Luxembourg introduces SPF to replace 1929 company
Luxembourg passed a law on 11 May 2007 to introduce the new Société de gestion de Patrimoine Familial (SPF), a new private wealth management vehicle to replace the 1929 holding company regime. Existing 1929 entities are to benefit from a grandfathering clause until the end of 2010.
The 1929 holding company regime, which was terminated on 1 January 2007, had been found by the European Commission to be in violation of state aid rules for providing "unjustified tax advantages" to providers of certain financial services that set up holding structures in Luxembourg. The SPF, or "Family Wealth Company", has been approved by the European Commission.
Shareholders will be restricted to a small group of individual shareholders and SPFs will not be available to listed corporations or large groups of unconnected shareholders. They will be prohibited from commercial activity and limited to private wealth management, such as the holding of financial instruments such as shares, bonds and other debt instruments, in addition to cash and other types of bankable asset.
The main characteristics of the SPF are as follows:
· an SPF will not be subject to corporate income tax, municipal business tax or net wealth tax, provided it does not receive more than 5% of its dividends from companies that are not subject to a tax comparable to the Luxembourg corporate income tax (in other words, the payer must be subject to at least an 11% corporate income tax);
· no withholding tax will be imposed on dividend distributions by an SPF to its investors;
· an SPF will be subject to a subscription tax of 0.25% (with a minimum amount of €100 and up to a maximum of €125,000);
· an SPF will be subject to capital duty (1% or 0.5%);
· an SPF will not be deemed to be a taxable person for VAT purposes;
· an SPF will not be entitled to benefit from the EC parent-subsidiary, interest and royalties, or merger directives, nor will it have access to Luxembourg's tax treaty network.
Companies participating in the new scheme must have a minimum capital level of €12,500, one associate and one director in order to participate in the new regime. SPF shares can be nominative or bearer, but may not be quoted. If it 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.
There are about 14,000 existing 1929 Holdings in Luxembourg and those formed before 20 July 2006 will be able to keep their present status until 2010. Certain restrictions on transfer of ownership of the shares of those companies still need to be clarified. The new law is expected to apply to around 80% of 1929 Holdings and Luxembourg is apparently drawing up a further draft law to replace the remainder.