financial services sector in Luxembourg is regulated by the
Commission de Surveillance du Secteur Financier (CSSF).
information from the CSSF on the laws and regulations governing
the financial services sector can be found here.
Luxembourg 'Holding' Company Law
Low tax or 'offshore'
activities in Luxembourg usually involve use of a 'holding'
None of the various
types of holding company has a specific corporate form separate
from the forms available under the Commercial Companies Law
of 1915, ie SA, SARL or Societe a Commandite par Actions (SECA).
various holding regimes were abolished effective from January
1, 2007, following an EC decision that they violated EC Treaty
state aid rules by granting "unjustified tax advantages".
However, under the implementing legislation, pre-existing
holding companies were entitled to continue benefiting from
their current tax regime until December 31, 2010.
replacement for the holding company regime is the SPF (Family
Private Assets Management Company or Societe de gestion du
Patrimoine Familiale). See Offshore
Legal and Tax Regimes for more details.
2004 the Luxembourg Parliament passed the final text of legislation
on SICARs (Sociétés dInvestissement en
Capital à Risque), which offer an alternative to the
traditional limited partnership structure which works well
for fund managers and investors in countries such as the United
Kingdom, but can pose problems for fund managers in continental
Europe. The new law defined venture capital as direct or indirect
investment in an entity to finance the launch, further development
or flotation of the entity. This definition includes a wide
variety of investment forms in addition to straight equity,
such as corporate bonds, mezzanine finance, and convertible
A SICAR may take one of a number of corporate forms, including
that of a limited partnership (see Forms
of Company). SICARs in corporate form may adopt an open-ended
share capital structure, like an open-ended investment company
or SICAV, and thus avoid multiple filings for every movement
in equity capital. The minimum subscribed share capital is,
at the time of writing, EUR1 million, of which at least 5%
must be paid up.
No special restrictions are imposed on distribution policy,
and the legal reserve requirement and usual interim dividend
and capital redemption formalities are waived.
Because SICARs are high-risk investments, the law restricts
access to professional, institutional and 'knowledgeable'
investors. An investment of at least EUR125,000 (at the time
of writing) is required together with an election in writing
or the provision of a certificate issued by a licensed bank
or other financial services professional confirming the expertise
and experience of the investor.
A SICAR must appoint a duly authorized Luxembourg-registered
credit institution as custodian of its assets. A SICAR must
be approved by the CSSF, which will, in particular, examine
the SICARs articles of incorporation or their equivalent
and the choice of custodian bank as well as the professional
qualifications and expertise of the SICARs executive
management. Once approved, a SICAR need not undergo the standard
visa clearance procedure for prospectuses. However,
the law does require at least one prospectus, as well as an
annual report. The annual report must be published within
six months of the relevant reporting date and must be the
subject of an external audit. SICARs are expressly excluded
from the requirement to prepare consolidated financial statements.
fixed capital duty of EUR1,250 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 Luxembourgs
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 nonresident
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 fiscal consolidation.
Investors seeking tax transparency will opt for a SICAR in
the form of a limited partnership (SeCS). An SeCS is not liable
to corporate income tax or net wealth tax. Issues regarding
the municipal business tax have been resolved by providing
an exemption from this tax for SICARs adopting the SeCS form.
Income from the partnership and capital gains realized on
units by nonresident partners will not be taxed in Luxembourg.
Legal and Tax Regimes for more details of the tax
treatment of the different types of holding company.