SOPARFI Financial Holding Company

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IAS FIDUCIAIRE S.À R.L.

IAS FIDUCIAIRE S.À R.L.
SOPARFI Financial Holding Company
Financial Engineering
in Luxembourg

SOPARFI - FINANCIAL HOLDING COMPANY
• General information
• Legal framework
• Tax framework
• Application

General information

Société de PARticipations Financières – Financial Holding Company
• Optimizing the administration of groups of companies
• Double tax treaties Luxemburg
• Excercise of all administrative activities associated with their investments
• With the management of the investment portfolio related activities:
e.g. provision of financial advisory services and financing activities
• All directly and indirectly related business activities
• Business permit for commercial activities

Legal Framework

• No legal definition or special legal status
• Legal forms
– Public limited company (S.A.)
– Private limited company (S.à r.l.)
– Partnership limited by shares (S.C.A.)

Société anonyme Société à responsabilité limitée
Incorporation/
Founders
The public company may be incorporated
by a single or more investors, who may be
resident or nonresident, individuals or
legal entities.
The limited liability company can be
incorporated by a single member but no more
than 40, who may be resident or nonresident
members, individuals or legal entities.
Share capital Share capital ≥ EUR 30.986,69 or the
equivalent in another nonEuro currency,
Minimum subscription 100%,
Minimum paidup : 25%,
Shares with or without par (i.e. nominal)
value,
If the shares have a par value, it may not
be lower than EUR 0,01 or the equivalent
in another nonEuro currency.
The capital ≥ EUR 12.394,68 or the equivalent in
another nonEuro currency,
Minimum subscription 100%,
Minimum paidup : 100%,
Corporate units similar to shares with a par
value of at least EUR 0,01 or the equivalent in
another nonEuro currency.

Capital
contributions
Contribution in cash or inkind:
In cash: the founders are required to
transfer on to the company’s bank account the
funds corresponding to the paidup capital. The
bank will issue a blocking certificate required by
the notary,
Inkind: subject to an opinion by a Luxembourg
independent auditor who will issue a valuation
report thereon.
Contribution in cash or inkind:
In cash: the founders are required to
transfer on to the company’s bank account
the funds corresponding to the paidup
capital. The bank will issue a blocking
certificate required by the notary,
Inkind: no legal obligation to issue an
audited valuation report but strongly
recommended by notaries.
Shares Shares in registered or bearer form. However,
from the date of incorporation until publication
date of the company’s statutes in the
Luxembourg official gazette, the shares will
remain in registered form, to be recorded in the
company’s register of shares.
The units of a limited liability company are
always in registered form.

Sociétéanonyme Sociétéà responsabilitélimitée
Managementand
SupervisoryBoard
Monisticform (Board of directors) or dualistic form consisting of a
ManagementBoard and a Supervisory Board.
The dualistic form must expressly be provided in the statutes of the
company.
A single member public company can be administeredby a single
director.
In the case of a dualistic single member company, a single director
is also possible as long as the share capital of < EUR 500.000.
In the case the company has more than one Shareholder , the
BOD/ManagementBoard must consist of at least three members.
They are elected for a term which may not exceed six years by the
general meeting of shareholders (monisticform) or by the
SupervisoryBoard (dualisticform). They can be dismissed at any
time by the general meeting of shareholders. They may be resident
or nonresident,individualsor legal entities.
The BOD/Management Board is authorized to carry out all
measures necessary or useful to achieve the Company’s objective
with the exception of powers reserved by law or by statutes to the
GeneralMeeting of shareholders or the Supervisory Board.
The company is managed by one or several managers who
need not be members, who are appointed by the general
meetingfor a limited or an unlimited period and who can be
dismissedat any time by the general meeting of members.
The activity may be performed either for remunerationor
without such.
There are no legal requirements relating to the residence or
nationalityof the managers. They may be resident or non
resident,individualsor legal entities.
The BOM is authorized to carry out all measures necessary
or useful to achieve the Company’s objective with the
exception of powers reserved by law or by statutes to the
GeneralMeeting of partners.

