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Paul Chambers |
Samantha Nonnenkamp |
Following the repeal of the 1929 Holding Company legislation, the government has introduced a new investment vehicle for private wealth investment. The law introducing the "Société de Gestion de Patrimoine Familial" (or SPF) was passed by the parliament on April 26 2007 and published in the Luxembourg official gazette on May 14 2007.
Beside minor adjustments, the final law contains one major amendment as compared to the initial draft we described in the Luxembourg update of January 2007: the number of investors allowed is no longer limited.
What is an SPF?
The term is defined in the law as a company whose purpose is limited to the acquisition, holding, management and disposal of financial assets excluding any type of commercial activity, the shares of which are exclusively held by eligible investors and the bylaws of which make a specific reference to the present law. SPFs have to be set up under specific legal forms defined by law.
SPFs perform private wealth management activities only and any commercial activity is prohibited. The SPFs may hold financial instruments, for example, shares in companies, other securities equivalent to shares/units in companies, undertakings for collective investment, bonds and other forms of debt instruments as well as cash and assets of any kind held in a bank account. They may also hold participations in the share capital or the voting rights of other companies, but only to the extent that the SPF does not involve itself in the management. It is understood that while an SPF may not invest directly into real estate, it may acquire holdings in corporations or other non transparent entities that hold such real estate.
Who can invest in an SPF?
Eligible investors within the meaning of the draft law are:
individuals managing their private wealth, or
private wealth entities acting for one or several individuals, or
intermediaries acting on behalf of a. or b.
Private wealth entities are intended to include (but not exclusively) entities such as trusts, foundations, Stichtings or any such other type of entity.
Tax regime of SPFs
SPFs are exempt from corporate income tax, municipal business tax and net worth tax. They are also exempt from Luxembourg withholding tax on dividend distributions.
Income from financial assets is therefore exempt at the level of the SPF but will be taxed subsequently once the income is distributed to the private investor:
interest paid by the SPF on its debts towards individuals is subject either to the final 10% withholding tax for individuals resident in Luxembourg or to withholding tax under the provisions of the so called "savings directive" mainly for EU resident individuals,
dividends paid to Luxembourg shareholders (individuals) will be fully taxed in their hands.
Gains realised by non-residents upon the transfer of a participation in an SPF, either upon sale or upon liquidation of the company will not be taxed in Luxembourg.
Given its tax regime, the SPF will not be able to benefit from most double tax treaties concluded by Luxembourg.
The SPF is excluded from the exemption regime for a given financial year if 5% or more of the total dividend income it receives during that year, is derived from participations in non-resident non listed companies that are not subject to an income tax similar to Luxembourg corporate income tax (in other words subject to an effective rate of less than half the rate of the Luxembourg corporate income tax of currently 22%, making it 11%).
The SPF is subject to subscription tax at a rate of 0,25% applicable on its share capital, including any share premium. The minimum tax is EUR 100 and the maximum tax is EUR 125.000 a year. Subscription tax will also apply to the part of the debt (if any) that exceeds an equity to debt ratio of one to eight.
EU dimension
This was taken into account in the preparation of the draft law. As the SPF is a passive investment vehicle that is dedicated to the management of the private wealth of investors and that does not interfere in the management of any subsidiary that it may hold, it does not realise any economic activity and should therefore not be seen as benefiting from so called "state aid", within the meaning of article 87 of the Treaty of Rome as this article deals with aids granted to enterprises carrying on an economic activity. Recent jurisprudence of the European Court of Justice (ECJ January 10, 2006, Cassa di Risparmio di Firenze) confirms this position.
Paul Chambers (paul.chambers@atoz.lu), and Samantha Nonnenkamp (samantha.nonnenkamp@atoz.lu), Luxembourg
