The Most Important Points of the Luxembourg Family Wealth Management Company  - Damalion - Independent consulting firm.

On 19 July 2006, the European Commission (EC) announced that the Holding 1929 Company violated Article 87 EC treaty on state aid rules and distorted competition. In response, Luxembourg drafted the Law of 11 May 2008 or SPF Law that introduces the Private Wealth Management (SPF) structure, an investment vehicle for private or family wealth management. This investment vehicle was primarily created to replace the tax-exempt holding company in Luxembourg, the Holding 1929 Company. 

Family Wealth Management Company (SPF) Legal Forms 

Under Article 1 of the SPF Law, a Family Wealth Management Company (SPF) can be established in the form of any capital company existing under Luxembourg Law. Keeping this in mind, a Family Wealth Management Company (SPF) may assume one of the following legal forms in Luxembourg:

  • Private limited liability company (SARL)
  • Partnership Limited by Shares (SCA)
  • Cooperative in the form of a Public Limited Company (SCOP)

One salient point about the Family Wealth Management Company is that it cannot be a transparent entity, such as a partnership. 

A Luxembourg Family Wealth Management Company’s (SPF) articles of association shall explicitly state that it is subject to the provisions laid out by the SPF Law. The company’s name will always be supplemented after selecting its legal form. The minimum share capital of a Family Wealth Management Company (SPF) will depend on the choice of legal structure. 

Family Wealth Management Company (SPF) Financial Assets

Pursuant to Article 1 of the SPF Law describes the limits a Family Wealth Management Company’s (SPF) in the following areas:

  • Object to the acquisition
  • Holding and management of financial assets 

A Luxembourg Family Wealth Management Company (SPF) cannot commence or practice any business or commercial activity. 

Under Article 2 (1) of the SPF Law clearly defines financial assets as financial instruments, as stated in the Law of 5 August 2005. Therefore, a Luxembourg Family Wealth Management Company (SPF) can hold the following types of assets:

  • Any forms of shares
  • Securities
  • Derivatives
  • Deposits and cash held on bank accounts

The scope of the definition of financial assets clearly states that any financial asset that is typically inherent in a Family Wealth Management Company (SPF) structure may be held by Luxembourg Family Wealth Management Companies (SPFs). 

According to Article 2 (2) of the SPF Law, a Family Wealth Management Company (SPF) can hold participation in a company as long as it is not involved in managing it. A Family Wealth Management Company (SPF) can only assume the role of a passive investor; hence it cannot provide paid services to any of its participations, such as bookkeeping, back-office activities, and interest-bearing loans. 

Family Wealth Management Company (SPF) Eligible Investors

Under Article 1 of the SPF Law, shares in a Family Wealth Management Company (SPF) can only be held by private investors, as stated in Article 3 (1) of the SPF Law. These consist of the following:

  • Natural persons managing private wealth assets.
  • A wealth planning entity that exclusively services the private wealth of natural persons, groups, or family offices (trusts and foundations).
  • Intermediaries working for investors under the two listed above, such as in the case of a bank acting under a fiduciary agreement.

The primary objective of the Family Wealth Management Company (SPF) is to act as a family holding entity. It cannot be held or offered to the general public. Shares issued by a Family Wealth Management Company (SPF) cannot bear shares and be publicly listed on a stock exchange. 

Family Wealth Management Company (SPF) Supervision 

It is not a requirement for a Luxembourg Family Wealth Management Company (SPF) to gain approval from the Commission for the Supervision of the Financial Sector (CSSF). 

The concerned government authority that can exercise tax control over a Commission for the Supervision of the Financial Sector (CSSF) is the Administration for Registrations and State Property. Its rights for control and investigation is limited to searching and evaluating facts and information relating to a Family Wealth Management Company’s (SPF) tax condition as well as all data necessary to ensure and confirm fair and accurate tax collection and duties payable by a Family Wealth Management Company (SPF). 

A chartered accountant or auditor must issue a certificate every year, no later than 31 July, confirming the following:

  • The Family Wealth Management Company (SPF) is by eligible investors.
  • It does not receive more than 5% of its dividend from non-EU companies taxed below 11%.
  • Confirmed to adhere to its obligations as a paying agent under the EU Savings Directive (Council Directive 2003/48?EC of 3 June 2003).

