Luxembourg SPF residence certificate: Key tax updates
On 4 June 2024, the Luxembourg Tax Authorities (LTA) released administrative circular L.I.R. n° 159/2 (the “Circular“), offering important guidance on the issuance of residence certificates to Luxembourg family wealth management companies (société(s) de gestion de patrimoine familial, or “SPF(s)”) governed by the Law of 11 May 2007 (the “SPF Law“). This development is particularly relevant given the unique tax regime applicable to SPFs under Luxembourg law, as described below.
SPFs are specialized entities designed for individuals managing their private wealth. As provided by article 1 of the SPF law, various structures can be chosen from such as a limited liability company (S.à r.l.), a public limited company (“S.A.), a corporate partnership limited by shares (“SCA”), or a cooperative company organized as a public limited company (“SCoSA”), in order to best fit the individual needs. However, SPFs are restricted to the acquisition, holding, management, and realization of financial assets and are expressly prohibited from engaging in any commercial activities.
Under Article 4 of the SPF Law, SPFs benefit from a distinct tax regime, as they are exempt from income tax, municipal business tax, and net wealth tax. Instead, they are subject to an annual subscription tax. However, this favorable tax status has its limitations: SPFs are excluded from the benefits of Luxembourg’s double tax treaties and cannot claim advantages under European Union directives.
Regarding the issuance of residence certificates the Circular confirms that SPFs are considered Luxembourg residents if they meet the conditions set out in Article 159 of the Luxembourg Income Tax Law (L.I.R.). These conditions include (i) being constituted in one of the corporate forms specified in Article 159 L.I.R. and (ii) having their registered office or central administration in Luxembourg.
SPFs must be incorporated as corporate entities, ensuring the first condition is always satisfied. This certificate, issued by the Direct Tax Administration, is necessary for various administrative and legal purposes. When applying for a residence certificate, the SPF must provide:
- The company’s name, tax identification number, and address, as well as the date it adopted the SPF tax status;
- The language in which the certificate should be issued (French, German, or English);
- The reason for requesting the certificate, including a reference to the foreign legislation requiring it.
The tax office may request additional information or documents before issuing the certificate, which will be sent to the company’s registered office.
This new Circular offers essential clarity for SPFs regarding the issuance of residence certificates, helping to streamline compliance with Luxembourg’s tax laws. SPFs and their advisors should be aware of these updates to ensure all requirements are met efficiently.
Please contact us at https://www.cs-avocats.lu/expertise/private-wealth-management/luxembourg-spf-societe-de-gestion-de-patrimoine-familial-services/ for advice, personalized guidance and assistance with the establishment of your SPF.
Draft law regarding SPF
On 20 November 2006, the Luxembourg government lodged bill number 5637, pertaining to the creation of a new investment vehicle, the private asset management company (société de gestion de patrimoine familial, also referred to as “SPF”.
A private asset management company (SPF) can either adopt one of the following forms (i) a company limited by shares (société anonyme), (ii) a limited liability company (société à responsabilité limitée), (iii) a partnership limited by shares (société en commandite par actions) or (iv) a cooperative company organised as a company limited by shares (société coopérative organisée comme société anonyme).
The shares issued by the SPF can be bearer shares but can however not be publicly quoted.
The activity is stricly limited to the acquisition, detention, management and realisation of its financial assets (e.g. shares, bonds, publicly quoted shares, shares of soparfis, shares of a SICAR, etc.)
The shares in a SPF can only be subscribed by eligible investors who are:
- natural persons acting in the scope of their management of their private assets,
- “private asset entities” which act exclusively for the benefit of the private assets of one or more natural persons, ( e.g. trusts, private foundations, “stichting administratiekantoor”, etc.; or
- an intermediary acting for the accounts of the investors under (ii) and (iii): e.g. a bank acting under a fiduciary agreement, etc.
Regulation of SPF
There is no need to have the approval of the Supervisory Commission of the Financial Sector (“CSSF”). The competent authority to exercise the tax control is the “administration de l’enregistrement et des domaines“.
Every year the domiciliary agent (a lawyer, an accountant, an auditor, etc.) must issue a certificate mentioning that:
(a) tthe SPF is held by eligible investors (as defined here above);
(b) the SPF does not receive more than 5% of its dividends from non EU companies taxed at a rate below 11%; and
(c) the SPF has respected its obligations as paying agent in the scope of the Savings Directive .
The SPF must keep an accounting and must every year publish its annual accounts.
Key tax features
- No debt equity ratio: There is no debt equity ratio that needs to be maintained for a SPF. However, a fixed tax of 0,25% (taxe d’abonnement) is due for the part of the debts that exceed 8 times the paid-up capital increased by the issue premium.
- No corporate income tax
- “taxe d’abonnement“: a tax of 0,25% on the (i) the amount of the paid up capital increased with (ii) the issue premium (if any).
- Withholding tax on interests: interests paid to Luxembourg resident persons are taxed at 10% and at non resident natural persons at 15% under the regime of the Savings directive.
- No withholding tax on dividends paid: There is no withholding tax due on dividends paid either to Luxembourg or foreign residents.
- No wealth tax: SPF are exempt from the wealth tax. This is an important advantage as normal Luxembourg companies (soparfi) are subject to a wealth tax of 0,5% of the net assets of the company
- Excluded from the mother/daughter directive, interest directive and Luxembourg’s double tax treaty network
