Doing business in Luxembourg

Normal commercial (holding) companies

Investors often chose the Luxembourg “SOPARFI” (“société de participations financières”) to hold cross-border investments. A SOPARFI is a company which holds investments but which may also engage in normal commercial or industrial activities. A SOPARFI benefits from the Luxembourg double tax treaty network, as well as the EU parent-subsidiary directive.

The incorporation of a company typically takes 1 – 2 weeks, and requires a meeting before a public notary.

Some of the features of a SOPARFI are:

Legal form

public limited liability company (société anonyme) (SA), or
private limited liability company (société à responsabilité limitée) (S.à r.l.)

Shareholders

• minimum one
• nominees and foreign shareholders are permitted

Directors

• minimum one – may use corporate director
• Luxembourg residence not required

Share capital

• SA: EUR 31,000, of which at least 25 % must be paid in
• S.à r.l.: EUR 12,500 fully paid
• Share classes with different rights are permitted

Annual accounts should be filed annually at the Register of Commerce, which renders them public.

Private wealth management companies (SPF)

The exclusive object of a SPF should be the holding and management of financial assets e.g. shares, bonds, derivatives, bank deposits, loans and precious metals. It may not conduct commercial activities, hold intellectual properties or real estate.

Investors are restricted to members of a family, investment clubs, trusts and foundations, or nominees acting on behalf of the aforementioned. Shares cannot be listed, but a SPF may borrow from shareholders, banks and third parties.

A SPF may not receive more than 5 % of its annual dividend income from non-EU entities or from unquoted entities, where these entities are taxed at a rate below 11 %.

The taxation of a SPF is summarised as follows:

• Subscription tax: 0.25 % of paid-up capital and premium
• No income tax
• No withholding tax on dividends
• No capital gains tax on disposal of assets
• Does not benefit from double tax treaties

Risk Capital Investment Company (SICAR)

The SICAR is a convenient venture capital vehicle for experienced or institutional investors.

The assets in which the SICAR invests may include biotechnology, information technology, distressed debt, mezzanine finance and real estate (under certain conditions).

The minimum capital requirement is EUR 1,000,000 and each investor should invest at least EUR 125,000.

Although a SICAR is a normal taxable entity, all income derived from its qualifying investments are exempt, including capital gains. The SICAR is also exempt from wealth tax, as well as withholding tax on dividends, interest and royalties.

The SICAR benefits from the Luxembourg double tax treaty network.