Audit Depending on the size of the company, it must be audited
either by a statutory auditor (small company) or by an
independent auditor (medium and large companies).
The statutory auditor may be one or several individuals or legal
entities, that may, but do(es) not need to be shareholder(s)
and who is/are appointed by the general meeting. The term of
the mandate is fixed by the general meeting of shareholders
for a period that may not exceed six years.
The statutory auditor can be dismissed at any time.
An independent auditor is required by law if 2 of the following
3 criteria are fulfilled by the company during two successive
years:
Total balance sheet sum > EUR 3,125 Mio;
Net turnover > EUR 6,25 Mio;
average number of employees > 50.
The independent auditor must be a member of the Institut des
Réviseurs d’Entreprises in Luxembourg.
If the number of partners is less than 25, a
statutory auditor is not compulsory. For companies
with more than 25 partners a statutory auditor is
mandatory.
The statutory auditor may be one or several
individuals or legal entities, that may, but do(es)
not need to be partner(s) and who is/are appointed
by the general meeting.
An independent auditor is required by law if 2 of
the following 3 criteria are fulfilled by the company
during two successive years:
Total balance sheet sum > EUR 3,125 Mio;
Net turnover > EUR 6,25 Mio;
average number of employees > 50.
The independent auditor must be a member of the
Institut des Réviseurs d’Entreprises in Luxembourg.

Annual general
meeting
Each year, at a date determined in the
statutes, the board of directors is required
to convene the shareholders to an annual
general meeting which will deliberate on the
annual accounts.
This meeting must be held within a 6 month
period after the yearend closing of the
financial year.
Within a 6 month period after the year
end closing of the financial year, the
member(s) have to approve the annual
accounts.
No precise date for the members
meeting is required by law.

• Commercial and accounting law:
– Law of 10 August 1915 concerning commercial companies
– Accounting Law of 19 December 2002
– Grand Ducal Regulation of 10 June 2009
– Accounting Law of 10 December 2010

• Tax law:
– Council Directive of 23 July 1990 on the common system of taxation applicable in the
case of parent companies and subsidiaries of different Member States 90/435/EEC
(parentsubsidiarydirective) recasted by Council Directive 2011/96/EU of 30 November
2011
– Law of 6 December 1990 and GrandDucal regulation released on 24. December 1990
relating to the exemption of dividend payments
– GrandDucal regulation released on 21 December 2001 related to the exemption of
capital gains from disposal of participations (capital gain exemption)

Tax framework

• Unlimited income tax liability
– Corporate Income Tax (CIT)
Taxable base: Result of the year (NAV closing balance./. NAV opening balance)
CIT rate: 21%,
Surcharge 5% unemployment contribution
Effective tax rate: 22,05% (2013: 22,42%)
– Municipal Business Tax (MBT)
Taxable base: Result of the year (NAV closing balance./. NAV opening balance)
Basic rate = 3%,
Municipal rate 140%-300%
Municipal rate City of Luxembourg: 225% => Effective tax rate: 6,75%

– Net Wealth Tax (NWT)
Taxable base: Net asset value at 1 January of FY (Einheitswert)
Tax rate 0,5%
Tax exemption according to Art 166 L.I.R (Income Tax Law « ITL »)
– Incorporation Tax
Taxable base: Capital contribution (in cash or in kind) to be paid at
Incorporation or capital increase
Tax rate: 0,5%,
Abolished since 1 January 2009
– Withholding tax (WHT)
In principle 15% WHT on dividend payments
Decrease possible based on DTAs
Tax exemption according to Art 166 L.I.R (ITL)

Tax exemption on dividend payments
According to Art. 166 L.I.R. dividends payed by a Luxemburg or foreign company to a Luxemburg
SOPARFI are exempt from CIT and MBT if the following conditions are met:
– Participation ≥ 10% or purchase price ≥ EUR 1.200.000
– At date of dividend payment the participation must be hold at least for 12 months
– Distributing subsidiary is
• A fully taxable corporate entity resident in Luxembourg
• A foreign fully taxable corporate entity which is subject to a foreign tax corresponding to Luxembourg
CIT (Luxembourg tax authorities generally consider a tax rate ≥ 11% as comparable)
• A company residend in an EU country outside Luxembourg applying the Council directive of 23 July
1990

Tax exemption on capital gains
The Grand-Ducal regulation of 21 December 2001 extended the application of Art 166 L.I.R.
to capital gains from disposal of participations. Capital gains from disposal of participations
are exempt from CIT and MBT if the following conditions are met:
– At date of disposal the participation must be hold at least for 12 months
– The subsidiary is a fully taxable corporate entity registered in Luxembourg or a foreign
fully taxable corporate entity which is subject to a foreign tax corresponding to
Luxembourg CIT (Luxembourg tax authorities generally consider a tax rate ≥ 11% as
comparable)

