The best option to open a holding company in Luxembourg is a SOPARFI. A SOPARFI is a resident company in Luxembourg that is fully taxable, but has the advantage of participation exemption and may benefit from double tax treaties signed by Luxembourg with more than 70 countries as well as from provisions of the EU parent – subsidiary Directive. The primary activity of a holding company is holding or financial activity, which is why it can benefit from the participation exemption in respect of some of all of its investments. Under certain specific conditions, there is no taxation on capital gains or dividends.
A SOPARFI has a more or less specific corporate purpose defined in its status, just like a regular company. It can be used to make investments in various investment schemes, such as holding and financial operations, intellectual property rights, acquisition of real estate or other assets.
It can hold participants in resident or non – resident companies, it can purchase, sell or exploit intellectual property rights, acquire shares in real estate companies or own real estate directly and it can perform nay type of commercial or industrial activities. If it is used for commercial or industrial activities, the holding company will require a business license and a VAT number.
Types of holding companies in Luxembourg
- A holding company can have one of the following legal forms to operate in Luxembourg:
- Public Limited Company – SA
- Private Limited Company – SARL
- Partnership Limited by Shares – SCA
- Co – operative – SC
- A public company incorporated in conformity with the article 2 of the European Council regulation from 2001 – SE
Regardless of the type of company, all share capital contributions can be paid in cash or kind and the shares may be issued as registered or bearer shares under certain conditions.
A public company may utilize a board of directors or a management board and a supervisory board as forms of management. There are no legal requirements relating to the nationality or residence of the directors.
This type of company requires that an annual balance sheet, a profit and loss account and notes to the accounts must be prepared and submitted for the shareholders’ approval within six months after the financial year-end.
Benefits of a holding company
- 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.