The Grand-Duchy of Luxembourg offers a particularly attractive legal framework for natural persons wanting to hand over the management of all or part of their private assets to a company specifically set up for this purpose - a private asset management company or SPF.

Under certain conditions, the SPF benefits from overall tax exemption on its income and assets. It is thus designed as a vehicle for the private management of financial assets, allowing capital gains to be reinvested, reducing the tax burden, and enabling long-term investment planning.


What is the company purpose of an SPF?

  • An SPF is a traditional Luxembourg capital company, though benefiting from tax exemption under certain conditions.
  • An SPF may take the form of a public limited company / société anonyme (SA), a limited liability company / société à responsabilité limitée (Sàrl), a partnership limited by shares / société en commandite par actions (SCA)  or a cooperative / société coopérative set up as an SA. This results in limited liability being guaranteed to contributions, in turn providing a certain amount of stability in the management of a vehicle with the purpose of investing via the provision of loans.
  • An SPF has a sole company purpose: acquiring, holding, managing and creating financial assets, excluding all commercial activities, any direct holding of property or intellectual property rights.
  • Set up for the purpose of private asset management, a SPF is not bound by any preconceived form of asset management. It can thus dispense with any risk distribution principle imposed on investment companies (OPC).

How is an SPF managed?

  • As the corporate governance of an SPF can take different forms, the management structure (board of directors, managing director) varies.
  • When set up as an SA, an SPF will be managed by a board of directors consisting of at least three members. These can be either physical or legal persons, domiciled in Luxembourg or not.
  • In the case of a single shareholder holding all SPF shares, having just one director is however a potential option.

How is an SPF taxed?

  • An SPF benefits from different tax exemptions on its income and assets.
  • It is subject to capital duty (droit d’apport) at the rate of 0.5% on the capital paid in on establishment and on the occasion of any subsequent capital increases (possibilities of reducing this rate and/or gaining exemption do exist - contact us for advice).
  • An SPF is subject to an annual subscription tax (taxe d’abonnement) of 0.25% calculated on the basis of the paid up company capital plus issue premiums and debts exceeding an amount equal to eight times the sum of the capital and the above-mentioned premiums. The minimum annual amount of this tax is €100, while there is a ceiling of €125,000.
  • An SPF benefits neither from double taxation treaties signed by Luxembourg nor from the Parent-Subsidiary Directive (Directive 90/435/EEC).

Which tax exemptions are available to an SPF?

1) Exemption of income from dividends

An SPF can benefit from an exemption on its income from dividends from any company domiciled in an EU Member State, whether quoted or not.

As regards dividends from companies based outside the EU, these may also be exempted provided they come from companies subject to an income tax rate higher or equal to 11%, or that less than 5% of the total dividends received by the SPF are from companies subject to a tax rate lower than 11%. In this matter, the tax authorities check both the taxable base and the rate of taxation

2) General exemption on capital gains from shares.

3) Exemption from wealth tax.


Special features

To benefit from these various exemptions, the SPF must not interfere in the management of the companies in which it invests. It must not therefore act as a director or an administrator responsible for the company's day-to-day management. However, there is nothing against SPF shareholders themselves exercising such a function in companies in which the SPF has a holding.

A number of formalities need to be fulfilled on a quarterly and annual basis in order to continue benefiting from this advantageous tax regime.

Is income paid by the SPF taxed ate source?

  • There is no withholding tax on the dividends paid.
  • There is no withholding tax on distributed liquidation proceeds.
  • Interest paid to Luxembourg residents is taxed at source (at a rate of 10%).
  • Interest paid to non-residents is taxed at source
  • Bonuses paid to members of the board of directors are taxed at source (20%).
  • Salaries paid to employees or managers are taxed at source (0 - 38%).

Income received by an SPF may however be subject to any withholding tax levied under the national legislation of the State(s) in which the SPF has invested.

 

What is the financial situation of beneficiaries receiving income from the SPF?

1) Taxation of Luxembourg residents

  • Exemption of non-speculative capital gains (income from sale or liquidation more than 6 months after acquisition) and smaller holdings (up to 10% of a company's capital).
  • On a sliding scale (0 - 38%) for dividends and speculative capital gains.
  • At half-rate for non-speculative capital gains on major holdings (>10% of capital).

2) Taxation of non-residents on their income under the national legislation of their country of residence.