The Grand Duchy of Luxembourg is situated in Western Europe between Belgium, France and Germany and was created within the German Bund by the treaty of Vienna of 1815. In 1867 Luxembourg gained independence from Germany and organised itself as a constitutional monarchy with the legislative power vested in a democratically elected parliament.
Luxembourg enjoys a mild climate, temperatures are continental with winter (November to February) temperatures as low as -15C, while the summer (July, August) temperatures can rise to as high as 35C.
French and German are widely spoken and used in business circles with French being the administrative language. English is also widely spoken, and is used daily in commercial transactions.
Population is approximately 405,000, 20% of whom are foreign nationals.
The legal system is based on Napoleonic code and is therefore similar to the Belgium and French legal systems.
The currency is the Luxembourg Franc which is freely tradeable but there are approximately FLUX30 to US$1. Belgian Francs also circulate freely in Luxembourg, as the two currencies are at par.
Commercial Companies Act 1915, as amended.
The maximum rate of corporation tax applicable to Luxembourg companies is 33% but additional municipal taxes can bring the aggregate rate to as much as 39%. There are, however, different types of companies to which special tax regimes apply and which are therefore useful for tax planning purposes.
The Acte de Constitution (Articles of Incorporation) have to be prepared in the form of a deed.
This deed should include :
In addition to the aforementioned a Certificate of name acceptability issued by the Trade Registry is required, together with a Certificate of Blockage produced by the proposed company’s Luxembourg Bankers confirming that the paid up capital is deposited with them.
The aforementioned documents and information then have to be presented before a Notary Public by the proposed company’s appointed representative. After notarisation the Notary Public lodges the Articles of Incorporation and Bye-Laws with the Department of Registration and Trade Registry. The Articles of Incorporation are then published in the Official Gazette.
A Luxembourg holding company is exempt from all forms of Luxembourg taxation but its activities are restricted to the holding of shares and certain other investments. In particular the company may not advance funds to its shareholders, invest in commodities or futures or carry out any sort of commercial or industrial activity.
The company may only hold property in so far as it is necessary for its own use but could, for example, own the shares of a property investment company. This type of company is specifically excluded from the tax treaties signed by Luxembourg except the treaty signed by China.
A 1929 Holding Company may:
A 1929 Holding Company may not: be an active member of a general partnership or partnerships limited by shares carry on any commercial or industrial activity.
A 1929 Holding Company is exempt from local taxation, but pays 0.2% per annum on its share capital, which is payable quarterly.
LUXEMBOURG SOCIETÉ DE PARTICIPATION FINANCIERE (SOPARFI)
Luxembourg has recently extended its participation exemption regime and SOPARFI,s are now subject to the normal rate of national and municipal Luxembourg tax except that, subject to the fulfilment of certain conditions, dividends and capital gains are not taxed.
Such companies are therefore able to take advantage of the EU parent/subsidiary directive 90/435 A SOPARFI is not excluded from the scope of the tax treaties concluded by Luxembourg and this may make this type of company extremely attractive for certain tax planning exercises.
Luxembourg has signed tax treaties with most EU countries, Canada, Czech Republic, Hungary, Japan, Korea, Morocco, Norway, Slovak Republic, Switzerland and the US.
Taxation
A SOPARFI company pay duty of 1% on the issue of new share capital. The minimum share capital is FLUX1,250,000 and at least 25% of the authorised capital must be paid up.
A minimum of two shareholders are required. Details of the shareholders appear on the public file but bearer shares are allowed. However, if bearer shares are to be issued then the full amount of the authorised capital must be paid up on incorporation so if anonymity is required it is often preferable to use nominee shareholders.
A minimum of three directors are required who may be corporate or individual. Details of the directors appear on the public file so anonymity may only be retained by appointing third party professionals to the Board.
As a matter of Luxembourg law the company MUST maintain a registered office address with in Luxembourg and must also appoint a Luxembourg based statutory auditor. We would generally provide these services as part of the domiciliary service fee.
All Luxembourg companies must file full audited accounts and books of accounts must be maintained at the registered office and updated on a regular basis.
Incorporation time is approximately 48 hours from receipt of capital and fees. Ready made companies are not generally available.
Names must end with the word “Limited”. The following words and their associated activities can not be used: Assurance, Bank, Building Society or any other words deemed sensitive or offensive, any name that is similar or identical to an existing name and any name of a major international corporation, where written consent to incorporate is not available. There are no other specific rules regarding name restrictions.
The 1990 normal Luxembourg Trading and Investment Company with SOPARFI provisions has no trading restrictions other than without the appropriate licences it may not undertake the business of Banking, Insurance, Assurance, Re-Insurance, Fund Management, Collective Investment Schemes and any other activity that may suggest an association with the banking and insurance industries.
The real advantages of a 1990 normal Luxembourg Trading and Investment Company with SOPARFI provisions can be summarised as follows:
Companies investing in shares can benefit from the affiliation privilege; which means that these companies are fully subject to corporation tax, but exemptions are granted by law for dividends received from shareholdings; capital gains made on the sale of shareholdings; liquidation gains on liquidation of companies in which shares are held. This corporate tax exemption is granted with the following conditions:
Dividend and liquidation gains exemption on shareholdings of at least 10% or a cost of at least LFR 50 million held at the start of the financial year of receipt, and at least 12 months prior to the end of the financial year of receipt.
Capital gains exemption of shareholdings of at least 25% or costs of at least LFR 250 million held at least 12 months prior to the start of the financial year of sale.
Under certain conditions financing costs, value adjustments and administration expenses are tax deductible.
Zero withholding tax applies to dividends paid to an EC parent company (EC Directive 27 of 1990)
Withholding tax on dividend payments to non EC countries, but may be reduced through tax treaty relief.
As dictated by the objects in the articles of incorporation.
Luxembourg companies with SOPARFI provisions may access Luxembourg’s extensive treaty network. The centres include:
Austria, Italy, Belgium, Japan, Brazil, Morocco, Bulgaria, Netherlands, The Czech and Slovak Republics, Russia, Denmark, South Korea, Finland, Spain, France, Sweden, Germany, Switzerland, Greece, CIS (air traffic treaty only), Hungary, United Kingdom, Iceland (air traffic only), United States of America and Ireland.
The minimum Authorised Share Capital of a 1990 Company with SOPARFI provisions is 1,250,000 Flux ($45,000) all of which has to be issued and fully paid up. The capital can be expressed in any currency.
Not applicable.
An annual audit is compulsory.