Creating a Luxembourg SOPARFI to protect your assets and expand your business

What is a SOPARFI company? 

SOPARFI (SOciété de PARticipations FInancières) is an ordinary and fully taxable holding company. It is also the most popular vehicle dedicated to holding and financing activities in Luxembourg. 

SOPARFIs are commercial companies subject to the legal provisions of the Law of 10 August 1915 on commercial companies, as amended. 

The SOPARFI is committed to holding participation in or providing financing to other companies. 

It benefits from the “participation exemption” regime under which dividends originated and capital gains realized on these participations may be exempt from tax in Luxembourg under specific conditions. 

SOPARFIs may also carry out other activities, given they are provided for in the bylaws and a business license is procured if required. Any undertaking or private person can be eligible as an investor in a SOPARFI. 

The legal framework of the SOPARFI 

Depending on investors’ needs, the SOPARFI can take the legal form of: 

• a public limited liability company (société anonyme – S.A.), 
• a private limited liability company (société à responsabilité limitée – S.à r.l.) 
• a public limited liability partnership (société en commandite par actions – S.C.A.). 
• a cooperative (“société cooperative” – Scop), or 
• a cooperative organised as a public limited company (“société cooperative organisée comme une société anonyme” – CoopSA). 

According to Luxembourg company law, the SOPARFI’s central administration must be situated in Luxembourg in order to be considered a Luxembourg company. 

Benefits of setting up a SOPARFI company 

A Soparfi is an investment vehicle whose major but not exclusive activity consists in taking participation in Luxembourg and foreign companies. 

A SOPARFI is a generally taxable Luxembourg company that benefits from Luxembourg’s tax treaty network and the tax-related EU Directives. The SOPARFI is also not subject to any risk-spreading requirements and is not prohibited from any specific type of investment. 

Dividends and capital gains originated by a Luxembourg SOPARFI from its participations are exempt from Luxembourg income taxes given the specific conditions for the participation exemption are fulfilled. Also, the repatriation of profits originated by the SOPARFI can be structured in a tax-efficient manner. 

A SOPARFI can be used by any type of investor and can hold any type of asset, e.g, participations, real estate, IP, etc. In a situation where a SOPARFI holds qualifying IP assets, it could benefit from an 80% exemption on royalties and capital gains under the Luxembourg IP tax regime. 

The tax regime of SOPARFIs 

The SOPARFI is subject in law to all taxes, but the dividends and income from the sale of investments are tax exempt given the compliance with specific conditions. 

In essence: 

• the incorporation of a SOPARFI, as well as any amendment to its articles of incorporation, is subject to a registration tax. 
• A SOPARFI is subject to the Luxembourg corporate income tax, the municipal business tax, as well as the contribution to the unemployment fund which concludes in an aggregate income tax rate of 24.94%.
• A SOPARFI is also subject to the net wealth tax at the rate of 0.5% on the net asset value of the company as of 1st January of each year. The net wealth in excess of EUR 500 million is subject to the NWT at a rate of 0.05%.
• As a generally taxable company, a SOPARFI is entitled to the benefits of Luxembourg’s tax treaty network which comprises 83 tax treaties, and tax-related EU Directives such as the Parent–Subsidiary Directive and the Interest and Royalties Directive. 

To register your SOPARFI, to set up your investment fund in Luxembourg, let’s go ahead and contact your Damalion expert now.