Luxembourg Companies

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General Introductory and Offshore Tax Information

Luxembourg has been an outstanding tax haven for many years. With developed infrastructure, a sophisticated banking system and a wide range of international financial services, Luxembourg is one of the world’s leading jurisdictions for offshore companies and operations.

Luxembourg offers a number of corporate structures. Many of these have over time evolved to comply with the standards of the European Commission vis-à-vis the EU Savings Tax Directive and TIEAs with the objective of establishing a level playing field free from harmful tax practices. While some traditional forms such as partnerships and companies with limited liability have maintained their principle functions, new and competitive investment structures are continuously being designed in order to provide investors with competitive low tax vehicles which are not in breach of the EC’s tax policies.

With regard to the taxation of Luxembourg offshore business entities, the tax regime for structures is variable. For example, the 1929-Type Holding is fully exempt from withholding and income tax on royalties or interests paid between resident companies in Luxembourg (made effective on January 1, 2004). This offshore business entity is also liable to a subscription Tax of 0.2% of the yearly paid-in capital, as well as a Capital Duty of 1% of the capital (0.5% from January 2008 to 0% from January 1, 2009).

On the on other hand, the tax regime for private Asset Management Companies is as follows:

  • Exemption from tax on income, wealth and communal commercial business
  • Do not benefit from tax exemptions where 5% or more of dividends originate from companies outside the EU region with a corporate tax lower than 11%.
  • Liable to subscription tax of 0.25% of paid-up capital
  • Do not benefit from double tax treaties
  • Liable to subscription tax on debts amounting to eight times or more the increased paid-up capital of capital premiums
  • Residents and non-residents are liable to 10 and 15% withholding tax at source respectively on interests paid on debts and advances
  • Residents are liable to tax on the profit of liquidation, whereas non-residents are exempt

The SOPARFI or Société de Participations Financières is subject to taxation as follows :

  • Corporate tax exemption on dividends earned by a resident SOPARFI
  • To be exempt from tax on income of proceeds of liquidation all requirements as stated above must be met
  • Bonuses paid to shareholders for liquidation are exempt from tax in spite of the shareholder’s residence
  • Exemption from capital gains tax in the case where 10% or 6 million Euros is owned by the SOPARFI in its subsidiary for a minimum of 12 months
  • Expenses related to participations are deductible as long as they are not more than the standard annual tax exempt income
  • Dividends paid are exempt from withholding tax if from 2009 the main parent company is located in the EU and participation in the SOPARFI is held for over twelve months at no more than 10%

The Risk Capital Investment Company is taxed based on corporate form of the SICAR; whether a partnership or capital company. If the Company takes the form of a partnership, revenues and capital gains are taxed directly on behalf of the partners and in proportion to the contribution of each partner, whereas is structured like a company a regular capital companies would be liable to a standard capital duty of EUR 1.250 (capital duty may be removed in 2009). Luxembourg capital companies are exempt from VAT, subscription tax, net worth tax, capital gains and dividends, as well as from withholding tax on dividends and interests paid, including on the proceeds earned from liquidation. The corporate tax is set at 22,88% and a municipal business tax at 6,75%.

As a Luxembourg offshore business entity, the Variable Capital Investment Company is exempt from corporate tax and liable to an annual registration tax of 0.05% on capital.

Luxembourg Offshore Business Entities:

  • Luxembourg Societe Anonyme
  • Luxembourg Société a Responsabilité Limitée
  • Luxembourg General Partnership
  • Luxembourg Limited Partnership
  • Luxembourg Branch of Overseas Company
  • 1929-type Holding
  • Private Asset Management Company
  • SOPARFI — Société de Participations Financières
  • Risk Capital Investment Company
  • Variable Capital Investment Company

Luxembourg Societe Anonyme (Joint Stock Company)

Law

  • Commercial Companies Law 1914 (with amendments)

Main Features:

  • Required to have a minimum capital of LUF 1.25 million
  • Capital must be divided into shares that are freely transferable owned by a minimum of two (2) shareholders
  • Shareholders may either be resident or non-resident or a body corporate
  • The statutes are required to be presented in either German or French
  • Liability of shareholders is limited to the amount of capital for which they have subscribed (this amount does not have to be paid-up).
  • Required to have a registered office in Luxembourg
  • Minimum of three directors elected to the Board of Directors
  • May delegate a management team for the day to day running of the company
  • Directors are required to provide their personal details such as name, occupation and address
  • Accounts are to be filed with the Registrar of Companies on a yearly basis but audits are to be done in the event that the company has over 50 employees, its balance sheet exceeds LUF 93 million or sales are more than LUF 186 million.

Luxembourg Société a Responsabilité Limitée (Limited Liability Company)

Law

  • Commercial Companies Law 1915 (with amendments)

Features:

  • Shares many features in common with the S.A.
  • Required to have a minimum paid-up capital of LUF 500,000
  • The paid-up capital must be divided into ‘participation certificates’ which are not easily transferred
  • Annual meetings are to be held if there are less than twenty-five shareholders
  • Maximum of forty shareholders
  • Each shareholder is liable for the amount of capital he or she has paid-up

Luxembourg General Partnership

Main Features:

  • General partnerships in Luxembourg are known as Société Civile
  • In the case of a family enterprise, general partnerships are often identified as Société en Nom Collectif
  • Partners of the general partnership are share joint and several liability for all the debts of the partnership
  • General Partnerships must be registered at the Greffe du Tribunal de Commerce

Luxembourg Limited Partnership

Main Features:

  • Luxembourg Limited Partnerships have general partners
  • The general partners have unlimited liability and are involved in managing the company
  • The limited partners are only responsible for the contribution they have made towards the capital of the company
  • Limited partnerships may chose to be constituted as a Société en Commandite par Actions or a Société en Commandite Simple
  • The limited partners of a Société en Commandite par Actions are issued with shares and the partnership gets the same treatment as an S.A in many ways.

