CMS Expert Guide to Holding Company Regimes in Luxembourg

SOPARFI stands for SOciété de PARticipations FInancières. A SOPARFI, which can take different corporate forms, is a fully taxable company benefiting from a broad range of exemptions as detailed below. The following tax benefits may also be applicable to other holding companies in Luxembourg.

• A full corporate income tax exemption for inbound dividends, liquidation proceeds and capital gains derived from qualifying taxable EU and non-EU corporate subsidiaries.
• This is subject to (i) a minimum holding period of (or a commitment to hold for) at least 12 months, and (ii) a minimum shareholding size of 10%, or acquisition price of EUR 1.2 million (for dividends and liquidation proceeds) or EUR 6 million (for capital gains). Certain anti-abuse rules apply.
• The absence of withholding tax on arm’s length interest payments. This is subject to the interest not being profit-participating. Interest is also generally tax deductible, subject to certain interest deduction limitation rules.
• The absence of withholding tax on liquidation distributions 
• A full withholding tax exemption for outbound dividends paid to qualifying taxable EU and non-EU corporate shareholders.
• This is subject to a (i) minimum holding period of (or a commitment to hold for) at least 12 months, and (ii) a minimum shareholding size of 10%, or acquisition price of EUR 1.2 million. Anti-abuse rules apply.
• A full net wealth tax exemption on shares held in qualifying EU and non-EU subsidiaries subject to certain conditions.
• Non-resident capital gains are applicable in limited situations notably when the non-resident shareholder is not covered by a double tax treaty or has Luxembourg taxable presence.

Investors must be qualifying shareholders which includes among others (i) Luxembourg resident companies which are fully taxable, or (ii) companies covered by article 2 of the Parent-Subsidiary Directive or (iii) companies resident in a state with which Luxembourg has signed a treaty and is fully liable to a tax corresponding to Luxembourg corporate income tax.

SOPARFI must derive income from qualifying subsidiaries which include among others (i) Luxembourg resident companies which are fully taxable, or (ii) companies covered by article 2 of the Parent-Subsidiary Directive or (iii) non-resident companies fully liable to a tax corresponding to Luxembourg corporate income tax.

A SOPARFI generally carries out a holding and financing activity but may also carry out commercial activities.

A SOPARFI is an unregulated vehicle.

Being a fully taxable company, a SOPARFI should have full access to double tax treaties signed by Luxembourg and to EU tax directives.