Luxembourg
The Financial Centre
The Grand Duchy of Luxembourg is situated in Western Europe surrounded by Belgium, France and Germany. Luxembourg is an independent constitutional monarchy of 2,600 Kms2 with a population of 500,000 people. It is just one hour away by plane to many capital cities – London, Paris, Brussels, Amsterdam, Zurich, Geneva, Frankfurt and Berlin. With one of the most dynamic economies in the world and second only to the USA in assets under management through its private banks and its investment funds, Luxembourg is a reliable political and business partner at European and international level.
Luxembourg forms an integral part of one of the largest monetary and economic areas in the world. Luxembourg also plays a key role in the development of a larger cross-border area formed by Lux¬embourg and neighbouring regions in France, Germany and Belgium.
Luxembourg has quickly adopted the European directives on the financial sector and has thereby created a favourable environment for such economic activities as banking, in¬vestment funds, insurance, holding, finance, leasing, securitisation and intellectual property companies and informed investor investment funds.
The objective of this briefing pack is to clearly set out a summary of the important legal and tax issues related to these structures.
The types of Investment Structures available in Luxembourg
SPF (Private Portfolio Management Company)
SOPARFI (Investment Holding Company)
ROYCO (Royalty Company)
FINCO (Financing Company)
PROPCO (Company owning Real Estate)
BRANCH (Branch of Non-Resident Company)
SHIPCO (Shipping Company)
SIF (Specialised Investment Fund)
SICAR (Investment Company in Risk Capital)
SV (Securitisation Vehicle)
The Luxembourg financial centre is currently composed of 150 banks, 3,370 investment funds, 94 insurance compa¬nies and 242 re-insurance companies. There are another 142 other financial sector professionals registered with the Financial Sector Supervisory Authority (CSSF).
More than 35,000 companies from all over the world have been formed in Luxembourg by investors.
WHY CHOOSE LUXEMBOURG?
• Strategic location in Europe with a high standard of living
• The availability of a qualified multilingual workforce speaking English, French, German and other languages
• Political and social stability
• Favourable tax treaty agreements with 57 countries
• Very competitive company taxation at 28.59% which is made up of a corporate tax of 21.00% plus an unemployment surcharge of 0.84% and a municipal business tax of 6.75% (for Luxembourg City)
• Companies are also subject to a wealth tax of 0.5% of net assets with certain exemptions
• No withholding taxes on dividends, paid to EU or double tax treaty resident companies, otherwise 15%
• No withholding tax on interest and royalties
• Lowest VAT rate in Europe at 15%
• Very competitive personal tax rates up to a maximum of 38.95%
• Very low social security rates of 12% for employees and 13% for employers
TYPES OF LUXEMBOURG COMPANIES
• SA - Public limited company (société anonyme) - Minimum Share Capital EUR31,000
• SARL - Private limited company (société à résponsabilité limitée)
- Minimum Share Capital EUR12,400
• SCA - Partnership limited by shares (société en commandite par action) *
• SCSA - Cooperative company in the form of an SA (société cooperative organisé comme société anonyme)*
• SC - Cooperative Society (Société cooperative)*
• SCS - Limited partnership (Société en commandite simple)*
• FCP - Co-ownership managed by a management company (fonds commun de placement)*
• SICAV - Company with variable capital (société d'investissement à capital variable)*
• SICAF - Company with fixed capital (société d'investissement à capital fixe)*
* Minimum Share Capital €0
TAXATION OF LUXEMBOURG COMPANIES
RESIDENT COMPANIES
Resident companies are subject to tax on their worldwide profits with special exemptions for dividends, capital gains and royalty income.
NON-RESIDENT COMPANIES
Non-resident companies are only subject to tax on Luxembourg source profits with special exemptions for dividends, capital gains and royalty income.
RESIDENCE DEFINITION
For tax purposes, a resident company is de¬fined as:
• a company incorporated and has its regis¬tered office in Luxembourg; or
• a company which is managed and control¬led in Luxembourg.
TAX YEAR
The normal tax year runs from 1 January to 31 December.
DIVIDEND WITHHOLDING TAX
Dividends distributed by a Luxembourg com¬pany are free of withholding tax if the recipient company is:
• another fully taxable resident company; or
• a company resident in the European Union and listed in Art.2 of the Parent Subsidiary Directive; or
• a Luxembourg permanent establishment of a company resident in a country with which Luxembourg has a double tax treaty.
