INCORPORATING SPF COMPANY
LUXEMBOURG REPLACES 1929 COMPANIES
WITH SPF COMPANIES
“SOCIÉTÉ DE PATRIMOINE FAMILIALE”
The Luxembourg government launched the "Societe de Patrimoine Familiale" (SPF) to replace the 1929 holding company regime which was terminated on 1 January 2007 after it was found by the European Commission to be in violation of state aid rules for providing "unjustified tax advantages" to providers of certain financial services who set up holding structures in Luxembourg.
The SPF, or "Family Wealth Company", has the approval of the European Commission. Shareholders will be restricted to a small group of individual shareholders and SPF’s will not be available to listed corporations or large groups of unconnected shareholders.
They will be prohibited from commercial activity and limited to private wealth management, such as the holding of financial instruments such as shares, bonds and other debt instruments, in addition to cash and other types of bankable asset.
The new regime is to be exempt from corporate income tax, municipal business tax and net-worth tax, and from withholding tax on distributions. But these exemptions can be affected by the SPF's participation in non-resident, non-listed companies, if those companies are located in a country not subject to an equivalent corporate tax regime.
Companies participating in the new scheme must have a minimum capital level of EUR 12,500, one associate and one director in order to participate in the new regime. SPF shares can be nominative or bearer, but may not be quoted. If it is used to hold voting rights in other companies, it must ensure that it does not involve itself in the running of those companies, and it is prohibited from providing any kind of service.
There are about 14,000 existing 1929 Holdings in Luxembourg and those formed before 20 July 2006 will be able to keep their present status until 2010. Certain restrictions on transfer of ownership of the shares of those companies still need to be clarified. The new law is expected to apply to around 80% of 1929 Holdings and Luxembourg is apparently drawing up a further draft law to replace the remainder.
PRIVATE ASSET MANAGEMENT COMPANY
The regime “SPF" can be chosen by a company whose form must be:
• Sarl: capital 12 500 Euro, one associate, one Director
• SA: capital 31 000 Euro (including at least 1/4 paid in), at least one shareholder and one director, one auditor
• SCA: capital 31 000 Euro (including at least 1/4 paid in), at least two shareholders and three directors, one auditor
• COOPSA: Co-operative Company having adopted the Form of a Limited company, at least three associates, 3 directors.
SHARES OF A SPF
The shares of a SPF can be nominative or at the bearer but cannot be quoted.
The activity is strictly limited to acquisition, detention, management and realization of financial assets such as:
Shares, obligations, shares of quoted companies or private companies, securitisation funds, Soparfi shares, variable capital companies, Holding 1929 (within the limits of the Law - 19/07/06), deposit accounts, SICAV, Luxembourg or foreign investment funds, structured products, hedge funds, precious metals, options, warrants, indices, currencies, ... to guarantee or make non bearing interest loan to its subsidiaries.
The SPF cannot carry out commercial deals, hold building, intellectual rights or carry on an activity of management, trade or financial services.
It can obviously hold a subsidiary company which carries out such operations.
According to the Form of company chosen, the “SPF” can issue securities, contract debts with its shareholders, with third parties like banks, natural persons, legal entities or other entities -resident or non resident... There is not maximum debt equity ratio; only the subscription tax is due on the debts part which exceeds 8 times the increased paid-up capital of the capital premiums.
The shareholders of this SPF must be:
1) individuals (other than company) resident or non resident
• a family group;
• a Family office;
• a investment club;
• a group of investor managing their private savings.
2) Entities known as managing patrimonial assets, resident or non resident:
• private foundations;
• administrative kantoor ;
• similar entities with or without the legal personality acting within the management individuals’ assets;
• Any type of nominee agreement by intermediaries holding the shares of the SPF as fiduciary (banks acting within a fiduciary contract, mandate).
