About the Luxembourg Office
Bordered by France, Germany and Belgium, and home to several European Union institutions, Luxembourg is recognized as an excellent jurisdiction for international tax planning and financial structures. A Luxembourg participation company or société de participations financières (SOPARFI) can receive tax-free dividends and capital gains, obtain tax deductions for capital losses and benefit from an exemption on net wealth tax. This type of company has full access to the many double income taxation agreements to which Luxembourg is a partner.

Taxation
The structures outlined below are usually set up with a SOPARFI, which is a normally taxable company subject to income taxes but exempt from dividends and capital gains, provided certain conditions are met. There is no withholding tax on the distribution of liquidation proceeds. A SOPARFI can conduct all types of holding, financial and licensing activities. Furthermore, a SOPARFI can hold, directly or indirectly, real estate.

Holding Company
A SOPARFI is mainly used as a holding company to operate as principal European holding company or for holding private equity investments. The SOPARFI is an effective and efficient investment vehicle for holding qualified financial investments and private equity investments. This is a result of the interesting tax optimization possibilities for inbound and outbound investments, and no risk spreading requirements and no restrictions to any specific type of investments.

SICAR
The SICAR was introduced in 2004, for private equity and venture capital investments. The SICAR is a normally taxable company that is subject to income taxes. However, there is an exemption on profits derived from risk capital investments and funds to be invested within 12 months in risk capital investments. There is no withholding tax on dividend distributions and on liquidation proceeds. The SICAR is designed for private equity and investments as it aims at the direct contribution of assets to companies in view of their launch, development of listing on a stock exchange without being subject to risk spreading requirements. The SICAR is accessible to eligible investors. From set-up to liquidation, SICARs are subject to permanent supervision of the CSSF (Commission de Surveillance du Secteur Financier).

Finance Company
There is no withholding tax on interest payments from Luxembourg to companies. As such, it is often an ideal location for structured financing whether involving intra-group financing, bond issuances, securitization or factoring activities.

Securitization/Repackaging
A special regime for securitization undertakings exists in Luxembourg. Securitization is the conversion into securities of certain assets that are not securities. Repackaging is the transformation of existing securities into securities with different characteristics (e.g., a different interest rate or a different currency). The main benefit to the seller of securitizations is that certain assets (e.g., trade receivables, mortgages, credit card loans) that bear risks can be sold in return for cash.

License Company
Licensing and sublicensing structures can be established with a SOPARFI. Royalty income streams received can be offset by the royalty expense, leaving an arm's length remuneration for the company's activity.
In 2007, Luxembourg introduced the IP regime (Luxembourg IP regime). This provides for an 80% tax exemption of income derived from intellectual property (IP) as well as capital gains realized on the disposal of such intellectual property. The aim of this law is to encourage companies to invest more in research and development and will increase the attractiveness of Luxembourg for the holding of intellectual property.

Foreign Branch Structures
Luxembourg often provides full exemption from local income tax for foreign permanent establishments (branch operations). A branch is often an ideal way to establish activities through Luxembourg at a minimum of cost and limited tax exposure.

Real Estate
SOPARFIs can be used for real estate investments in other countries, either indirectly through a local company or directly held by the SOPARFI.

Private Wealth Management Company
Luxembourg introduced the private wealth management company in 2007 to provide a dedicated vehicle for the management of private wealth on behalf of individuals. Its only purpose is to acquire, hold, manage and sell financial assets. It is not allowed to undertake any commercial activity.

The private wealth management company is designed as an investment company intended solely for individuals managing their private wealth. The term “family wealth” should be understood in the sense of the “private wealth of individuals”. The law does not require a family link between the various shareholders.

The SPF provides individuals with a vehicle for managing their wealth that is simple, flexible and complies with EU criteria.

Exit Strategy
Luxembourg generally levies a 15% withholding tax on income from movable capital (e.g., dividends) distributed by a Luxembourg company. However, no tax is levied on liquidation distributions as they are considered to be capital gains. Therefore, a liquidation scenario is commonly used to provide a tax-free exit from Luxembourg.

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