Luxembourg Soparfi Business Registration
The Soparfi is a type of holding company in Luxembourg which is fully compliant with the European Union Holding Directive.
The Soparfi is a fully taxable Luxembourg resident company that takes advantage of the double taxation treaties signed by Luxembourg.
Soparfi holding company has the following two features:
- It is a normally taxed Luxembourg company;
- Its primary activity is a holding and/ or financing activity and thus it benefits from the so called “participation exemption” in respect of some or all of its investments.
A Soparfi is a normal commercial company and may have specific corporate purpose defined in its statutes.
There are no prohibited activities or assets as such and will be normally taxable and will be eligible for the participation exemption in respect of qualifying participations.
Comparison SA – Sarl
The information set out below relates to the two main legal forms adopted by holding companies, “Société anonyme” (“SA” ) and “Société à responsabilité limitée” (“Sàrl”).
| Société anonyme | Société à responsabilité limitée | |
| Founders | The public company can be incorporated by one or more investors, who may be resident or non-resident, individuals or legal entities. | The limited liability company can be incorporated by a single member but no more than 40, who may be resident or non-resident members, individuals or legal entities. |
| Share Capital | The minimum share capital is approximately €30,000 or the equivalent in another non-euro currency. The minimum must be subscribed in its entirety and paid-up to a minimum of 25%.The capital is represented by shares with or without par value. If the shares have a par value, it may not be lower than €0,01 or the equivalent in another non-Euro currency. | The minimum capital is approximately €12,400 or the equivalent in another non-Euro currency; the minimum must be fully subscribed and 100% paid-up. The capital is represented by corporate units similar to shares with a par value of at least €0,01 or the equivalent in another non Euro currency. |
| Shareholders contributions | The contribution may be in cash or in kind:• in cash: the founders are required to transfer on to the company’s bank account the funds corresponding to the paid-up capital. The bank will issue the blocking certificate required by the notary in order to proceed with the contribution;• in kind: a contribution in kind must be subject to an opinion by a Luxembourg independent auditor who will issue a valuation report thereon. | The contribution may be in cash or in kind:• in cash: the founders are required to transfer on to the company’s bank account the funds corresponding to the capital. The bank will issue the relevant blocking certificate required by the notary in order to proceed with the contribution;• in kind: for a limited liability company there is currently no legal obligation to issue an auditors report; however, a similar report is strongly recommended by the notaries. |
| Shares | The shares may be in registered or bearer form. However, from the date of incorporation until the publication date of the company’s statutes in the Luxembourg official gazette, the shares will remain in registered form. | The units of a limited liability company are always in registered form. |
| Board of Directors (monistic form) Management Board (dualistic form) | A public company may be managed either by a single body or through the following 2 bodies:• The Management Board • The Supervisory Board. The dualistic form must expressly be provided for in the statutes of the company. The single member public company can be administered by a single director. In the case of a dualistic single member company, a single director is also possible as long as the share capital is less than €500,000.If the company has more than one shareholder, then it is administered by a Board of Directors (monistic form) or by a Management Board (dualistic form) of not less than three members, who may be shareholders or not. These members are elected for a term, which may not exceed six years, by the general meeting of shareholders (monistic form) or by the Supervisory Board (dualistic form) and can be dismissed at any time by the general meeting of shareholders. There are no legal requirements relating to the residence or nationality of the directors. They may be resident or non-resident, individuals or legal entities. | The company is managed by one or several managers who need not be members, who are appointed by the general meeting of members for a limited or an unlimited period and who can be dismissed at any time by the general meeting of members. There are no legal requirements relating to the residence or nationality of the managers. They may be resident or non-resident, individuals or legal entities. |
Société à responsabilité limitée
The statutes can authorise the setting up of a Supervisory Board and determine its role, rights, responsibility and rules.
- the statutes authorise the board of managers to distribute an advance dividend;
- interim accounts are drawn up showing that the funds available for distribution are sufficient;
- the decision of the board of managers to distribute an advance dividend may not be taken more than two months after the date at which the interim accounts referred to above have been drawn up;
- no requirement for an independent auditor;
- ratification by the following annual shareholder meeting.
The maximum distributable amount is computed as follows:
- + profit for the period
- + profits carried forward, or losses carried forward
- 5% allocated to the legal reserve, until the legal reserve amounts to 10% of the share capital
- additional reserves required by law or the statutes
- unamortised establishment costs.
Where the payments on account of advance dividends exceed the amount of the dividend subsequently decided upon by the general meeting, they shall, to the extent of the overpayment, be deemed to have been paid as an advance on the next dividend.
Depending on the size of the company, it must be supervised either by a statutory auditor (small company) or by an independent auditor (medium and large company):
An independent auditor is required by law if two of the following three criteria are fulfilled by the company during two successive years:
- total balance sheet: exceeds €3,125 million
- net turnover: exceeds €6,25 million
- average number of employees: exceeds 50
The independent auditor must be a member of the Institut des Réviseurs d’Entreprises in Luxembourg.