FISCAL REGIME OF THE “SPF”
TAXATION AT THE CONSTITUTION
Capital Duty of 1% (0.5% from 1/01/2008) at the constitution with possibilities of exemption:
• on the part of the debt or the advance towards the shareholders or the third parties - max 8 X the subscribed capital (for subscription tax);
• when the contribution is the majority of the shares of a company having its registered office in the European Union (>65%);
• when there is a transfer of registered office from a Member State of the EU towards Luxembourg in so far as a similar duty was charged at the constitution;
• when there is a change in the form of a Luxembourg Company into a SPF form (holding 1929, Soparfi ...);
• when there is the incorporation of reserves or deferred results to the capital,...
TAXATION OF PRODUCTS, BENEFITS, DIVIDENDS OR OTHER PROFITS PERCEIVED OR CARRIED OUT BY THE SPF BECAUSE OF ITS SOCIAL OBJECT
Total Exemption of income tax, communal tax but exclusion of all tax treaties.
WITHHOLDING AT SOURCE ON THE INTERESTS PAID ON THE
ADVANCES AND DEBTS OF THE SPF TOWARDS THE INDIVIDUALS
• If Luxembourg resident: either Final withholding at the source = 10% (see article on law RELIBI) – or global taxation
• If not a Luxembourg resident: Final withholding tax at the source = 15 % (saving directive)
WITHHOLDING TAX AT SOURCE
No withholding at source on the interests is to be paid on the advances and debts of the SPF towards the legal entities or other entities.
MOTHER SUBSIDIARY TREATY OR INTERESTS ROYALTIES
ANTI ABUSE MEASURE
Interdiction of perception of more than 5% of its Dividends coming from non-resident and non-quoted companies (Ex EU) whose rate of taxation is lower than 11% (this measure only applies to dividends coming from these companies – so do not apply to capital gains, repurchases of capital stock, profit of liquidation, security lending...)
WITHHOLDING AT THE SOURCE ON WAGES PAID TO EMPLOYEES OR DIRECTORS
According to scales with reduction and exemption, following the situation of the Beneficiary
WITHHOLDING AT THE SOURCE ON DIRECTORS’ FEES
No registration possible
- Taxable basis= paid-up capital (CL) + capital premium (CP) + debts exceeding 8 times (CL+CP) (existing at January first)
- Rate = 0.25 % per annum with a minimum of 100 Euro and a maximum of 125 000 Euro
- The tax is payable per quarter (and pro-rata by day for the first and last exercise)
- The profit/Loss or the reserves are not taken into account in this calculation.
TAX ON THE CAPITAL GAIN REALIZED ON SPF’S SHARES
Taxation for Luxembourg resident
Exemption for non-resident person
TAX ON THE PROFIT OF LIQUIDATION
Taxation for Luxembourg resident
Exemption for non-resident person
CONTROL AND SUPERVISION OF THE SPF
1) Only the “Administration de l’Enregistrement” is qualified. This administration is different from the Tax authorities. Control is strictly limited to the respect of the conditions of the SPF Regime. No spontaneous or no information communication can be carried out by this administration except in the event of non-respect of the obligations of the SPF itself.
2) Each year, the domiciliation agent (a chartered accountant, an Auditor...) must certify:
• that the SPF is held only by qualified investors (the name of these people is covered by its professional secrecy and he cannot reveal it);
• that the SPF does not perceive more than 5% of its dividends coming from companies ex EU taxable at less than 11%;
• that the SPF respected its obligations as a paying agent following the law “relibi” and the directive on the savings taxation.
It is indeed a certificate of non-objection from the paying agent to the attention of the Registry Administration. If this administration does not receive the certificate of non-objection, it informs the Tax authorities of it and the withdrawal of the benefit of the SPF Regime can be declared (applicable starting from the reception of the registered letter).
3) The SPF must keep a proper accountancy and publish its annual statements once per year, respect the provisions of the company law and the law on Domiciliation of companies if applicable.
For a more precise analysis, please contact us.