Financial Holding Basic

Set Up a Financial Holding Company 

The Societe de Participations Financieres (SOPARFI) is applicable to companies having financial investments. In Luxembourg, these non-regulated trading companies can exist as either a limited liability company, as a partnership limited by shares or the largely preferred form, public limited company. 

SOPARFI companies can carry out two types of activities in Luxembourg, either they can offer financial services or they can carry on Holding activities. As a holding company, the SOPARFI can conduct any of the following activities, Operational Holding; Organisational Holding; Finance Holding and Management Holding.

Legal Structure and registration

Primarily, SOPARFIs are responsible for the management, acquisition, and realization of financial investments in all company structures, whether in Luxembourg or outside. In some cases, SOPARFIs can also engage in commercial or industrial operations, as primary or secondary activities. 

Any legal or natural person is permitted to set up a SOPARFI in Luxembourg, regardless of their nationality and whether they reside in the country or not. To register a SOPARFI, the applicant should submit the Articles of Association stating the organization’s activities along with other necessary documents to  Luxembourg's Trade and Companies Register. If the entity to be formed will offer financial services, it should also apply for a trading license from the Ministry of Small and Medium Sized Businesses.

Taxation

SOPARFIs in Luxemburg benefit from various tax relief programmes such as the “inter-corporate privilege.” This means that the financial holding company will not incur corporate income tax on profits generated from its investments. However, this privilege is subject to certain conditions. As a general rule, the holding company should have unlimited liability and it should be resident in either Luxemburg or any EU country which has signed a double taxation agreement with Luxembourg. The subsidiary from which the profits are released should have limited liability and in the case where it is not resident in Luxembourg, it is liable to corporate tax in its resident EU country. If the subsidiary is located outside of the EU then the corporate tax that it should pay in its resident country should be consistent with that of Luxemburg.

A SOPARFI will be exempted from paying net wealth tax when the investments in question are equal to 10% of the subsidiary’s share capital. The 15% withholding tax chargeable on distributed dividends is exempted provided the shareholding company is resident in Luxemburg and has unlimited liability. 

An EU company which has held interest in the SOPARFI for at least a year regardless of its residency is eligible for the withholding tax exemption on remitted dividends. Other international companies will benefit from a reduced taxation rate on the dividends they receive if they own at least 10% of the SOPARFIs share capital. Interest payments and other investment expenses are considered deductible on tax payable. Proceeds from liquidation are also not taxed on the SOPARFI.

Double Taxation Agreements

Foreign investors will benefit immensely from the trade relationships the Luxembourg government has cultivated with its trading partners. Luxembourg not only has benefits of being an EU state but it also has numerous Double Taxation Agreements with countries both within the EU and outside. Societe de Participations Financieres are beneficiaries of these DTAs as they will not be liable to double taxation when they invest in countries that have signed a double taxation agreement with Luxembourg.

Need help setting up a SOPARFI?

Setting up a SOPARFI can be a daunting and taxing process. If you need help with company formation in Luxembourg, you can reach out to Luxstart. Our expert team of accountants, consultants and lawyers is ready to help you in any way possible and help you dodge the common pitfalls in the company formation process in Luxembourg.