Luxembourg Société de Gestion de Patrimoine Familial

Luxembourg’s SPF law of 11 May 2007 (as amended) (the Law) creates a specific tax regime for companies whose sole purpose is managing individuals' private wealth.

The SPF regime is intended to partially fill the vacuum created in the private wealth management sector by the abolition of the Luxembourg 1929 holding regime.

An SPF is defined in the law as a company:

• that is set up under the legal form of a public limited liability company (société anonyme), a private limited liability company (société à responsabilité limitée), a partnership limited by shares (société en commandite par action) or a cooperative (société cooperative) organised under the form of a public limited liability company;
• the shares of which are exclusively held by eligible investors (as defined below); and
• the articles of incorporation of which make a specific reference to the Law.

The SPF is exclusively designed for investors managing their private wealth. Its shares cannot be used for a public placement and cannot be quoted on a stock exchange. The benefit of the SPF regime is that it is not open to corporate investors, and it cannot be used within a traditional corporate group.

Eligible investors within the meaning of the Law are:

• individuals managing their private wealth;
• private wealth management entities acting for one or several individuals; or
• intermediaries acting on behalf of the individual/entities referred to above.

Private wealth management entities are intended to include entities such as trusts, foundations, “stichtings” or any other such type of entity involving the management of the private wealth of one or more individuals.

Entities holding the shares of the SPF on a fiduciary basis on behalf of an individual or a private wealth management entity are also eligible investors.

As an SPF is an extension of the private wealth of its investors, its activities are limited to the following activities:

• Holding of financial assets: the sole activity of the SPF should be the acquisition, holding, management, and disposal of financial assets. Any type of commercial activity is prohibited.
• Holding of participations: the SPF can also hold participations in the share capital of other companies, but only to the extent the SPF does not involve itself in the management of these companies. The SPF will, therefore, not be allowed to exercise any management role in its subsidiary. There are no restrictions as regards the activity of the company in which the SPF may hold a participation.

Activities that are not permitted include:

• Granting of loans: the SPF is not allowed to render any kind of service, including granting interest bearing loans (even to companies in which the SPF holds a participation). It may, however, make cash advances or guarantee the liabilities of a company in which it holds a participation, but only on an ancillary basis and without direct remuneration.
• Holding intellectual property: the SPF is not authorised to hold any type of intellectual property.

Holding real estate: the SPF may not invest directly in real estate. However, it may acquire holdings in corporations or other non-transparent entities that hold real estate.

The Law does not require the SPF to comply with a specific debt-to-equity ratio. However, since the part of the debt that exceeds eight times the paid-up share capital would be taken into account for the computation of the subscription tax (see below), the SPF will, in practice, have to comply with an 8:1 debt-to-equity ratio.

Income and net wealth taxes

At the level of the SPF:

• The SPF is not subject to Luxembourg corporate income tax, municipal business tax, and net wealth tax.
• Due to its specific tax regime, the SPF is not entitled to benefit from double tax treaties concluded by Luxembourg or from the EU Parent-Subsidiary Directive 90/435/EEC. As a result, any dividend and interest payments on financial assets received by an SPF may be subject to withholding tax in the state of source in accordance with the domestic tax rules of that state.

At the level of the shareholders:

• There is no Luxembourg withholding tax on the distributions of profits from an SPF to its shareholders. Payments of interest by an SPF can, however, be subject to a final 20 per cent withholding tax for payments to Luxembourg resident individuals if certain conditions are met.
• Gains realised by a foreign shareholder on the disposal of the shares in an SPF are not subject to tax in Luxembourg.

Subscription tax

The SPF is subject to an annual 0.25 per cent subscription tax (taxe d’abonnement) that is levied on the sum of:

• the paid-in share capital and share premium of the SPF; and
• the part of the debt (if any) that exceeds eight times the amount of the paid-in share capital and share premium of the SPF.

The subscription tax cannot be lower than €100 and cannot be higher than €125,000 per year. The tax is payable on a quarterly basis.

Value Added Tax

• Based on its restrictive scope of activities, an SPF is not considered by the Luxembourg Authorities as a taxable person for VAT purposes.

Tax on directors’ fees

• Directors’ fees paid by the SPF to its directors are subject to a withholding tax of 20 per cent on the gross amount of the fees (25 per cent of the net amount). The withholding tax must be paid to the tax authority within eight days of the payment.

Tax resident certificate

Based on a circular from the Luxembourg tax administration dated 4 June 2024, an SPF may now obtain a tax resident certificate and benefit from double tax treaties if certain conditions are met.