SOPARFI (SOciété de PARticipations FInanciéres) is the most common vehicle dedicated to holding and financing activities in Luxembourg. The company may also carry out other activities, provided they are provided for in the bylaws and a business license is obtained if required. Any undertaking or private person can be eligible as an investor.

A SOPARFI is a fully taxable unregulated company, not subject to any supervisory authority. It does not require authorisation unless quoted and/or commercial activities are carried out.

The SOPARFI can be constituted either as a “société anonyme” (public limited company- SA), a “société à responsabilité limitée” (private limited company- SARL) or a “société en commandite par action” (limited partnership by shares).

The activity is limited to the acquisition, holding, management and the realisation of investments in financial instruments in the broadest sense. This includes derivatives such as, for example, shares, investments; Funds; futures; bonds; options; precious metals as well as bank accounts.

Luxembourg is a very attractive jurisdiction for holding companies and many major multinational groups have indeed located a holding vehicle in Luxembourg (the commonly called Société de Participations Financières or SOPARFI). The competitive participation exemption regime (100 percent exemption) on dividends received and capital gains on shares is one of the main reasons why Luxembourg is so popular as a host country for holding companies

In order for a Luxembourg company to be entitled to the participation exemption for dividends received and for capital gains realized on shares, two sets of requirements must be met:

- The first set of requirements concerns the shareholding in the subsidiary, i.e. the participation held by the Luxembourg parent must be important (i.e. it may not be a portfolio investment). The Luxembourg holding company must own either a participation of 10 percent in the share capital of the subsidiary or, alternatively, a participation with an acquisition value of at least €1.2 million (this threshold is however higher for the capital gains exemption, i.e. € 6 million). This qualifying participation must be held for a period of one year.

- The second set of requirements pertains to a (relatively complex) subject-to-tax test imposed on the subsidiary. Under the Luxembourg participation exemption regime, a subsidiary will be deemed to pass this test if it is either:
(i) a qualifying Luxembourg resident entity fully subject to Luxembourg income tax or

(ii) an EU entity covered by article 2 of the Parent-Subsidiary Directive or

(iii) a capital company that is subject in its country of residence to an income tax which is “comparable” to the Luxembourg corporate income tax (i.e. a tax rate of at least 10.5 percent and a comparable tax base).

Received dividends and capital gains on disposal of shareholding are exempt from taxation under certain conditions; Limited or no withholding tax on dividends paid to a company resident of a country that has a double tax treaty with Luxembourg, under certain conditions;
No withholding tax on dividends paid between the Luxembourg company and other EU resident companies, under certain conditions;
No withholding tax on the liquidation process of a holding company;
Possibility of offsetting financial charges such as capital losses on disposal of shareholdings, acquisition of shareholdings in respect of taxable activities and, under certain conditions, foreign tax credits against profits made from other activities subject of taxation;
Flexible thin capitalization rules and possibility of VAT registration;
No requirements on paying any subscription tax.
However, a holding company is still subject of the compulsory tax on companies in Luxembourg in the amount of 3,500 euros.

Our lawyers and financial services specialists at ATRIUM LEGAL LAB provide solutions to clients by combining the traditional legal fabric with new technologies.

Atrium Legal Lab has a team of trained professionals to advise clients interested to register a Luxembourg SOPARFI, to get engaged in holding of participations and related activities.

In particular, we welcome questions about Luxembourg “Société de Participations Financières” Registration and are pleased to assist you.