Corporate taxation

Updated on Dec 17, 2024 by LPG

LPG luxembourg : the SPF holding

Holding companies in Luxembourg: Detailed overview of the SPF

Family wealth management companies (SPFs), also known as Luxembourg holding companies, benefit from significant tax advantages. Below is an in-depth explanation of their structure, taxation, and operational rules.

Taxation of SPFs

SPFs are exempt from:

  • Corporate income tax (impôt sur le revenu des collectivités);

  • Municipal business tax (impôt commercial communal);

  • Net wealth tax (impôt sur la fortune).

The only tax they are subject to is the subscription tax, levied at a rate of 0.25% on the amount of share capital and certain debts.

Shareholding requirements

SPFs are typically established as public limited companies (SA) or limited liability companies (SARL). Their shareholders must meet the following conditions:

  • Shareholders must be natural persons, not legal entities.

  • Although SPFs are designated as "Family wealth management companies," shareholders do not need to be related.

  • Shareholders must form a restricted circle of investors.

Permitted activities

The activities of an SPF are strictly limited to passive financial management. This means in particular that:

  • SPFs may only hold financial assets such as shares, bonds, or other securities.

They are not allowed to engage in commercial activities nor to lend money to subsidiaries, nor to actively manage subsidiaries.

Withholding taxes

SPFs may still incur withholding taxes on certain payments they make, as withholding taxes aim to tax the recipient rather than the payer. For example:

  • Salaries: If the SPF employs staff, it must comply with wage withholding tax requirements. However, such employees cannot participate in the management of subsidiaries.

  • Interest payments: Payments to creditors may also attract withholding tax.

  • Directors’ fees (tantièmes).

Capital requirements and thin-capitalization risks

The share capital requirements for SPFs are:

  • A minimum of EUR 30,000 for an SA.

  • A minimum of EUR 12,000 for a S.à r.l.

However, Luxembourg law discourages thin-capitalization:

  • The subscription tax base includes not only the paid-up share capital and share premiums but also any debts exceeding eight times the share capital.

  • The subscription tax is capped at EUR 125,000 annually with a minimum of EUR 1,000 (as of 1 January 2025).

Example calculation:

  1. An SPF with a share capital of EUR 100,000 and debts of EUR 69,900,000 will pay subscription tax on EUR 100,000 + (69,900,000 - 800,000), resulting in EUR 173,000. However, the tax is capped at EUR 125,000.

  2. An SPF with EUR 8,000,000 in share capital and EUR 62,000,000 in debts will pay subscription tax on EUR 8,000,000, resulting in EUR 20,000 (as no debts exceed the eight-fold threshold).

Monitoring and oversight

The Administration de l’Enregistrement et des Domaines (AED) oversees SPFs to ensure compliance with their favorable tax regime. The AED monitors:

  • Adherence to restrictions on financial activities;

  • Ownership by eligible investors;

  • Compliance with savings tax rules.

If an SPF fails to meet these requirements, it may lose its SPF status and be taxed under standard corporate tax rules.

Obligations for bearer shares

SPFs that issued bearer shares had to demonstrate compliance with professional depositor obligations and the cancellation or deposit of bearer shares by 30th June 2017.

SPFs offer an advantageous fiscal regime for private individuals seeking to manage wealth passively. However, the strict restrictions on their activities and oversight ensure that their use aligns with Luxembourg's fiscal policies.

 

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