Otherwise there is a withholding tax of 15%.
INTEREST WITHHOLDING TAX
Interest paid by a Luxembourg company is not subject to withholding tax if paid to:
• a foreign company; or
• a person not resident in a European Com¬munity country.
Interest paid to a private individual resident in Luxembourg is subject to a withholding and final taxation of 10% and a private individual resident in a European Community country is subject to a withholding tax of 20% (35% from 2011).
TAXATION OF LUXEMBOURG COMPANIES
ROYALTY WITHHOLDING TAX
There is no withholding tax on royalties paid by a Luxembourg company except payments to artists and sportsmen for performances exercised in Luxembourg.
PARTICIPATION EXEMPTION
Dividends Received and Capital Gains are tax exempt where a Luxembourg company, partnership, branch or permanent establishment of a company resident in a European Union country, or resident in a country with which Luxembourg has a double tax treaty, owns a qualifying participation in a subsidiary.
QUALIFYING PARTICIPATION
For DIVIDEND EXEMPTION is:
A participation which costs at least EUR 1.2 million, or which represents 10% or more of the share capital in a subsidiary held, or which is intended to be held, for an uninterrupted period of at least 12 months.
For CAPITAL GAINS EXEMPTION is:
A participation which costs at least EUR 6 million, or which represents 10% or more of the share capital in a subsidiary held, or which is intended to be held, for an uninterrupted period of at least 12 months.
The subsidiary must be a company resident in the European Community, or resident in a country with which Luxembourg has a double tax treaty or be subject to a corporate tax rate of at least half the Luxembourg rate (i.e. 10.5%).
DOUBLE TAX TREATY NETWORK
Luxembourg has signed double tax treaty agreements with the following 57 countries :
Austria, Azerbaijan, Belgium, Brazil, Bulgaria, Canada, China, Czech Rep., Denmark, Estonia, Finland, France, Germany, Georgia, Greece, Holland, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Malaysia, Malta, Mauritius, Mexico, Moldavia, Mongolia, Morocco, Norway, Poland, Portugal, Rumania, Russia, San Marino, Singapore, Slovak Rep., Slovenia, South Africa, Spain, Sweden, Switzerland
SPF (PRIVATE PORTFOLIO MANAGEMENT COMPANY)
A n SPF is a tax free company that can be used by one or more high net worth individuals to hold and manage their personal private portfolio of investments and cash.
• An SPF cannot perform any trading or commercial activity or earn fees of any kind and it cannot hold real estate directly.
• An SPF can take the form of an SA, SARL and SCA, and its minimum share capital depends on its corporate form.
• The shareholders must be individuals.
• There is no debt:equity ratio applicable.
• An SPF is exempt from company and wealth taxes if less than 5% of its dividend income, capital gains, interest and royalty income is received from companies subject to company tax of greater than 10.5% and as such is not protected by European Union Directives or double tax treaties.
• An SPF pays a subscription tax of 0.25% per annum on its net assets with a maximum of EUR 125,000 per year.
• Dividend, interest and royalty income paid to an SPF may be subject to withholding taxes at source, in accordance with the tax rules of the source country.
• No withholding taxes are imposed on dividends, interest and royalties distributed to shareholders.
A SOPARFI is a fully taxable parent company whose primary activity is to hold participations in any other company in the world.
• It can also trade, perform a commercial activity, borrow and lend money and hold licences and collect royalty income.
• A SOPARFI can take the form of an SA, SARL, SCA or SC and its minimum share capital is dependent on its corporate form.
• The shareholders can be companies or individuals resident anywhere.
• A debt:equity ratio of 15:85 is normally applicable but a ratio of 1:99 can be achieved
• The SOPARFI is subject to company tax at 28.59%, and wealth taxes of 0.5% of net assets and as such is protected by double tax treaties and European Directives. However, qualifying shareholdings and related debt are excluded from wealth tax and dividends and capital gains received by a SOPARFI are tax exempt if received from companies that fall under the participation exemption.
• Royalty income and interest income can be subject to special tax treatment.
