporate income tax rate of 20.33%, plus (ii) a municipal business tax (impôt commercial communal). The municipal business tax rate varies from one municipality to another. In Luxembourg City, the municipal business tax is 6.75%.

WEALTH TAX

Corporations are liable to an annual 0.5% net wealth tax in Luxembourg (impôt sur la fortune) on their unitary value (i.e. taxable assets minus liabilities financing such taxable assets) as at 1 January of each year2. A reduced tax rate of 0.05% is due for the portion of net wealth exceeding EUR 500 million.

MINIMUM WEALTH TAX

Corporations having their registered office or their central administration in Luxembourg for which the sum of financial assets, transferable securities and bank deposits, receivables held against related parties or shares or units in tax transparent entities exceed (i) 90% of their total balance sheet and (ii) EUR 350,000, are subject to a minimum wealth tax of EUR 4,815 (including the 7% solidarity surcharge).

Other corporations which are not subject to the above minimum flat tax are subject to a minimum wealth tax which is determined on the basis of the total assets in the balance sheet of the tax year concerned. This minimum wealth tax ranges from EUR 535 to EUR 32,100 (including the 7% solidarity surcharge). The EUR 32,100 minimum tax is due for corporations with a balance sheet exceeding EUR 30 million. The minimum wealth tax is however reduced by the corporate income tax to be paid by the Soparfi.

VAT

As long as a Soparfi acts as a pure holding company, it will not be regarded as a taxable person for VAT purposes and hence will not be able or required to register for VAT in Luxembourg. If, on the contrary, a Soparfi acts as a mixed holding company, i.e., if it also carries out other activities or services, it must be determined on a case-by-case basis whether VAT registration is required and whether input VAT may be deducted and/or recovered. In the case of VAT registration in Luxembourg, Soparfi would have the opportunity to self-assess VAT in Luxembourg for a large number of services at a rate of 17%, the lowest rate of all EU Member States.

Footnotes

1 Financial year ending 31 December 2017. The combined rate will be reduced to 26.01% in 2018.

2 For companies having a financial year corresponding to the calendar year.

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