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Setting up a holding company (SOPARFI) in Luxembourg: Guide for Brazilian Firms

by | Feb 2, 2023 | Corporate Structuring

Setting up a holding company (SOPARFI) in Luxembourg: a Guide for Brazilian Firms

Brazilian companies are increasingly looking to expand their businesses globally, and Europe is becoming a popular destination. This growth has been fueled by the growing economic ties between Brazil and Europe and the numerous benefits that come with establishing a company in Europe. One popular structure for Brazilian firms seeking to do business in Europe is the Luxembourg SOPARFI. In this article, we will discuss the process of setting up a SOPARFI in Luxembourg and the advantages it offers Brazilian companies.

Economic Ties Between Brazil and Europe

The economic links between Brazil and Europe are strong and growing. Brazil is the EU’s second-largest trading partner in South America, and the EU is Brazil‘s largest trading partner. In 2019, the total trade between the two amounted to €61 billion. This trade is expected to continue growing in the coming years, making Europe an attractive destination for Brazilian firms looking to expand their business.

Tax Regime for SOPARFI Dividends

One of the key advantages of establishing a SOPARFI in Luxembourg is the favorable tax regime for dividends distributed to a holding company. In Luxembourg, dividends received by a holding company are tax-free. This means that Brazilian companies can benefit from lower tax rates on their profits and reduced double taxation.

Double Tax Treaty between Brazil and Luxembourg

Another advantage of setting up a SOPARFI in Luxembourg is the double tax treaty between Brazil and Luxembourg. The treaty provides for the elimination of double taxation, ensuring that Brazilian companies do not face double taxation on their profits. The treaty also provides for a lower withholding tax rate on dividends, interest, and royalties, further reducing the tax burden on Brazilian companies.

Advantages of Setting Up a SOPARFI in Luxembourg

There are several advantages to setting up a SOPARFI in Luxembourg for Brazilian companies. Firstly, Luxembourg has a stable and predictable legal and regulatory framework, making it an attractive destination for companies looking to expand their business in Europe. Secondly, Luxembourg is a hub for international business, with a well-developed financial sector and a skilled workforce. This makes it easier for Brazilian companies to access financing, expertise, and support as they expand their business in Europe.

Advantages of Having a Commercial Company in Luxembourg

Having a commercial company in Luxembourg also provides Brazilian firms with access to the wider European market. Luxembourg’s position as a gateway to doing business in Europe, combined with its good reputation, makes it an attractive destination for companies looking to expand their business.

Setting up a SOPARFI in Luxembourg offers several advantages for Brazilian companies looking to expand their business in Europe. From the favorable tax regime for dividends to the elimination of double taxation, a SOPARFI in Luxembourg provides a strong platform for Brazilian companies to grow their business in Europe. With its stable legal and regulatory framework, well-developed financial sector, and position as a gateway to Europe, Luxembourg is an attractive destination for Brazilian firms looking to expand their business internationally.

Damalion experts have been helping Brazilian private and corporate clients to launch their business in Europe. Please contact your Damalion expert now. 

Damalion – Luxembourg

Setting up a holding company (SOPARFI) in Luxembourg – a practical guide for Brazilian firms

For Brazilian entrepreneurs, corporate groups, family offices, and investment platforms • This guide explains legal forms, capital, governance, accounting, tax points, and bank-readiness with simple steps you can follow.

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What is a SOPARFI?

A SOPARFI is a standard Luxembourg commercial company used to hold and finance investments. It is “fully taxable” but may benefit from participation exemption rules on qualifying dividends and capital gains. Most groups choose either a S.à r.l. (private limited) or an S.A. (public limited) depending on size and investor profile.

Main legal forms at a glance

Topic S.à r.l. (private limited) S.A. (public limited)
Share capital From EUR 12,000 (fully subscribed and paid at incorporation) EUR 30,000 (fully subscribed; at least 25% paid in at incorporation)
Shareholders 1 to 100 1 or more, no maximum
Management One or more managers Board or one-tier governance as allowed by law and articles
Transfer of shares Restricted (consent rules apply) Freer transferability (registered or bearer as allowed by law)
Typical use Holding and intragroup financing for private groups Institutional investors and larger, multi-investor platforms

There is also the S.C.A. (partnership limited by shares) and partnerships like SCS and SCSp for specific strategies.

Core steps to set up

  1. Choose the form. S.à r.l. or S.A., define shareholding and director/manager model.
  2. Prepare the articles. Draft objects, governance, share classes, transfer rules, and financing powers.
  3. Open a capital account. Deposit capital and obtain the bank certificate for the notary.
  4. Sign before a Luxembourg notary. Incorporation deed, appointment of managers/directors, registered office.
  5. Post-incorporation filings. Trade and Companies Register (RCS), Ultimate Beneficial Owner (RBO), VAT/CIT where relevant.

Substance and control

Keep effective management in Luxembourg: local directors or managers with decision-making powers, board meetings held in Luxembourg, adequate records, and appropriate service agreements. Maintain documentation for financing (interest, transfer pricing) and for participation exemption claims.

