SOPARFI is the acronym for “Société de Participations Financières”, which does not refer to a specific legal concept but rather refers to a company that carries out a holding activity and is subject to the standard general tax regime. However, a SOPARFI benefits from the Luxembourg participation exemption regime derived from EU Directives.
Such company may have the benefit of the treaties to avoid double taxation signed by Luxembourg and the advantages such treaty provide (reduced withholding tax rates for incoming or outgoing interest and dividends).
Compared to many other EU-member States, the conditions for the benefit of the Luxembourg participation exemption regime are clear and simple. This combined with the extensive Luxembourg treaty network, a SOPARFI will collect dividends from its subsidiary with a reduced or nil withholding tax rate levied at source.
A SOPARFI does not require any authorization for its incorporation.
Usually, a SOPARFI is incorporated in the form of a public limited company (SA) or a private limited company, (S.à r.l), but many other legal forms of corporation may be adopted.
It is worth to mention that quite a lot of multinational companies have located their headquarter or a holding company in Luxembourg. Beyond the fiscal stability of the country, this can also be explained by the presence in Luxembourg of highly qualified and multilingual workforce, in a stable multicultural environment.
More details on the SOPARFI regime in Luxembourg will be found in our brochure
The private wealth management company
The Private Wealth Management Company (hereafter referred as SPF) has been introduced by the law of May 8, 2007 offering an alternative to the at that time existing « Holding 1929 » held by private individual investors. This law is a consequence of the decision of the EU commission on the incompatibility of the Holding 1929 regime with EU state aid rules.
The SPF is a vehicle designed for the management of the Private Wealth of individuals in a tax efficient manner providing for a deferral of taxation on income until the time where dividends are distributed to the investors.
In its article 2, the law provides for a limited scope of eligible investors to be individuals are assimilated.
An SPF may adopt any legal form of a corporation and is not subject to any authorization to be obtained prior to its incorporation. Minimum share capital will depend on the legal form adopted.
The activities of the SPF are strictly limited to management of the private wealth. So, the SPF may not carry out any commercial activities, hold real estate or lend money even to subsidiaries.
The SPF is not subject to corporate income tax, municipal business tax and net wealth tax. The SPF is subject to a subscription tax at a rate of 0,25% assessed on the share capital plus share premium and increased by the amount of debt that exceeds 8 times the amount of the share capital and share premium. Such subscription tax cannot be higher than 125.000 EUR per year while the minimum will not be lower than 100 EUR per year.
Dividends paid by an SPF are not subject to any withholding tax. Due to the fact that an SPF is not subject to income tax on its income, it may not avail itself from the benefit derived from treaties signed by Luxembourg to avoid double taxation.
More details can be found in our memos on SPF.
Securitization in Luxembourg