Family Wealth Management Company (SPF) Taxation Rules

A Family Wealth Management Company (SPF) should satisfy several requirements to be qualified for tax exemption rules existing in Luxembourg:

  • Annual dividends are paid to a Family Wealth Management Company (SPF) by companies not subject to a tax deemed equivalent to Luxembourg’s income tax. Therefore, any relevant company must be assessed at a rate of at least 11%.
  • It is not covered by the European Commission Parent-Subsidiary Directive (Council Directive) 90/435), representing less than 5% of the overall dividend payments made to a Family Wealth Management Company (SPF) during the relevant year. 

If a Family Wealth Management Company (SPF) satisfies the following criteria, they are eligible to the following tax provisions:

  • No debt-equity ratio needs to be maintained by a Family Wealth Management Company (SPF). 
  • A subscription tax rate of 0.25% is due as part of the debts exceeding eight times the paid-up capital increased by the issue premium. 
  • No corporate income tax. 
  • No municipal business tax. 
  • No Value Added Tax (VAT).
  • A subscription tax rate of 0.25%, with a minimum tax amount of EUR 100 and a maximum of EUR 125,000 per year, on the amount of paid-up capital, increased by the issue premium, if any. Subscription tax will be declared quarterly. 
  • During a Family Wealth Management Company’s (SPF) incorporation and liquidation, it must pay a pro-rated subscription tax to the number of days it has existed during the quarter in question.
  • In terms of withholding tax on interests, it must be paid to Luxembourg residents. They will be taxed at 10%, while non-resident natural persons will be assessed with 20% withholding tax on interests under the current provisions of the EU Savings Directive. 
  • In terms of withholding tax on distributions, there will be no withholding tax due on dividends paid to Luxembourg residents and non-residents. 
  • A Family Wealth Management Company (SPF) is exempt from paying wealth tax, while Luxembourg companies (Soparfis) are subject to a wealth tax of 0.5% on their total assets. 
  • A Family Wealth Management Company (SPF) cannot enjoy the privileges included in the Parent-Subsidiary Directive (Council Directive 90/435/EEC of 23 July 1990. 
  • A Family Wealth Management Company (SPF) cannot provide quality for any treaty protection under most of the double tax treaties contracted by Luxembourg to EU and non-EU countries. 

The Luxembourg Administration for Registrations and State Property may withdraw benefits of specific tax treatments from any Family Wealth Management Company (SPF) that violates any provision relating to its status. 

Updates on Luxembourg Family Wealth Management Company (SPF)?

On 17 July 2001, the government council approved a draft law that proposes a more attractive tax regime for Luxembourg’s Family Wealth Management Company (SPF). The amended law, which has entered into force on 1 January 2012, was geared towards abolishing the criteria for non-application of the tax exemption to the Family Wealth Management Company (SPF) status. 

Under existing SPF Law, a Family Wealth Management Company (SPF) may lose the benefit of tax exemption for a given year if it has received at least 5% of the total amount of dividends from non-resident companies and unlisted companies that are not assessed with tax comparable to Luxembourg’s corporate income tax rate. 

The European Commission observed that a Family Wealth Management Company (SPF) might invest in any Luxembourg company (tax-exempt or not) while maintaining all tax exemption benefits. This anti-abuse provision may prevent the investment of Luxembourg entities in similar foreign vehicles. 

Upon its enactment, the new law will allow Family Wealth Management Companies (SPFs) to receive dividends from a foreign company located in low-tax jurisdictions. This amendment will inarguably enhance the interests of families in the Family Wealth Management Company (SPF) structure in Luxembourg. 

As a premier business consulting agency, Damalion support natural persons, wealth management companies, and intermediaries in the setup of a Family Wealth Management Company in Luxembourg, as well as the development of their best interests in the long run. Considering factors such as company administration, tax law, regulatory provisions, accounting, and many more, our team of seasoned consultants will assess your overall status to effectively position for future success and expansion. Our global service network consists of expert professionals in the legal, accounting, and other relevant fields to the successful formation of your Family Wealth Management Company in Luxembourg. Reach out to a Damalion expert today to learn more. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.