Luxembourg: Family estate planning

Author: | Published: 1 Jul 2008
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The Luxembourg law of May 14 2007 (the SPF Law) has introduced a new tax-efficient vehicle for the management of private assets: the société de gestion de patrimoine familial (SPF). The SPF can somehow be considered as the successor of the well-known Holding 29, the tax-exempt company Luxembourg introduced in 1929.

Legal regime

The SPF takes the legal form of either a société à responsabilité limitée (private limited liability company), a société anonyme (public limited liability company), a société en commandite par actions (corporate partnership limited by shares) or a société coopérative organisée sous forme d'une société anonyme (co-operative society organised as a public limited liability company).

The articles of association of the SPF have to state explicitly that the company is subject to the provisions of the SPF Law, and after the legal form of the entity, société de gestion de patrimoine familial, or in short, SPF, is to be mentioned.

The corporate object of the SPF is exclusively the acquisition, holding, management and disposal of :

i) Financial assets (as defined in the Luxembourg law of August 5 2005 on financial collateral arrangements) – that is, securities in the broadest sense, including options, derivatives and structured financial products,

ii) Cash (including foreign currencies), and for

iii) Other assets (for example, precious metals) held in an account with a professional financial service provider.

An SPF is not allowed to perform commercial activities, such as trading in financial instruments, or financial services (as such, an SPF falls out of the scope of the EC state aid rules). An SPF cannot directly hold real estate. Nevertheless, holding real estate indirectly, through its subsidiaries, is allowed. Although an SPF is allowed to hold shares in other companies (even majority shareholdings), it should, however, limit its involvement in any such companies to the exercise of its shareholder rights (voting rights, right to receive dividends). The SPF may not (i) be actively involved in the management of a company or (ii) render services of whatever nature. An SPF is not allowed to grant interest-bearing loans, even to subsidiaries (to a limited extent it may grant interest free advance payments to subsidiaries).

Shares in an SPF are reserved to individuals in the scope of management of their own assets, estate entities acting for the exclusive benefit of private assets of one or more individuals (for example, trusts, foundations, and stichting administratiekantoors), and intermediaries acting on behalf of such individuals or estate entities (through for example, a fiduciary agreement). Shares in an SPF may not be listed on a stock exchange or offered to the public.

Tax regime

The main characteristics of the SPF from a tax perspective are the following:

  • The SPF is exempt from corporate income tax, municipal tax and net wealth tax. However such an exemption will not apply for the fiscal year during which the SPF receives more than 5% of its total dividends from participations in non-resident and non-listed companies that are not subject to a tax equivalent to the Luxembourg corporate income tax (that is, an effective corporate income tax rate of at least 11% for a comparable taxable basis).
  • The SPF is subject to a yearly capped subscription of 0.25%, levied with a minimum of e100 ($155) and a maximum of e125,000 per year, computed on the amount of paid-up share capital, share premiums and debts higher than eight times the paid up share capital plus share premiums.
  • Interest paid by the SPF is subject to a final withholding tax of 10% (if paid to individuals resident in Luxembourg). Interest paid to individuals resident in an EU member state may be subject to the withholding tax under the Council Directive 2003/48/EC on taxation of savings income in the form of interests payments (the EC Savings Directive), unless the name, address and the amount of interest is disclosed to the Luxembourg tax authorities.
  • Dividends paid by the SPF are not subject to withholding tax. Non-residents will not be subject to capital gains taxation in Luxembourg upon the sale of their interest in the SPF.
  • Capital contributions to the SPF are subject to capital duty (at a rate of 0.5%), unless an exemption applies. It is however contemplated that the capital duty shall be abolished effective as of 2009.
  • However the SPF cannot benefit from double tax treaties concluded by Luxembourg.

An SPF is subject to the control of the Administration de l'Enregistrement et des Domaines (the administration for registrations and state property). Each year, the domiciliation agent, or, by default, the auditor or the chartered accountant of the SPF, has to certify to the Administration de l'Enregistrement et des Domaines:

  • That the SPF has fulfilled its obligations as paying agent under the EC Savings Directive,
  • That the conditions pertaining to the capacity of the investors in the SPF are fulfilled, and
  • That the SPF did not receive more than 5% of its dividends from non-qualifying participations.

About the firm

Loyens & Loeff Luxembourg is an integrated tax and corporate law practice, which comprises more than 115 fee-earners and offers corporate and tax services on a fully integrated basis. Loyens & Loeff Luxembourg handles all matters relating to corporate and commercial law, real estate, investment funds, private equity and venture capital, mergers and acquisitions, banking and financial law, and tax law.

Loyens & Loeff Luxembourg is affiliated with Loyens & Loeff, which has more than 800 fee-earners in 18 offices in the Benelux and the main financial centres of the world.


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