• Dividend, interest and royalty income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
•Dividends, interest or royalties paid to a European Union registered company are not subject to withholding tax. Individual shareholders or non-EU registered companies are subject to 15% or the reduced double tax treaty rate of withholding tax.
ROYCO (ROYALTY COMPANY)
A ROYCO legally or only economically owns, licences in or receives a contribution in kind for shares, a patent, design, model, domain name or a software copyright, and licences the usage rights to any other company in the world for royalties.
• It can also trade, perform a commercial activity, borrow and lend money and hold participations in other companies.
• A ROYCO can take the form of an SA, SARL, SCA or SC and its minimum share capital depends on its corporate form.
• The shareholders can be companies or individuals resident anywhere.
• There is no debt:equity ratio applicable.
• The ROYCO is subject to company tax at 28.59%, and wealth taxes of 0.5% of net assets and as such is protected by double tax treaties and European Union Directives. However, 80% of the royalties received and capital gains made from the sale of IP are tax exempt resulting in an effective tax rate of 5.72%. Use of certain financial instruments and an advance agreement may reduce the effective tax rate further.
• Dividends, interest and capital gains received can be subject to special tax treatment.
• Dividend, interest and royalty income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends, interest or royalties paid to a European Union registered company are not subject to withholding tax. Individual shareholders or non-EU registered companies are subject to 15% or the reduced double tax treaty rate of withholding tax.
FINCO (FINANCING COMPANY)
A Luxembourg FINCO borrows money from its parent company and provides a loan to its subsidiary company.
• It can also trade, perform a commercial activity, collect royalties, borrow and lend money and hold participations in other companies.
• A FINCO can take the form of an SA, SARL, SCA or SC and its minimum share capital depends on its corporate form.
• There is no debt:equity ratio applicable.
• The shareholders can be companies or individuals resident anywhere.
• The FINCO is subject to company tax at 28.59%, and wealth taxes of 0.5% of net assets and as such is protected by double tax treaties and European Union Directives. However, interest margins from 0.25% to 0.125% can be agreed. Specific hybrid instruments such as a profit participating loan (PPL) or preferred equity certificates (PECS) together with an advance agreement can be used to reduce the effective tax rate.
• Dividends, interests and royalties and capital gains can be subject to special tax treatment.
• Dividend, interest and royalty income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends, interest or royalties paid to a European Union registered company are not subject to withholding tax. Individual shareholders or non-EU registered companies are subject to 15% or the reduced double tax treaty rate of withholding tax.
PROPCO (COMPANY OWNING REAL ESTATE)
A PROPCO owns property located outside Luxembourg or owns subsidiaries that own real estate.
• It can also trade, perform a commercial activity, collect royalties, borrow and lend money and hold participations in other companies.
• A PROPCO can take the form of an SA, SARL, SCA or SC and its minimum share capital depends on its corporate form.
• The shareholders can be companies or individuals resident anywhere.
• There is no debt:equity ratio applicable.
• The PROPCO is subject to company tax at 28.59%, and wealth taxes of 0.5% of net assets and as such is protected by double tax treaty and European Union Directives. However, foreign property and related debt are excluded from wealth tax and rental profits and capital gains on the sale of property are not subject to taxation in Luxembourg if the property is located outside Luxembourg. Capital gains on the sale of shares in and dividends received from a property owning subsidiaries are tax exempt.
• Interest, royalties, dividends and capital gains can be subject to special tax treatment.
• Dividend, interest and royalty income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends, interest or royalties paid to a European Union registered company are not subject to withholding tax. Individual shareholders or non-EU registered companies are subject to 15% or the reduced double tax treaty rate of withholding tax.
BRANCH (BRANCH OF NON-RESIDENT COMPANY)
A BRANCH is not a corporate entity separate from its parent company, but can carry out all types of activity.
• It can trade, perform commercial activities, collect royalties, borrow and lend money and hold participations in other companies.
• The BRANCH does not have its own share¬holders as it forms part of the parent com¬pany.
• There is no debt:equity ratio applicable.
• The BRANCH is subject to company tax at 28.59%, and wealth taxes of 0.5% of net assets, dividends and capital gains received are tax exempt, if re¬ceived from companies that fall under the partici¬pation exemption. Also, qualifying shareholdings and related debt are excluded from wealth tax.
