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Luxembourg Unveils New Holding Company Regime

by Ulrika Lomas, Tax-News.com, Brussels

07 February 2007


It has emerged that following the termination of its 1929 holding company regime at the beginning of this year, the Luxembourg government has launched its planned replacement, known as the Family Private Assets Management Company, or SPF.

Following an EC decision that the 1929 regime, alongside several other structures, violated EC Treaty state aid rules by granting "unjustified tax advantages" to providers of certain financial services who set up holding structures in Luxembourg, the country reluctantly announced the termination of the regime on January 1, 2007, although it stated that pre-existing publicly listed companies would continue to benefit from the regime until December 31, 2010.

The 1929 regime exempted qualifying companies from corporate income tax, withholding tax on dividend payments and certain other Luxembourg taxes.

The new vehicles (subject, of course, to European Commission approval of the SPF regime) will be prohibited from commercial activity, and will be limited to private wealth management activity, for example the holding of financial instruments such as shares, bonds and other debt instruments, in addition to cash and other types of bankable asset.

A SARLs (Societe a Responsibilite Limitee) must have a minimum capital level of EUR12,500, one associate, and one director in order to participate in the new regime, and an SAs (Societe Anonyme), these requirements are EUR31,000 (including at least 25% paid in), at least one shareholder and one director, and one auditor.

SPF shares can be nominative or bearer, but may not be quoted.

If the SPF is used to hold voting rights in other companies, it must ensure that it does not involve itself in the running of those companies, and it is prohibited from providing any kind of service.

The new vehicle is intended to be exempt from corporate income tax, municipal business tax and net-worth tax, and from withholding tax on distributions. However, these exemptions can be affected by the SPF's participation in non-resident, non-listed companies, if those companies are located in a country not subject to a roughly equivalent corporate tax regime.

These tax advantages also mean that the SPF cannot reap further benefits from tax treaties concluded between Luxembourg and third countries.

A subscription tax at a rate of 0.25% is payable on share capital.

Although,as previously stated, the European Commission has not yet rubber-stamped the new regime, it is expected to find favour with the EC, at least broadly; the SPF's 'passive' status in terms of economic activity should prevent it from coming under scrutiny in the arena of state aid.

A comprehensive report in our Intelligence Report series looking at Tax-Effective Global Manufacturing and Financing Structures is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report8.asp

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