Corporate taxation

Updated on Feb 4, 2025 by Ufuk ZOBALI

LPG luxembourg : the SOPARFI

What really is the SOPARFI?

The SOPARFI: a financial holding and Intellectual Property (IP) holding

The SOPARFI, a Luxembourg financial holding and IP rights company, does not fall under any particular type of company such as Luxembourg's SA/PLC, SARL/LLC or SCA companies, but is rather a tax regime which applies to financial holdings and IP holdings.

A Luxembourg SA or SARL (PLC or LLC) is eligible for SOPARFI status under the condition that it holds financial participations (of affiliates) and manages them in the medium and long term.

The tax regime for a SOPARFI exempts the income from dividends and capital gains from the sale of securities (Luxembourg or foreign).

Income from intellectual property rights (patents, brands, software) can be tax-exempt up to 80%. 

General tax rules are applicable to SOPARFIs

A SOPARFI is subject to Corporate Income Tax (CIT), Municipal Business Tax (MBT) and Net Wealth Tax (NWT).

As of 1 January 2025, Luxembourg has reduced its CIT rate from 17% to 16%.

Consequently, the maximum aggregate tax rate for a SOPARFI, including CIT, MBT, and the contribution to the employment fund, is now 23.87%1.

Starting in the 2025 tax year, the calculation of the minimum NWT has been simplified. The amount due is now determined solely based on the company's total balance sheet2, without considering the proportion of financial assets held. Consequently, the SOPARFI minimum NWT ceases to exist.

Tax exemption on the income from dividends or capital gains (Parent-Subsidiary Directive)

Here are the conditions to benefit from the tax exemption:

  • The participation must be held at a minimum of 10% of the total share capital of the affiliate, or the acquisition price of the participation must be at least 6,000,000 EUR (or 1,200,000 EUR for dividend exemption only).
  • The participation must be held for at least one year (or the parent company should commit to hold the participation for 12 consecutive months).
  • The subsidiary must be a fully taxable resident company, a fully taxable3 non-resident company, or an EU-resident company.

The parent company must be a resident company of Luxembourg.

From the 2025 tax year, SOPARFIs can opt out4 of the participation exemption regime for dividends, liquidation proceeds, and capital gains, as well as the 50% tax exemption on dividend income.

This option is available when the exemption would apply solely based on the acquisition price criterion (i.e., EUR 1,200,000 for dividends and liquidation proceeds and EUR 6,000,000 for capital gains). The waiver must be exercised annually for each shareholding; otherwise, the exemption applies automatically if all conditions are met. 

Intellectual Property (IP) tax regime

IP tax regime

The IP regime is designed to incentivize innovation by offering tax benefits for income derived from qualifying IP assets

Aligned with the OECD's nexus approach, this regime ensures that tax advantages are granted proportionally to the SOPARFIs' own research and development (R&D) activities.

  • 80% tax exemption on qualifying IP income: net income derived from the commercialization of qualifying IP assets is eligible for an 80% exemption from CIT. This results in an effective tax rate below 5% on such income. 
  • 100% NWT exemption: Qualifying IP assets are fully exempt from NWT, reducing the overall tax burden for companies holding significant IP portfolios. 

Under this IP regime, the following IP assets are considered eligible:

  • Patents
  • Utility models
  • Supplementary protection certificates for pharmaceutical and plant protection products
  • Extensions of supplementary protection certificates for pediatric use
  • Plant breeders' rights
  • Orphan drug designations
  • Copyrighted software

It's important to note that marketing-related intangibles, such as trademarks and domain names, are excluded from this favorable regime. 

Conditions to benefit from the IP tax regime

The SOPARFI must:

  • Maintain detailed records tracking the development, income, and expenditures related to each qualifying IP asset.
  • Ensure that the IP assets result from genuine R&D activities undertaken by the SOPARFI.
  • The exempted income must have been generated by an IP right (such as software, a patent, trade name, design or model) recorded as an asset on the financial statements of a SOPARFI.

Unlike SPFs, SOPARFIs benefit from international tax treaties and European Directives.
 

1. This is the rate for Luxembourg City, which is down from the previous 24.94%.
2. EUR 535 for a total balance sheet up to EUR 350,000, EUR 1,605 between EUR 350,001 and EUR 2,000,000, and EUR 4,815 when exceeding EUR 2,000,000.
3. A comparable CIT rate is deemed to be a minimum tax rate of 8% (as of 2025).
4. This strategy enables the use of tax losses by the SOPARFI that might otherwise expire unused, thereby reducing the company's overall tax liability.

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