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COUNTRY:
Luxembourg.
Luxembourg
Holding Company.
The term 'offshore' is not used in Luxembourg legislation or in
describing company forms.
Legal
form:
The Luxembourg Holding 1929 Company and 'Soparfi' (Societe a Participation
Financiere) are the forms, which permit 'offshore' activity in
Luxembourg. However, they are not separate legal forms as such,
and employ one of the above forms, either SA, SARL or Societe
en Commandite par Actions, as a legal base. There are two types
of Holding status in Luxembourg: - the 1929-type holding - its
activities are restricted to the holding of shares and certain
other financial instruments and the company may not invest in
commodities or futures, or carry out any sort of commercial or
industrial activities;
-
the SOPARFI type holding, sometimes called as ‘mixed holding’
- SOPARFI may carry out normal industrial and commercial activities
and It benefits from an exemption of taxation on dividends and
capital gains on share transfers, provided certain requirements
are met.
Abolition
of Holdings 1929 in Luxembourg: The European Commission has
announced on 19/7/2006 that the Holding 1929 regime was to be
cancelled by the end of 2010. The Luxembourg government stays
confident in its legislation and has taken this opportunity to
announce that the new fiscal regime for private asset management
was to be launched in the next couple of months; the Luxembourg
will stay attractive for private finance, which is important for
Luxembourg.
______________
SOME
LEGAL EXPLANATIONS:
Name
of the company:
Name can be in any language using the Latin alphabet. The Public
Registry may request a French or German translation if a foreign
language is used. Name Restrictions: Any name that is similar
or identical to an existing name; Any name of a major international
corporation, where written consent to incorporate is not available;
Any name which in the opinion of the Trade Registry is undesirable
or offensive. There are no other specific rules regarding name
restrictions. However it is normal practice for the Trade Registry
to refuse names that are associated with the banking and insurance
industries and any name that would suggest Government patronage.
Names requiring Consent or a License: French and German names
for Bank, Buildings Society, Savings, Insurance, Assurance, Re-Insurance,
Fund Management, Investment Fund, Council, Municipal, Co-operative
or the foreign language equivalent.
Memorandum
and Articles of Association:
The Articles of Incorporation (The Acte de Constitution), must
be prepared in the form of a deed. This deed should include: The
name of the person(s) wishing to form the corporate entity; The
address of the Registered Office; The amount and currency of the
authorized and issued share capital; Type of shares and classes;
Amount of capital paid up; Voting rights and shares; Names, addresses
and nationalities for the proposed directors and auditors. A Certificate
of Name Acceptability issued by the Trade Register is required,
together with a Certificate of Blockage produced by the proposed
company's Luxembourg bankers confirming that the paid capital
has been deposited with them. These documents and information
must be presented before a Notary Public by the proposed company's
appointed representative. After notarization, the Notary Public
lodges the Articles of Incorporation and By-Laws with the Department
of Registration and Trade Register. The Articles of Incorporation
are then published in the Official Gazette.
Shareholders:
A minimum of two shareholders is required for SA and one for SARL
types of company. Details of the shareholders appear on the public
file. Bearer shares are allowed, however, if bearer shares to
be issued then the full amount of the authorized capital must
be paid up on incorporation. If anonymity is required it is advisable
to use nominee shareholders.
The
minimum share capital: The minimum authorized share capital
for SA type of company is 31,000 Euro of which at least 25% must
be paid up at the incorporation and for SARL type of company it
is 12,500 Euro which has to be fully paid-in upon subscription.
Directors
of the company: A minimum of three directors is required for
SA type of company and one for SARL type of company. Directors
may be bodies corporate or individuals of any nationality or residence.
Details of the directors appear on the public file. Anonymity
may be retained by using nominee directors.
Registered
office and secretary: As requested by law, every Luxembourg
registered company is required to have a registered office in
Luxembourg, and must also have Luxembourg licensed auditor for
statutory audits. The Luxembourg Companies Acts do not provide
for the appointment of a company secretary.
Basic
Tax Principles:
Corporate
Income Tax (IRC) for Luxembourg companies is charged at 20.80%
to 22.88% on worldwide income exceeding EUR 15,000, subject to
foreign tax relief, in accordance with applicable double tax treaties.
A Municipal Business Tax (ICC) on profits of 7.5% is charged on
taxable income exceeding EUR 17,500. The maximum effective rate
is 30.38%. Losses may be carried forward indefinitely. Fiscal
integration is also possible if the parent company owns at least
75% of the subsidiary. Capital gains for corporation are treated
as ordinary income and taxed accordingly. Wealth Tax is charged
on the net asset value of a company as at 1st Janauary of each
year. There is a Withholding Tax of 20% on dividends (zero on
dividends paid to an EC parent), one of 10% on royalties, but
no one on interest. These may be reduced by tax treaties. The
Capital Registration Duty of 1% (Droit d'Apport) is also to be
paid on incorporation and substantial capital incresases.Trading
companies can benefit from Investment Tax Credit. These companies
are subject to the Value Aded Tax and must register for VAT when
their turnover exceeds EUR 10,000.
