What is a SOPARFI?
A SOciéte de PARticipations FInancières (or short: SOPARFI) is a financial holding company in Luxembourg.
The corporate purpose of the SOPARFI is to hold and manage financial participations in other undertakings. The SOPARFI can be established in various legal forms, depending on the needs of the investors, the management of the company, listing requirements or the transferability of the shares.
Due to its flexible financing policy, its structural benefits, its lack of investment restrictions and its advantage in accessing treaty benefits, the SOPARFI has taken on a central role in the structuring of cross-border transactions around the world and is used by multinational corporations, sovereign wealth funds, investment funds, as well as family offices.
The SOPARFI is a fully taxable entity and can therefore benefit from tax treaty benefits. The benefits of the SOPARFI are that its effective tax base can however be reduced via several tax incentives, such as the participation exemption on dividends, capital gains and wealth tax and a withholding tax exemption on dividends paid to qualifying shareholders, no withholding tax on interest payments or on payments following a liquidation. All exemptions are however subject to fulfilling certain holding periods and criteria.
The SOPARFI can be set up in various legal form, but is typically established in one of the three following forms:
(i.)Public limited company (S.A.)
(ii.)Private limited liability company (S.à r.l.)
(iii.)Partnership limited by shares (S.C.A.)
Why establish a SOPARFI?
Luxembourg is one of the most established and trusted domiciles for financial holding companies. This has been also due to the application of the EU Parent-Subsidiary Directive, giving Luxembourg a competitive advantage over offshore jurisdictions, such as Cayman, BVI or Jersey.
Setting up a holding company in a jurisdiction such as Luxembourg can have multiple advantages over holding a company participation directly or in an offshore jurisdiction, such as the Cayman Islands or the BVIs:
1. Luxembourg has entered into 82 double tax avoidance treaties (DTTs), giving you certainty on the fiscal treatment of your investment (for up-to-date details, please see https://impotsdirects.public.lu/fr/conventions/luxembourg.html)
2. Luxembourg has entered into bilateral investment protection treaties (BITs) that can provide you with an additional tool to protect your underlying assets.
3. Holding an investment through a holding company, provides you with the option to exit your participation, by selling either the shares or the underlying asset. Luxembourg provides a well established route for exiting investments in a favorable manner.
4. A holding company established in Luxembourg has access to the EU Parent-Subsidiary Directive.
5. Luxembourg is a multilingual country. The articles of incorporation and corporate documents are typically prepared in either English, French or German. This can be of use when the investment is in neighbouring jurisdictions, such as Germany, France, Switzerland, Belgium or Austria.
6. Luxembourg has an effective tax system that is fully compliant with EU and OECD standards.
7. Luxembourg offers a well-established attractive legal and tax framework.
8. Luxembourg has the lowest VAT rate within the EU.
Which assets can be held by a SOPARFI?
A SOPARFI has no investment restrictions or risk-spreading requirements and may typically invest into the following asset classes anywhere in the world:
(i.)Any type of securities (e.g.: shares, stocks or bonds)
(iii.)Cash, currencies or commodities
(iv.)Loans or distressed assets
(v.)Material or immaterial assets
The corporate purpose of a SOPARFI is usually limited to holding financial participations, to receiving and granting loans to subsidiaries and group entities, or to provide management services to controlled subsidiaries. SOPARFI acting within their scope of activity do not require the approval of any supervisory authority.
Are there investor restrictions for a SOPARFI?
There are no restrictions on the eligibility of investors in a SOPARFI and shareholders/investors do not need to be sophisticated to be able to invest into a SOPARFI. They can thus be institutional, investment funds, natural persons, companies, trusts or foundations, or other SOPARFIs.
The S.A. and the S.C.A. can have unlimited number of shareholders or investors, the S.àr.l. is limited to a maximum of 100 shareholders. The S.C.A. has to be incorporated by a minimum of two, being the limited partner and the general partner. The S.A. can be incorporated by only one shareholder.
What are the main steps for the incorporation of SOPARFI?
- Opening of a bank account to deposit the share capital
- Transfer of the share capital (The minimum share capital for the S.A. and the S.C.A. is: €30,000 and for an S.à r.l. is €12,000)
- Selecting a name for the holding company
- Deciding on the corporate form
- Preparation of articles of incorporation
- Proxy by the shareholder to incorporate the company (no physical presence required for the incorporation)
- Blocking notice to be issued by the bank
- Appointment with the notary in Luxembourg
Following the appointment with the notary, the company is duly incorporated and has legal personality. Following the incorporation the company is registered with the Luxembourg Trade and Companies’ Register.
What service providers does a holding company have to appoint?
A SOPARFI needs to have a registered address in Luxembourg and should operate for substance purposes in such a way that it cannot be considered as tax resident in jurisdictions where investors or investments are located. The registered address is regularly provided by a domiciliation agent.
Tax treaty access may require additional substance in Luxembourg, but this will highly depend on the investment or the investor jurisdiction and the transactions entered into with the SOPARFI.
A company’s annual accounts must also in general be subject to an audit performed by a statutory auditor (Réviseur d’entreprise agrée).
There is no legal requirement in Luxembourg to have a resident director/manager, although this might be required for substance purposes.
How long does it take to set up in Luxembourg?
A SOPARFI is an unregulated holding vehicle without the need for any regulatory approvals, provided it does not engage in any activities that require a commercial license or financial supervision.
Once a bank account is available to deposit the share capital, the SOPARFI can be incorporated. The incorporation can thus be finalized within 2-3 days after the opening of the bank account. Upon incorporation before a notary the SOPARFI has legal personality and can enter immediately into legally binding agreements.
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