The SOPARFI (Société de Participations Financières) is not a special type of company but an ordinary commercial entity governed by common law, specifically the 1915 Law on commercial companies. It does not enjoy any special tax regime and is fully taxable. There are no restraints on its field of activity.
A Soparfi can, however, significantly reduce its tax burden by limiting its activity to holding investments and structuring these so that it can benefit from the rules in the EU Directive on the tax regime applicable to Parent-Subsidiary companies. This regime notably allows, under well-defined conditions, a tax exemption on dividends paid by companies in which the parent company has a holding and on capital gains on the sale of its holdings.
By contrast, all commercial activity undertaken by a Soparfi is subject to corporation income tax and VAT. Since the Soparfi is liable to tax like any other commercial company, it benefits from double tax treaties agreed by Luxembourg.
The Soparfi is not regulated or supervised by the CSSF.
These characteristics make the Soparfi an interesting vehicle for managing holdings in a group of businesses. It is also the preferred vehicle for financing and holding venture capital and private equity investments.
- SOPARFIs are subject to the Luxembourg standard companies’ tax regime.
- They benefit from double tax treaties, signed between Luxembourg and many countries (see the heading: tax treaties).
- Provided certain conditions are adhered to (see chapter: ’SOPARFI tax treatment’ below), the dividends and capital gains from these holdings are excluded from the tax base.
- SOPARFIs qualify for the European “parent-subsidiary” treatment (see the heading: European parent-subsidiary Directive) which means they do not have to deduct tax at source on dividends that they distribute to those shareholders that are European companies. Similarly, dividends paid to SOPARFIs by their European subsidiaries are exempted from deduction at source in their country of origin.
- A SOPARFI, in the form of an SA [Société Anonyme, Luxembourg public company] may be formed with shares that are individually registered or held by nominees (which can be transferred without public disclosure).
- SOPARFIs can hold all types of real estate, directly or indirectly, in Luxembourg or abroad.
- SOPARFIs can hold intellectual property rights (brands, patents, copyrights, designs, software and web domain names).