Tax exemption on NWT
The net asset value of a participation is exempt from NWT if the following conditions are met:
– The subsidiary is
• A fully taxable corporate entity resident in Luxembourg
• A foreign fully taxable corporate entity which is subject to a foreign tax corresponding to Luxembourg CIT
(Luxembourg tax authorities generally consider a tax rate ≥ 11% as comparable)
• A company residend in an EU country outside Luxembourg applying the Council directive of 23 July 1990
No holding period of participation is defined by law
If the SOPARFI financed the purchase of the participation by a loan this amount is not exempt from NWT
=> net on disposal of fixed assets approach

Thin Capitalization Rules
– No statutory role in Luxembourg tax law regarding an debt-equity ratio
– Practice: 85/15 debt-equity ratio accepted by Luxmbourg tax authorities
– Within this limit, interest on debt paid or accrued tax is exempt from withholding tax
– Should this ratio be exceeded, tax autorties may qualify a part of the shareholder’s loan as
equity. Related interest payments would then be recast as hidden dividend payment.
– No restriction of debt-equity ratio relating to liabilities to external parties

Tax exemptions in a nutshell
– Net wealth tax
– Dividend payments
– Capital gains from disposal of participation
– Witholding tax
– Liquidation proceeds

Application

Characteristics
– Unregulated Vehicle
– No investment and investors restrictions
– No risk spreading requirements
– Vehicle quickly set-up, designed for pure participation taking in qualifying subsidiaries
– Flexible financing policy (however: thin capitalization rules)
– Frequently used by PE Funds because of limited incorporation expenses and operating
costs
– Application of double tax treaties

Characteristics
– Flexible dividend distribution policy realizable by flexible financing
structuring or by implementing hybride financial
instruments/mezzanine capital
– Flexible dividend distribution by (interim) dividend payments within
the limits of Art 72-2 of Law of 10 August 1915 concerning
commercial companies

SOPARFI
Target
Example 1
Shareholders
Equity
and/or
loan
Equity
and/or
loan
•No CIT on dividends received by SOPARFI
•No WHT on interests paid by SOPARFI
•CIT on interests received but limited fiscal
impact due to financing or no impact (see
example 3)
•No CIT on capitalgains
•No WHT on liquidation proceeds
•No WHT on dividends, interests and royalties
by target company registered in the EU
•Outside EU WHT depending on DTA

SOPARFI
Target A
Target B
Target C
Target D
•No WHT on interest paid by SOPARFI
•CIT on interest received but limited fiscal
impact due to financing or no impact (see
example 3)
•No WHT on any class liquidation proceeds
Example 2
shareholders categories
Equity
a/o A B C D
loan
Equity
a/o
loan
•No WHT on dividends, interests and royalties
by target company registered in the EU

SOPARFI
Target
Example 3
Equity
and
Mezzanine
Capital
•No WHT on interest paid by SOPARFI
• No CIT on interests received
•No WHT on liquidation proceeds
•No WHT on dividends, interests and royalties by target
company registered in the EU

Recapture Rule
Purchase of a participation 100, partly funded by interestbearing loan
Writeoff of participation in FY 2010 amounting to 20
Sale of participation in FY 2011 for 130
Div Interest/writeoff. tax deductable non tax deductable
2007 5 8 3 5
2008 0 6 6 0
2009 10 4 0 4
2010 BW: 80 20 20 0
2011 VP: 130
Summe 38 29 9
Commercial balance sheet result: 130 ./. 80 = 50
Taxable result: 29 (Sum of all tax tax deductable amounts)
Tax exempt: 50 ./. 29 = 21

regulatoryframework
Investment policy
restrictive
flexible
restrictive flexible
SICAV SIF
SICAR
Securitization
SOPARFI/SPF

QUESTIONS & ANSWERS
Q&A

CONTACT US:
www.iasfid.lu
info@iasfid.lu
IAS Fiduciaire S.à r.l.
54, route de Mondorf
L-3260 Bettembourg
Tel.: + 352 275 101 40
Fax: + 352 275 101 41

SOPARFI Financial Holding Company

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