If the number of members is between 1 and 25, then a statutory auditor is not compulsory. Sàrls with more than 25 members require the appointment of a statutory auditor, who may be an individual or a legal entity.
An independent auditor is required by law if two of the following three criteria are fulfilled by the company during two successive years:
- total balance sheet: exceeds €3,125 million
- net turnover: exceeds €6,25 million
- average number of employees: exceeds 50
The independent auditor must be member of the Institut des Réviseurs d’Entreprises in Luxembourg.
Annual General Meeting
Each year, at a date determined in the statutes, the board of directors is required to convene the shareholders to an annual general meeting which will deliberate on the annual accounts.
This meeting must be held within a six month period after the close of the financial year.
Within a six month period after the year-end closing of the financial year, the member(s) have to approve the annual accounts.
Financial Statements
An annual balance sheet, a profit and loss account and notes to the accounts must be prepared in the form required by the law of December 19, 2002 and submitted for shareholders’ approval within six months after the financial year end. Furthermore, the following documents have to be filed with the Trade Register within a month after the approval of the annual accounts by the shareholders:
- the balance sheet and the notes to the accounts including the appropriation of profit or loss;
- audit report;
- the list of directors and auditors
- the list of shareholders who have not yet fully paid up their shares, together with the amounts for which they are still liable.
A notice must be published in the Memorial that these documents have been filed with the trade register.
Tax
Provided certain requirements are fulfilled, some types of income realised by the Soparfi will benefit from the “participation exemption”. Furthermore, the Soparfi is entitled to benefit from the reduced withholding tax rates provided for in double tax treaties concluded by Luxembourg.
Contributions of real estate assets situated in Luxembourg are subject to the following regime:
- contributions remunerated by shares are subject to a 0.6% registration duty + a 0.5% transcription tax;
- contributions remunerated by other means than shares are subject to a 6% registration duty + a 1% transcription tax (4% for Luxembourg city);
- transfers made in the context of a corporate restructuring are exempt from proportional duties.
The transfers have however to be mainly remunerated with securities that represent share capital of the companies involved.
Corporate Income Tax
A Soparfi is subject to Corporate Income Tax. CIT is levied at a rate of 21%. A surcharge of 4% is payable to the unemployment fund. As a result, the effective CIT rate applicable is 21.84%. A Soparfi is taxed on its worldwide income.
The taxable profit for the year is calculated by using a balance sheet approach, by comparing the net worth of the company at year-end to the net worth as of the end of the previous year.
In principle, Luxembourg companies may credit the foreign withholding tax suffered against Luxembourg corporate income tax. This tax credit is limited to the extent of the Luxembourg corporate income tax that is due on this foreign income.
The most important non-deductible expenses are : directors’ fees, self-insurance provisions, creditable foreign taxes and expenses connected with “exempt” income, e.g. dividends or capital gains.
Withholding Tax Exemption
Dividends distributed by a Luxembourg company are in principle subject to a withholding tax at a rate of 15%, unless a reduced rate under the provisions of a double tax treaty applies. However, a general exemption from withholding tax applies if the distributing company is a fully taxable collective entity which is resident in Luxembourg
Double Tax Treaties
Luxembourg has signed double tax treaties with 64 other countries, many of which follow the OECD Model Tax Convention.
As Soparfis are fully taxable resident companies they benefit from the protection of double tax treaties. In this context the Luxembourg tax authorities will issue resident certificates.
Broadly speaking, double tax treaties provide that corporate entities are subject to tax on their world-wide income in the country in which they are resident, except in the case where an entity which is resident in one country maintains a permanent establishment in the other country.
In such cases, the profits from that permanent establishment are taxed in the other country. Most Luxembourg treaties then exempt the profits from that foreign permanent establishment in Luxembourg.
Conclusion
Since 1990, the Soparfi has developed into a widely used corporate investment structure. For many global and regional holding and financing activities it has come to be regarded as an “industry standard”. This is due to a track record of continuous improvement in its tax and legal regime and a strong supporting infrastructure at all levels.
Insofar as the Soparfi fulfils the requirements provided by the Luxembourg participation exemption regime, the Company may be exempt on the following income:
- income received from its shareholdings;
- capital gains realised upon the sale of shares in its holding.
Furthermore, dividend distribution to corporate shareholders will also be exempt from withholding tax under certain conditions.
In cases where the Parent-Subsidiary Directive does not reduce withholding tax rates to zero, the Soparfi will be entitled to benefit from the reduced withholding tax rates provided by the double tax treaties signed by Luxembourg or by domestic law.
As regards the net wealth tax applicable to a Soparfi, the exemption of qualifying participation’s will, in practice, substantially reduce or eliminate any taxes due.