Incorporate your Luxembourg soparfi
“Soparfi or SOciété de PARticipations FInancières is the Luxembourg holding and finance company. Having your Luxembourg holding company will help you take the advantages of your investment throughout Europe and with international countries which signed Double tax avoidance agreements with the Grand-duchy of Luxembourg.
Read our brochure about the Luxembourg Holding company / Soparfi or our Luxembourg SOPARFI guide.
What is SOPARFI? | The luxembourg soparfi
Luxembourg adopted the EU Parent-Subsidiary Directive in 1990, which relates to fully taxable resident businesses. Since that day, a new sort of company known as the “Societe de participations financières”, or Soparfi, has developed. SOPARFI is the most popular vehicle in Luxembourg for holding and financing activities.
Luxembourg holding company: how to use the Soparfi ?
A Soparfi (SOciété de PARticipations FInancières) is a standard commercial company and therefore may have a somewhat particular corporate purpose outlined in its statutes. It can be utilised in a variety of investment plans, such as the holding and financing of participations, the sale-purchase of the real estate, the acquisition of property rights, and the acquisition of other assets.
The Luxembourg holding company may invest in resident or non-resident companies, purchase, sell, or exploit intellectual property rights, acquire interests in real estate companies or personally own real estate property, and engage in any commercial and industrial activities.
Tax regime I Fiscal benefits
It is not exempt from taxation and is fully taxable. There are no restrictions on its field of activity.
A Soparfi, on the other hand, can drastically decrease its tax burden by limiting its activities to holding investments and structuring them in such a way that it can take advantage of the requirements in the EU Directive on the tax regime applicable to Parent-Subsidiary enterprises. This regime, in particular, allows for a tax exemption on dividends paid by companies in which the parent company owns a stake, as well as capital gains on the sale of its holdings, subject to certain requirements.
Conditions for exemptions
To qualify for such exemptions, the Soparfi must commit to holding at least 10% of the shares in a fully taxable corporation for at least one year.
- If the 10% level is not satisfied, an exemption is still available if the purchase price of the shares was greater than EUR 1.2 million for dividends and EUR 6.0 million for capital gains.
- Expenses directly related to this exempt income are not tax-deductible up to the exempt income amount.
- The minimal amount of wealth tax (under specific holding and threshold criteria) is 4.815 euros. Furthermore, there is no withholding tax on interest or liquidation bonus payments.
- Furthermore, the soparfi may be able to take advantage of a broad network of tax agreements signed by Luxembourg allowing to minimize withholding tax rates.
SOPARFIs may additionally benefit from Luxembourg’s network of double taxation treaties and the provisions of the EU Parent-Subsidiary Directive.
Income tax exemption on dividends received
Dividends received by a Luxembourg company are liable to corporate income tax at the usual rate of 24.94%.
However, the domestic participation exemption regime based on the EU Parent Subsidiary Directive offers that dividends (including liquidation dividends) are exempt from paying taxes if these requirements are met:
- The SOPARFI must have held an active participation of 10% or more of the nominal paid up capital of the subsidiary for a continuous period of at least 12 months.
- In the case of a lower percentage of participation, a direct involvement with a acquisition price of at least EUR 1,200,000 is required.
Because of these features, the Soparfi is an intriguing vehicle for managing holdings in a group of companies and businesses. This is also the ideal pathway for financing and holding venture capital and private equity investments.
Benefits to set up and manage SOPARFI
Apart from Luxembourg’s administrative and financial stability, the soparfi possesses a number of appealing characteristics. There are no restrictions on its scope of operation.
- SOPARFI can hold any sort of real estate in Luxembourg or abroad, directly or indirectly.
- SOPARFI can hold intellectual property rights (brands, patent rights, copyright laws, designs, software domain names).
- SOPARFI qualifies for the European “parent-subsidiary” classification, which means they will not have to deduct tax at source on dividends distributed to European shareholders.
- It can serve as a financial and commercial holding corporation, not just for taxation purposes, but also for the country’s strategic position.
- A soparfi also does not need prior or official approval unless it intends to engage in commercial activity. If the company is not engaged in commercial activity, information about the owners may remain confidential.
- Soparfi is neither controlled nor monitored by the CSSF, and hence is not subject to constant supervision by any regulatory or governmental authority.
To whom a soparfi is adressed?
Corporations and individuals use this type of company due to its easy and appealing legal and fiscal framework. These attributes make the Soparfi an interesting vehicle for managing holdings in a corporate group or for family businesses.
A Soparfi can be incorporated in the legal form of:
- A public limited liability company (SA)
- A private limited liability company (SARL)
- A partnership limited by shares (SCA)
- A common limited partnership (SCS)
- A special limited partnership (SCSp)
- A cooperative company (SC)
- A European company (SE)
Cost to incorporate
The minimum required capital varies depending on the legal form, for example (SA, SCA: EUR 31000, SARL: EUR 12000). Contributions in kind are permitted if they consist of assets that can be economically valued, excluding works or services.
In this instance, it is advisable to engage an auditor whose duty is to report on the description of each contribution and the techniques of valuation used.
- There is no defined debt-to-equity ratio (85:15 required in practice for exempt shareholding activities)
Rules and regulations
- Within one month of the beginning of the activity, the bylaws must be published in the official journal of Luxembourg.
- If the company’s turnover, total assets, and the number of employees exceed a specified threshold, an audited annual report may be needed.
- Corporate tax returns must be filed by May 31st of the following fiscal year.
Administration of the company
- The company is administered by a board of directors, that must be comprised of at least three members, shareholders, or, in the case of the Societe Anonyme Unipersonnelle, only one director.
- The directors are personally liable to the company for any faults in management.
- In order to cope with core provisions, at least one board member must be a Luxembourg resident.
Why open a SOPARFI holding in Luxembourg?
There are numerous reasons why an investor should establish a SOPARFI in Luxembourg. Aside from the tax advantages that a Luxembourg SOPARFI company provides, international investors consider the factors listed below, although our team of specialists can go into greater detail:
Privacy – the holding company provides enhanced protection to both shareholders and key executives.
The simple registration procedure – Luxembourg is one of the most advanced European countries when it comes to the ease of forming a business.
Minimum company registration criteria – A SOPARFI company can be formed with just one shareholder and one director.
Perfect for issuing financial instruments – A SOPARFI company is perfect for issuing financial instruments, offering shares on the Stock Exchange, or generating funds through investment.
The Soparfi is different from the private wealth management company called SPF (société de gestion de patrimonial familial).
If you require more information on the SOPARFI in Luxembourg, please contact our Damalion experts, who can assist you in establishing a company based on your business interests.