• Royalty and interest income can be subject to special tax treatment.
• Dividends, interest and royalty income re¬ceived are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the double tax treaties applicable to the parent company.
• BRANCH profits paid to the parent company and interest or royalties paid are not subject to withholding tax.
SHIPCO (SHIPPING COMPANY)
• A SHIPCO buys and sells, charters in and out or manages yachts and ships. It can also perform financial and commercial operations that relate directly or indirectly to the above mentioned activities, collect royalties, borrow and lend money and hold participations in other companies.
• A SHIPCO can take the form of an SA or SARL and its minimum capital depends on its corporate form.
• The shareholders can be companies or individuals resident anywhere.
• There is no debt:equity ratio applicable.
• The Captain of the Ship must be a European Union citizen and the officers and ratings must have a certificate of competency.
• The SHIPCO is subject to company tax at 21.84% and wealth taxes of 0.5%. As such the company is protected by double tax treaties and European Union Directives. No municipal taxes are due. Reducing Balance depreciation at 25% produces large tax losses which can be carried forward indefinitely and investment tax credits of 14% of the cost of the vessel can be carried forward for 10 years. Wealth taxes of 0.5% of net assets are payable. Capital gains generated by shipping companies on the disposal of a vessel held for at least 5 years may benefit from an unlimited tax deferral provided that the sale proceeds are fully reinvested within 2 years in a long-term asset. Provisions for large scale repairs can reduce company taxation and reduce wealth tax.
• Supplies of goods and services to transport, industrial and commercial seagoing vessels are exempt from VAT. Seamen's wages are taxed at 10% of 90% of the gross wage less € 1,800. This is a final tax. They must also be registered for Luxembourg or their home country social security or a private health insurance.
• Dividends, interest, royalty and capital gains income can be subject to special tax treatment.
• Dividend, interest and royalty income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends, interest or royalties paid to a European Union registered company are not subject to withholding tax. Individual shareholders or non-EU registered companies are subject to 15% or the reduced double tax treaty rate of withholding tax.
SV (SECURITISATION VEHICLE)
An originator sells and transfers the risk of any type of asset to an SV. The SV issues shares and/or bonds to investors by private placement or public offering and the cash flows generated by the assets serve to pay the investors. There is no risk diversification requirement.
• An SV can take the form of an SA, SCA, SARL, SCSA or as a transparent fiduciary contract or co-ownership. The share capital of an SV depends on its corporate form. Multiple compartments may be created which are linked to different classes of shares providing protection to the shareholders in the event of bankruptcy.
• The shareholders can be companies or individuals resident anywhere.
• There is no debt:equity ratio applicable.
• An SV is not subject to authorisation and supervision by the Luxembourg Financial Regulator (CSSF) unless it issues shares to the public more than 3 times a year.
• An SV does not require a depositary bank, administrative agent and independent auditor unless CSSF supervision applies.
• The SV is subject to company tax at 28.59% and as such the company is protected by double tax treaties and European Union Directives. However all payments made by the company to the shareholders such as dividends and interest are deductible from the tax base. An SV is exempt from wealth tax. A one time capital duty of € 1,250 is payable.
• Management services rendered to an SV are exempt from VAT.
• Dividend and interest income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends and interest paid to a company or individual are not subject to withholding tax.
SIF (SPECIALISED INVESTMENT FUND)
The SIF can invest in all types of securities such as equities, funds, derivatives, bonds, certificates, private equity, company takeovers, cash, and currencies, funds of funds, real estate, foreign exchange and precious metals with diversification requirements set up by the founders.
• A SIF can take the form of an SA, SCA, SARL, SCSA or a transparent FCP. The minimum share capital of a SIF depends on its corporate form and can be fixed or variable. Subscribed share capital must reach EUR 1.25 million within 12 months of approval. Multiple compartments may be created which are linked to different classes of shares providing protection to the shareholders in the event of bankruptcy.
• The shareholders must be institutional investors, professionals or well informed investors who make an investment of
EUR 125,000 or more.
• A SIF is subject to authorisation and supervision by the Luxembourg Financial Regulator (CSSF) and can operate before authorisation as long as the documents are submitted within one month. It does not need a promoter and the directors need no specific qualifications but must prove good reputation and professional experience.