Luxembourg Branch of Overseas Company

Main Features:

  • Branch offices allow for foreign companies to provide services in Luxembourg
  • Before doing business in Luxembourg is required to obtain the necessary license or permit
  • For domestic tax purposes a branch is considered a permanent establishment

1929-type Holding

Main Features:

  • Holdings 1929 normally take the form of the Public Limited Company but may at times satisfy the requirements of a Private Limited Company. The special fiscal regime designed for holding companies established in accordance with the law of July 31 1929. In keeping with the EU Tax Savings Directive, the tax regime for Holdings 1929 was amended, making this corporate form no longer exempt from taxes if over 5% of dividends earned originate from countries with a corporate tax which is less than half of the corporate tax impose in Luxembourg, i.e, lower than 11%.

Features:

  • Normally takes the form of a Public Limited Company
  • Generally engaged in managing patents, intellectual property rights and licenses, portfolio management, participations in other companies including managing their loans and mortgages
  • Capable of acquiring real estate for office purposes
  • Prohibited from charging fees, earning income and commissions from consulting services
  • Not granted the capacity to enjoy privileges obtained from treaties
  • Companies limited by shares maintain anonymity by issuing bearer share certificates

*Note

Despite the changes made the 1929-type Holding in conformity with the EU’s tax policies, July 7, 2006 was noted as the last day for the formation of this company. The benefits granted to this company will last until December 31, 2010, during which time existing companies must not transfer any of their shares to avoid the automatic loss of tax benefits and should seek to restructure. From 2010, these companies will become fully taxable on both domestic and worldwide transactions, but will benefit from exemption from withholding tax, double tax treaties in keeping with the relevant TIEAs and be able to invest in real estate for business purposes. The new fiscal regime comprises the enactment, in May 2007, of the SPF or Private Asset Management Company, often referred to as the Family Wealth Management Company,

Private Asset Management Company (SPF — Société de gestion de patrimoine familial)

The SPF was specially designed for individuals and private investors.

Luxembourg Offshore Business Entities:

  • Shareholders in the form of natural persons include investment clubs and groups, family groups, and family office (offices set up by foreigners for providing tax advice services)
  • Can be opted for by any company with the following forms:
    • Sàrl: with a capital of EUR 12,500 consisting of one Director and one associate
    • COOPSA: A co-operative with a minimum of three associates, three directors and has limited liability
    • SAC: with a capital of EUR 31,000 (with a minimum of ¼ of paid-up capital); must have an auditor, at least two shareholders and three directors)
    • SA: with a capital of EUR 31,000 (with a minimum or ¼ of its capital paid-up); must have an auditor, a minimum of one director and two shareholders.
    • Such entities may include private foundations, trusts and banks holding fiduciary contracts, including stitching administratie kantoor (en).
  • May issue shares both in registered form or bearer, but must not be quoted
  • Depending on corporate structure may issue securities and contract debts worth shareholders with third parties such as legal or other entities, banks, domestic or foreign entities and natural persons.
  • Has no maximum debt equity ratio
  • May only detain, realize, manage and acquire financial assets such as hedge funds, currencies, shares, securitization funds, domestic or foreign investments funds and precious metals, to name a few.
  • May own a subsidiary for the purpose of carrying out operations

SOPARFI — Société de Participations Financières

Main Features:

  • May engage in mixed holding where holding as well as real estate, participations management and financing are conducted
  • Accesses benefits of double tax treaties
  • Required to own at least 10% of any subsidiary or (an investment of 1.2 million Euros) owned
  • Subsidiary can be either resident or non-resident and owner for a minimum of 12 months
  • Structured based on the European Union Holding Directive

Risk Capital Investment Company (Société d’Investissement à Capital Risque — SICAR)

Main Features:

  1. Includes any company of the following forms including limited partnerships (SCS), partnerships limited by shares (SCA), private limited companies (Sàrl) or public limited companies (SA)
  2. Private equity which invests its funds in risk or venture capital
  3. Activities are limited to investments in an entity during its phase of development, start-up or threshold of becoming listed.
  4. Has a minimum capital of 1 million EUR
  5. No debt/equity requirements
  6. Registered administrative office and headquarters must be Luxembourg
  7. Shareholders must be (well-) informed investors such as investment funds, investors of over EUR125, 000, professional investors and commercial companies
  8. Required to appoint a depository bank and an external auditor
  9. May not be a member of a fiscally integrated group

59. The types of investments that can be made are not limited by the law Variable Capital Investment Company (Société d’Investissement à Capital Variable)

Main Features:

  1. Legal entity limited by shares and separate from shareholders
  2. Primarily engaged in investing in financial assets
  3. Minimal capital of one million Euros
  4. Funds are required to be deposited into a custodian bank
  5. Funds must be managed by a regulated body
  6. Must set up registered headquarters in Luxembourg
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