LUXEMBOURG 1929 HOLDING COMPANY INFORMATION
WHY TO ESTABLISH A HOLDING COMPANY IN LUXEMBOURG?
LUXEMBOURG HOLDING COMPANIES ENJOY
Holding Companies are not in themselves a particular type of company. Indeed, any company can be considered a Holding 1929. A special request written in the by-laws of an association determines this status. The Holding exists when the choice of company type has been made.
THE HOLDING STATUS
ABOLITION OF HOLDINGS 1929 IN LUXEMBOURG
BIRTH OF A NEW TAX REGIME
Usually, a Holding 1929 takes the form of a Public Limited Company, but sometimes a Private Limited Company meets the requirements. Several thousands of Investors - Individuals, Families and Companies - have chosen as the place to establish their holding structure (+/- 15 000). The global capital of these structures alone is estimated at several tens of millions of Euros. In Luxembourg these companies can carry out their investment activities, financing, structure management etc., while enjoying a very attractive fiscal legislation and they may benefit from an exemption regime: exemption from income tax on profits and capital gain taxes, no withholding tax on income from Luxembourg in many cases, etc.
There are two type of Holding status in Luxembourg :
THE 1929 TYPE HOLDING
THE SOPARFI TYPE HOLDING
ABOLITION OF HOLDINGS 1929 IN LUXEMBOURG
The European Commission has announced this 19/7/2006 that the Holding 1929 regime was to be cancelled by the end of 2010. The Luxembourg government stays confident in his legislation and has taken this opportunity to announce the a 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.
Many multinational and individual investors have already changed the status of their holding into the SOPARFI regime which has many fiscal advantages in Luxembourg like the access to many double tax treaties, the Mother Subsidiary Directive, the Interest-Royalties Directive… (while holding 1929 cannot enjoy these fiscal advantages) The Law of 1929 exempt the holding companies from corporation taxes on amounts received and paid by them.
The Commission has asked the Luxembourg to cancel this legislation by the end of the year. Nevertheless, all the existing holding 1929 which has enjoyed this favourable regime for more than 80 years won’t have to reimburse any of the benefits and a grand fathering regime will be granted to them until 31st of December 2010 ; this will leave them enough the time to modify their fiscal regime.
Many fiscal solutions are already available to investors and families for several years in order to enjoy similar tax benefits :
- Securitisation Companies & Securitization Funds
- Financial Participation Companies SOPARFI
- SICAR (Capital risk investment companies)
The Memorial A131 du 31/7/2006 has published the “decision” of the European Commission dated 17 july 2006.
In summary, the regime granted by the law of 31/7/1929 is not "compatible with the common market ( state aide ).
The Luxembourg is held to cancel or modify the regime for the 31/12/2006 and make it "compatible".
No new holding 1929 company can be set up from the 19/7/2006. ( this is also the case for the soparfi who would llike to transfor their articles into a Holding 1929 ).
However the existing Holding 1929 can go on enjoying the same benefits till 31/12/2010 if the shares representing their capital are not transfered. If une share is transfer to a third party, the regime is automaticaly lost.
Following this decision, many holding 1929 companies should revise their strategy and make sure that their shareholders do not transfer their shares if the company wants to go on enjoying the said advantages.
The loss of the benefit of the regime have as consequences that ie :
- the holding company becomes a fully taxable company under the common internal law
- it becomes fully taxable on its worlwide profits
- it can enjoy all the possibilities of tax exemption aimed by the internal
Luxembourg fiscal laws like any other companies ( also like Soparfi )
- it can enjoy ann the benefits of the double tax treaties ( reduction of withholding taxes but also the exchange of information and assistance between the contracting states )
- it can enjoy the benefit of the European Directives ( withholding tax exemption on dividendes, interests and royalties, merger, ...- subject to conditions )
- it can purchase a real estate or realize commercial activities,...
For a more precise analysis, please contact us.
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