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Luxembourg Holding Company

Tax Mitigation Jurisdictions

Synopsis:

Smallest of the Benelux countries. Founder member of the European Union. Population: 430,000. Size: 1,000 sq. miles. Centre of EU administration with Brussels and Strasbourg. Financially reliant on the presence of EU institutions, financial services and traditional heavy industries. Technically one of the wealthiest countries in the world on the basis of per capita gross national product.

Star Ratings

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Tax Planning Credentials

The Grand Duchy of Luxembourg has long been considered a de facto ‘tax haven’ by many Continental Europeans. In fact, the jurisdiction was one of the first to introduce ‘holding’ companies back in 1929. Although the 1929 companies can no longer be incorporated due to pressure from the EU, Luxembourg have shown their commitment to remain one of the worlds foremost tax planning jurisdictions by the introduction in the near future of a new vehicle for personal investment. The new company, the SPF, will allow private investors indirect investment in financial assets and the tax-free hoarding of income. The SPF will be exempt from taxation on income and wealth in Luxembourg. In addition to these new developments Luxembourg has now reduced the withholding tax on dividends to 15% and corporate tax to 22%.

Companies

In Luxembourg there are only two major companies; sociétés à responsibilité limitée (Sàrl’s) and sociétés anonyme (SA’s). In most cases, clients will choose to register a SA since these types of companies, basically equivalent to British/Irish public limited companies (PLC’s), do not require subscriber details to be kept on the public register. Whereas, in the case of Sàrl’s, basically equivalent to a British/Irish private limited company, such information is required.

  1. A Soparfi (an acronym for “Société de Participation Financière”) is not a specific type of company, rather it is a special tax regime for a resident company that holds and manages the shareholdings of subsidiaries. The Sopfari is fully subject to the Luxembourg corporate tax rate presently at 22.88%. This does, however. entitle such a company to the enjpyment and benefit of EU Directives, such as the parent subsidiary directive 90/435, and access to Luxembourg's extensive Double Tax Treaty network. In addition the Soparfi is also entitled to the Luxembourg participation exemption providing full exemption of dividends, capital gains and liquidation proceeds. To qualify for the exemption the holding must be of 10% of the share capital, or an amount of €1.2m or €6m for capital gains, the holding is for a 12 month period and the distributing company pays 11% corporate tax or benefits from EU 90/435(above).
  2. Luxembourg generally provides for three types of 1929 holding companies: ordinary (as described above); billionaire holdings, which require minimum capitalization of €24 million and provide for further tax exemptions; and financial holdings which provide for greater flexibility for intragroup financing. Further to a European Commission decision, Luxembourg has repealed the 1929 holding companies tax regime. Nevertheless, subject to conditions, 1929 holding companies established before 20 July 2006 keep the entire benefit of this favorable tax regime until the end of 2010.

Advantages of Luxembourg Holding Company

  1. Pro-business environment
  2. Highly respectable and credible jurisdiction.
  3. Highly educated population.
  4. Highly developed corporate and general law.
  5. Excellent communications with the rest of Europe including close geographical proximity to Belgium, The Netherlands, Germany and France.
  6. Active and positive member of the European Union.
  7. Fully benefits from all EU Directives and Regulations.
  8. It is one of the initial 11 Euro zone countries.
  9. Excellent double taxation treaty network.
  10. Few scandals.
  11. Luxembourg is the base for Europe’s largest international financial services centre (IFSC) with Dublin coming in a close second.
  12. Very sophisticated banking and corporate law together with a large ‘pool’ of highly trained multilingual professionals.
  13. SOPARFI’s are fully covered by Luxembourg’s tax treaties and can also avail of the EU Parent/Subsidiaries’ Directive.
  14. ‘Bearer’ Shares can be provided for SA companies.
  15. Luxembourg’s banking community have maintained their strict confidentiality code despite recent attacks on its veracity by Germany. In addition, bank account facilities can be maintained outside of the Luxembourg jurisdiction.

Double Taxation Treaty Network

Luxembourg, despite its small size, has well-negotiated double taxation treaties with all major trading countries including the all-important Netherlands.

How to Incorporate a Luxembourg Holding Company

The Basic Mechanism includes all items necessary to establish either a standard “1929” or “SPF” holding company and is directly analogous to the services provided for a Dutch ‘Intermediary’ BV.

Administration Services

Managed Luxembourg Companies: Full management services can be provided and includes the provision of a resident company secretary and individual directors to carry out the required management and control functions. The relationship is governed by the Agreement and would normally include the obtaining of a Luxembourg VAT number and all requisite liaisons with the Revenue Commissioners and the Customs & Excise Department.

Accountancy Services

All Luxembourg companies require the appointment of local accountancy firms, which can be arranged by the SCF Group. For specific prices and quotes please speak to your consultant.

Tax Rate:

Luxembourg SOPARFI companies: 0% -22.88%
(For Directive 90/435 transactions there is no tax, otherwise a 15% withholding tax applies, other activities are taxed at the full 22.88% tax rate).
Luxembourg domestic company: 22.88%
Tax Treaties: 50+

Overall Star Rating

For domestic companies:
For SOPARFI's using Directive 90/435: