LUXEMBOURG
If you don't yet know what a SOPARFI is, just read on and find out...
The SOPARFI (abbreviation of the French term Société de participations financières) is a Luxembourg resident fully taxable company limited by shares which may be incorporated under the legal form of a Luxembourg SA, Luxembourg SARL, or a Luxembourg SCA (Partnership Limited by Shares). However, in practice, the SOPARFI is generally incorporated in the form of a Luxembourg SA due to its operating flexibility.
The SOPARFI is recognized by international investors as being a flexible investment vehicle which allows a wide range of activities within an attractive tax environment.
The SOPARFI is subject to legal requirements as laid down in the Law of 21 June 2005, which contain an amendment of article 1 of the modified Law of 31 July 1929 relating to the tax system of the SOPARFI.
Since the SOPARFI is governed by Luxembourg law, its central administration must be situated in Luxembourg.
It can take advantage of Luxembourg’s network of Double Taxation Conventions and of the European Parent-Subsidiary Directive.
A SOPARFI is considered ‘pure’ when it only holds participations in Luxembourg or foreign companies without carrying out any commercial activity. However, it can also perform activities such as management of its investments, financing, owning real estate or real commercial and industrial activity subject to VAT. This is called a mixed holding.
Dividends received by the SOPARFI are tax exempt under the following conditions
- the SOPARFI must own a minimum of 10% of the share capital of the subsidiary or the investment must amount to at least €1.2 million.
- the subsidiary may be Luxembourg resident company or a foreign company, subject to corporate tax of at least 10.5%.
- the SOPARFI must have held or intend to hold its participation in the subsidiary for at least 12 months.
Capital gains from the sale of the participation are exempt from corporate tax if the SOPARFI held 10% or more of the share capital of the company (or invested in it more than €6 million) and the intention is to hold at least the minimum of 10% of the share capital for a period of at least 12 months.
According to Luxembourg Company law the SOPARFI is required to keep proper accounting records and to produce annual accounts. The annual accounts must include a balance sheet, a profit and loss account and notes to the accounts in the form required under Luxembourg law.