1929
Holding Companies (will be effective until 2010)
1929
Holding companies, registered before 1 January 2004 pay only two
taxes, being:
- a capital duty (droit d'apport) on incorporation, at a rate
of 1% on share capital and subsequent capital increase;
-
an annual subscription tax (taxe d'abonnement) at a rate of 0.2%
p.a., calculated quarterly, based on share capital.
Holding
companies income is exempt from corporate income tax, wealth tax,
communal taxes, capital gains taxes and taxes on liquidation.
Luxembourg
is being forced to comply with the EU's Code of Conduct Committee's
campaign against 'harmful tax practices' by modifying the dividend
taxation regime for 1929 holding companies. 1929 holding companies
were exempt from all Luxembourg taxes, with the exception of the
annual subscription tax levied on their net asset value and the
capital contribution tax. Thus, a 1929 holding company could receive
dividends from a foreign subsidiary and claim an exemption, even
if the distributing subsidiary was not subject to tax or was subject
to a tax regime that was notably more advantageous than the regime
applicable to fully taxed Luxembourg resident subsidiaries.
Under
new legislation, a 1929 holding company will lose its tax-exempt
status if at least 5% of its dividends received relate to foreign
participations that are not subject to tax at a rate comparable
to the Luxembourg corporate income tax rate. An effective tax
rate will be considered to be comparable if it is at least 15%
equating to approximately one-half of the current corporate income
tax rate that applies to regular resident taxpayers and is in
line with the tax rate generally applicable to dividends received
from participations that do not qualify for a full exemption.
Further,
the taxable base will need to be determined under a method similar
to the methods used in Luxembourg. An auditor or accountant will
be required to certify annually that the eligibility requirements
have been met. A 1929 holding company that loses its tax-exempt
status will be subject to the normal corporate income tax regime.
For
newly incorporated 1929 holding companies, the amendment will
apply as from 1 January 2004. For existing 1929 holding companies
(i.e. those incorporated under the law applicable before 1 January
2004), the new rules will apply as from 1 January 2011.
SOPARFI
Companies
In
the December 1990 Tax Reform, new fiscal privileges have extended
the old "parent-subsidiary" regime to create what many
regard as a "new" style holding company. In fact, the
benefits are available to any Luxembourg incorporated company
that is not set up as a classic holding company under the law
of 1929. These benefits are also applicable to Luxembourg branches
or permanent establishments of foreign companies. One does not
even need to create a Luxembourg company to benefit from the participation
exemption.
In
other words, a Luxembourg registered or foreign company, branch
or permanent establishment and partnerships in which a SOPARFI
is a partner, that is subject to Luxembourg corporate tax may,
if it fulfils the ownership conditions, exclude dividend income
and capital gains derived from its shareholdings in Luxembourg
or foreign companies from its taxable revenues. In addition, Luxembourg
companies subject to Luxembourg corporation tax, fall within the
scope of Luxembourg's Double Tax Agreements, and are less vulnerable
to anti-avoidance legislation in the country of residence of the
shareholders.
Dividends
received by the Luxembourg SOPARFI from any company in which the
SOPARFI has at least a 10 % shareholding (or if less, whose acquisition
cost was at least EUR 1.200.000) are excluded from taxable profit
of the SOPARFI if the company gives the Luxembourg tax authorities
an undertaking that it intends to hold the shares for at least
12 months.
Capital
gains derived from the sale of shareholdings in other companies
are excluded from taxation if held for at least 12 months and
if they represent at least a 10 % shareholding (or if less, whose
acquisition cost was at least EUR 6.000.000). In addition, the
following conditions must be met:
-
The SOPARFI, branch or permanent establishment, must be liable
to Luxembourg tax;
-
The distributing company, if resident in Luxembourg, must also
be liable to Luxembourg tax; if non-resident, it must be subject
to a system of foreign tax similar to Luxembourg income tax (i.e.
at least 15 %).
Although
dividends and capital gains are tax exempt,
the financing costs due to borrowing for the purchase of a participation
which exceed the exempt dividend income received or capital gain
made and valuation adjustments on the participation remain tax
deductible. This allows a SOPARFI to tax protect other financial
or trading income. When a capital gain is made, a portion of the
gain equivalent to the amount of other financial or trading income
that was tax protected in the past, will be subject to taxation
in the financial year the gain is made.
Audit
and financial returns:
Proper books of account must be kept and maintained in Luxembourg.
Valuation rules are determined by both company and tax law, and
follow closely the EC Fourth Directive. The format and the amount
of information to be given in the annual financial statements
is determined by the size of the company as defined in the EC
Fourth Directive and as adopted into local company law. Whether
or not a company is required to be audited is also determined
by the size of the company. The accounts containing the information
required by the law in accordance with the size of a company must
be filed with the Registrar of Companies within 12 months of its
financial year end and are available for public inspection.
Time
needed for formation: Usually it is 10 working day, but we
need up to 30 working days for legalization of the documents and
delivery by courier.
Annual
meetings: The first AGM must be held no later than 18 months
from the date of incorporation and then each year on the date
specified in the statutes. It can be postponed for up to four
weeks by resolution of the Board of Directors. If all the shares
are registered, the meeting can be convened by registered letter
containing the agenda of the meeting; otherwise, notice must be
published (in the Mémorial and a Luxembourg newspaper)
at eight day intervals, the second notice appearing at least eight
days before the meeting.
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