LUXEMBOURG – A WHOLE WORLD IN A SINGLE PLACE

ABOUT LUXEMBOURG

The Grand Duchy of Luxembourg has significant advantages over other jurisdictions for our clients, as it provides an excellent environment for the administration of international business structures, with legally supervised service providers such as B.A. Trust Group’s entities.

One of the most interesting aspects about Luxembourg as a location is that it conjugates flexibility and an international thinking approach. This worldwide business platform evolves in a EU-conform environment.
Thanks to our internationally oriented and highly qualified professionals, our companies can help you set up and manage the most appropriate corporate entity in Luxembourg.

Political, social and economic stability, the modern legal and regulatory framework and the tax environment have made Luxembourg a leading jurisdiction for corporate holdings, investment funds (a.o. SIF, SICAR) and family wealth management companies over the last few decades.

The continuously growing financial sector, new sectors like Intelligent communication technology and logistics prove that the government does its utmost to maintain and even increase the attractiveness for those who do business in Luxembourg. The main strengths of Luxembourg are, on the side favorable rules with a long-term planning security, and on the other side a unique people network, connected to the whole world. The highly skilled, multi-lingual workforce constitutes a valuable resource for corporate functions, including finance and accounting.

Below are listed the most important Luxembourg corporate entities and the areas of their use :

A SOPARFI is the most commonly used company in Luxembourg. Indeed, the SOPARFI (“SOciété de PARticipations FInancières”) is not a special corporate type, but refers to the use of a “normal” trading company for holding and finance activities. This company is fully subject to tax. Dividend payments are subject to withholding tax at a rate of 15%, whereas interest and liquidation proceeds can be paid out free of Luxembourg withholding taxes. Payments qualifying as “interest” to residents within the EU may fall within the scope of the EU Savings Directive under certain circumstances. Most SOPARFIs hold important shareholdings, provide for loans to the companies in which shares are held or hold real estate in Luxembourg or abroad. The company low income taxation benefits results from an exemption foreseen on income from important shareholdings and treaty exemptions for income from real estate held in treaty countries.
The private wealth management company is fully tax exempt on its income. All payments (dividends, interest or liquidation proceeds) are exempt from Luxembourg withholding taxes. However, interest payments to residents within the EU fall within the scope of the EU Savings Directive. The efficient use of this company type is restricted to beneficiaries residing in countries which do not have complex CFC-rules, so that accumulated income can be capitalized tax free.
The SPF only pays a rather small tax on its paid-up share capital (and assimilated amounts). The tax basis is increased in the presence of excessive debt financing.
For investors which live in a jurisdiction which does not assess taxes on the income of the SPF irrespective of the distribution thereof, the SPF can serve as asset-pooling entity for several purposes (e.g. succession planning).
The SICAR is a regulated special purpose vehicle, with restrictions in respect of the investors (mainly institutional investors and so-called “well-informed” investors are admitted to the SICAR), and the underlying investments. Indeed, this company type has been created to allow investment in risk capital investments (Private Equity / Venture Capital). The tax exemption applicable to the SICAR has been designed for the typical type of investment of a SICAR. Thus, the exemption covers income from securities and from deposits (as long as these deposits are only of a temporary nature). Dividend payments are exempt from Luxembourg withholding tax. The corporate law specifics for the SICAR are adapted to the financial particulars of the “Risk Capital Investment Cycle” and even allow the creation of “compartments” (bankruptcy remote classes of investments / investors) within a single SICAR
The Securitization Vehicle allows the issue of publicly or privately offered securities in order to secure the financing of assets. The securities issued will participate (at least largely) in the risk of the underlying assets (gains and losses). As for the SICAR, the Securitization Vehicle can create compartments.
The Securitization Vehicle is fully taxable, but is allowed to deduct all payments (and future payments) on the securities issues from its taxable income, generally resulting in a negligible tax charge of the company itself.
All payments (dividends, interest or liquidation proceeds) in respect of securities issued for a securitization operation are exempt from Luxembourg withholding taxes. However, payments qualifying as “interest” to residents within the EU fall within the scope of the EU Savings Directive.
A SIF is the individual form of a regulated fund vehicle in Luxembourg. Compared to a publicly offered fund with EU-passport, it offers a wider range of assets in which can be invested, leverage opportunities and other advantages. How close the SIF will be to a public fund may be determining the tax treatment of the investor, function of his home country tax rules.
The scope of legal forms which can taken is larger than for publicly offered investment funds and includes the normal corporate forms as defined in Luxembourg commercial law.
Like in a SICAR, investors need to comply with certain conditions.
The SIF is exempt from income and wealth tax. There is no Luxembourg withholding tax levied on distributions. However, payments qualifying as “interest” to residents within the EU may fall within the scope of the EU Savings Directive.
The SIF only pays a rather small tax on its net asset value.