Key tax points

  • Corporate income tax. For 2025, the Luxembourg CIT headline rate is 16% (plus municipal business tax and the employment fund contribution; combined rate varies by commune).
  • Participation exemption. Dividends and capital gains can be exempt if legal conditions are met (qualifying share, minimum holding or cost, holding period, and subject-to-tax tests).
  • Withholding tax on outbound dividends. Standard rate is 15% with domestic/treaty/EU exemptions where conditions are satisfied.
  • Net wealth tax (NWT). Annual NWT applies; minimum NWT depends on balance sheet size; standard rates apply on the taxable base above certain thresholds.
  • Transfer pricing and interest. Arm’s-length documentation is expected for intragroup loans and guarantees.
  • VAT. Pure holding is generally out of scope; active financing or management services may create VAT registration and input VAT rules.

Accounting, audit, and filings

Annual accounts must be prepared and filed. Audit is required when legal size thresholds are exceeded or due to specific criteria. Keep proper books, minutes, and registers. File tax returns and any required transfer pricing documentation on time.

Bank-readiness for capital and operations

  • Provide clear ownership chart, UBO details, and identity documents.
  • Explain source of funds and the purpose of the account in simple terms.
  • Describe expected activity: currencies, counterparties, and amounts.
  • For financing companies, keep loan files complete (terms, pricing, repayment).

Frequently asked questions

1) What legal forms are typically used for a SOPARFI?
A SOPARFI is commonly a S.à r.l. or an S.A. under the Luxembourg Company Law. Both are fully taxable companies and can carry holding and financing activities within their corporate object.
2) What is the minimum capital for S.à r.l. and S.A.?
S.à r.l.: at least EUR 12,000, fully subscribed and paid at incorporation. S.A.: EUR 30,000 fully subscribed, with at least 25% paid in at incorporation.
3) How many shareholders are allowed?
S.à r.l.: 1 to 100 shareholders. S.A.: one or more shareholders without a legal maximum.
4) What are the core steps at incorporation?
Draft articles, deposit capital, sign a notarial deed, register with RCS, and file UBO information in the RBO. Obtain tax/VAT registrations when applicable.
5) What is the corporate income tax rate in 2025?
The statutory CIT rate is 16% for tax year 2025. The combined rate (including municipal business tax and the employment fund contribution) depends on the commune where the company is established.
6) When do dividends qualify for the participation exemption?
Exemption may apply when the SOPARFI holds a qualifying participation meeting legal criteria on percentage or acquisition price, holding period, and subject-to-tax tests. Keep evidence for each condition.
7) Do capital gains on shares qualify for exemption?
Yes, capital gains on qualifying participations can be exempt if legal conditions (including minimum holding and uninterrupted holding period) are satisfied.
8) What is the standard withholding tax on dividends?
15% by default. A 0% rate may apply under domestic rules or the EU regime if conditions are met. Treaty reductions are possible based on the applicable double tax treaty.
9) Is there withholding tax on arm’s-length interest?
Luxembourg generally does not levy withholding tax on arm’s-length interest paid to non-residents, subject to anti-abuse and specific rules.
10) How does the Luxembourg–Brazil treaty affect dividends?
Luxembourg and Brazil have a bilateral tax treaty. The applicable dividend rate depends on treaty terms and conditions (including minimum holdings and beneficial ownership). Apply the current treaty text and confirm status before distributions.
11) How is net wealth tax (NWT) computed?
NWT applies annually. Minimum NWT is based on balance sheet size. Above certain thresholds, rates apply to the taxable base according to law in force.
12) Are transfer pricing rules applicable to intragroup loans?
Yes. Intragroup financing must reflect arm’s-length terms. Written TP documentation is expected and supports interest deductibility and profit allocation.
13) What substance is expected for holding and financing activity?
Effective management in Luxembourg (decision-making, records, meetings), suitable directors/managers, and proportional arrangements for premises and support. Substantiate financing decisions and risk control.
14) What are the accounting and audit duties?
Prepare annual accounts under Lux GAAP (or IFRS when permitted). File with the RCS. An audit is required when thresholds are exceeded or the company opts/qualifies for statutory audit.
15) What are the UBO disclosure rules?
Ultimate Beneficial Owners must be registered in the Luxembourg RBO with legally required data. Keep records current and consistent with corporate documents.
16) Is a VAT registration needed?
Pure passive holding is generally out of scope. If the company provides taxable services (e.g., financing with management), it may need VAT registration and must manage input VAT accordingly.
17) Can the company distribute dividends freely?
Distributions require available profits and respect of legal reserves and capital maintenance rules set by Luxembourg law and the articles.
18) Are management fees deductible?
Business-related, arm’s-length management and advisory costs are generally deductible. Keep contracts and evidence of services performed.
19) Can meetings be held outside Luxembourg?
To support Luxembourg management and control, board and key decisions should normally take place in Luxembourg, with proper notice, agendas, and minutes.
20) What exit tax or anti-abuse rules should be noted?
General anti-abuse (e.g., principal purpose tests), interest limitation, CFC (where relevant), and exit taxation rules apply according to Luxembourg and EU law. Structure with a valid business purpose and robust documentation.

  • Graphic – Luxembourg
  • Graphic – Luxembourg

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