Luxembourg: Offshore Legal and Tax Regimes
Tax Treatment of Offshore Operations
This page was last updated on 25 June 2020.
See Domestic Corporate Taxation for general tax treatment principles, though these do not apply to offshore entities except as indicated below. Offshore entities are not covered by Luxembourg's double taxation treaties except as indicated below. From January 2011, a minimum flat income tax of €1,500 was introduced for companies whose financial assets, transferable securities, and cash at bank amount to more than 90% of their balance sheet. Offshore companies are taxed as follows.
The family wealth management company or SPF is intended to be exempt from corporate tax, municipal business tax, net worth tax and withholding tax on distributions. These vehicles are prohibited from commercial activity, and are 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. 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 SPF's exemptions can be affected by participation in non-resident, non-listed companies, if those companies are located in a country not subject to a roughly equivalent corporate tax regime. A subscription tax at a rate of 0.25% is payable on share capital.
SOPARFIs, which were created under the Law of 24th December 1990, are subject to the normal regime of income taxes etc (see Domestic Corporate Taxation) but receive the benefit of double taxation treaties, and are in many circumstances exempt from taxation on dividends received from or paid to resident and non-resident companies in which they have a significant participation. The EU Parent-Subsidiary Directive also provides some withholding tax exemptions (improved as from 2004), but the SOPARFI benefits are more extensive. The rules are complex; there are conditions; and there are limitations on the deductibility of expenses.
The various forms of UCI are all exempt from all Luxembourg taxation, and pay only a small capital duty on start-up, plus an annual tax on net assets which (at the time of writing) varies between 0.01% and 0.06% depending on the type of fund. In June 2004, the Luxembourg government announced that pension funds would be exempt from the 0.01% 'subscription' tax, in order to encourage the transnational pooling of pensions assets.
In 2004, Luxembourg introduced the SICAR, which may take one of a number of corporate forms, including that of a limited partnership (see Forms of Company). A fixed capital duty of €1,250 applies to equity capital injections upon incorporation or thereafter. SICARs that are in corporate form are fully taxable and should in principle, unlike 1929 holding companies, be eligible for benefits under Luxembourg’s tax treaties as well as benefits under EC directives. Investment income and realized gains are not considered taxable income, and realized losses and write-downs are not deductible. All other income and expenses are taxable in the normal way. Distributions are exempt from withholding tax, as are redemptions by non-resident investors, regardless of the amount or holding period.
SICARs are exempt from wealth tax, and there is an exemption from VAT for management charges. SICARs are excluded from the benefits of financial consolidation. Investors seeking tax transparency will opt for a SICAR in the form of a limited partnership (SeCS). A SeCS is not liable to corporate income tax or net wealth tax, and is exempt from the municipal business tax. Income from the partnership and capital gains realized on units by non-resident partners will not be taxed in Luxembourg.