• A SIF needs to have its central administration, a depositary bank, and independent auditor in Luxembourg and value its assets at fair market value. A SIF must produce at least one net asset calculation per annum and issue an annual report within 6 months of closing its financial year. No long form report is required.
A SIF is not subject to company tax or wealth tax and as such is not protected by double tax treaties and European Union Directives. A SIF pays a subscription tax of 0.01% on the net asset value and a one-time capital duty of EUR 1,250. Management services rendered to a SIF are exempt from VAT.
• Dividend and interest income received are not protected by double tax treaties or the European Directives and may therefore be subject to withholding tax. Dividends or interest paid to a company or individual are not subject to withholding tax.
SICAR (INVESTMENT COMPANY IN RISK CAPITAL)
A SICAR may invest in all types of private equity or venture capital investments which are considered risky. This is defined as "a direct or indirect contribution of fund for start-ups, further development or listing on a stock exchange". No risk diversification is required.
• A SICAR is subject to authorisation and supervision by the Luxembourg Financial regulator (CSSF).It does not need a promoter and the directors need no specific qualifications, but must prove good reputation and professional experience.
• A SICAR can take the form of an SA, SARL, SCA, SCSA, or a transparent SCS. The minimum share capital of a SICAR depends on its corporate structure and can be fixed or variable. Subscribed share capital must reach EUR 1 million within 12 months from approval. Multiple compartments may be created which are linked to different classes of shares providing protection to the shareholders in the event of bankruptcy.
• The unitholders must be institutional investors, professionals or well informed investors who make an investment of EUR 125,000 or more. A SICAR needs to have its central administration, a depositary bank, and independent auditor in Luxembourg.
• A SICAR must produce at least one net asset calculation per annum and issue an annual report within 6 months of closing its financial year. No long form report is required.
• The SICAR is subject to corporate tax at 28.59%, and as such the company is protected by double tax treaties and European Union Directives. However, all dividends, interest and capital gains deriving from transferable securities and cash held for investment are exempt from tax. A SICAR is exempt from wealth tax. A one-time capital duty of € 1,250 is payable. Management services rendered to a SICAR are exempt from VAT.
• Dividend and interest income received are exempt from withholding tax if received from European Union registered companies or subject to withholding taxes at source at reduced rates in accordance with the applicable double tax treaties.
• Dividends and interest paid to a company or individual are not subject to withholding tax.
The HT Group : About Us
Established in Luxembourg since 1992, HT Group, an internationally known firm of Chartered Accountants, Expert Comptables and Réviseur d'Entreprises offer our clients, through our group companies, a comprehensive service package including international tax planning, company formation, accounting, tax compliance and auditing services needed to make running your business in Europe a profitable and enjoyable experience.
We understand your different needs and objectives during the life cycle of your business, whether you are creating a new structure or you already have a well established and fully functioning organisation. Our team of tax advisers can show you the most efficient way of setting up your activities to take advantage of the double tax treaties and European Directives which exist today. We closely follow developments in Europe and will advise you on the basis of the very latest tax legislation.
We have a multi-lingual, dedicated client-services team and frequently deliver trans-national solutions as a result of our membership of a global association of independent accounting firms.
We are part of AGN which is an association of independent accounting companies spread all over the globe. We can help you wherever and whenever you need.
WE SERVICE THE FOLLOWING CLIENTS:
• Banks and other financial institutions
• Investment managers and funds
• Real Estate companies
• International public companies
• Private corporate structures
• One person businesses
• Individuals needing tax advice
OUR GROUP COMPANIES
Company and Accounting Services
• Company formation, corporate structures, business consulting, full company secretarial services, provision of registered office, nominee services, banking contacts and services, bookkeeping, budgeting, financial planning and preparation of financial statements.
Tax and Salary Services
• We can look after all your tax requirements in Luxembourg and through AGN, anywhere in the world. We have specialists in all areas of Luxembourg taxation including corporate tax, value added tax, personal tax and salary calculations and have extensive experience in negotiating advance tax agreements with the Luxembourg tax administration.
International Audit Services
• We are fully qualified and recognised Luxembourg Auditors and Chartered Accountants who may carry out all audit engagements such as financial audits, contributions in kind valuations and are authorised by the CSSF to audit professionals of the financial sector and investment companies.