International tax advice

Holding 1929

Holding Companies are not themselves a particular type of company. A special request written in the by-laws determines this status. A Holding 1929 takes the form of a Public Limited Company, but a Private Limited Company may also meet the requirements.

THE HOLDING STATUS

 abolition of holdings 1929 in Luxembourg - a new tax regime introduced

Usually, a Holding 1929 takes the form of a Public Limited Company, but equally a Private Limited Company meets the requirements. Holding 1929 has been a very successful regime for several thousands of Investors - Individuals, Families and Companies - who have chosen to establish their holding structure in Luxembourg (+/- 15 000). The global capital of these structures alone is estimated at several tens of millions of Euros. In Luxembourg these companies can carry out their investment activities, financing, structure management etc.,  while enjoying an attractive fiscal legislation and they may benefit from an exemption regime: exemption from income tax on profits and capital gain taxes, no withholding tax on income from Luxembourg in many cases, etc.

There are two type of Holding status in Luxembourg :

  • the 1929-type holding,
  • the SOPARFI type holding

HOLDING 1929

This fiscal regime applies to Holding companies that have chosen the status based on the law of 31st July 1929.

The main benefit of this Law is that the Holding 1929 company is fully exonerated from income tax and withholding tax in Luxembourg .
This status excludes access to the privileges offered by treaties, but offers various other benefits. Holding Companies generally take the form of a Public Limited Company. Companies limited by shares are represented by bearer share certificates: this possibility ensures the company anonymity. A Holding 1929 must keep within the limits of its prescribed activity:

  • participations in other companies,
  • management of the mortgages and loans of these companies
  • management of patents, licenses, Intellectual Property Rights, etc.
  • management of a portfolio (wealth management)

A Holding may purchase real estate in which to set up its office. It may not earn commissions, fees or income from consulting activities. The only tax for which a Holding 1929 is liable is:

  • Subscription Tax of 0.2% of the annual paid-in capital (e.g. for a capital of 31.000 Euros - Tax = 62 Euros per year)
  • Capital duty: 1% (0.5 % from /01/2008 - 0% from 1/1/2009) of the capital. (e.g. for a capital of 31.000 Euros - Tax = 310 Euros, due once at the time of setting up)

Various advantages exist for Holding companies of 'billionaire' type.
A number of financial planning opportunities can be of interest in international and national situations.

The exemption from interest, withholding tax and income tax on royalties can represent a real opportunity to optimize group or individual income tax charges :

  • the 1929-type holding,
  • the SOPARFI type holding

This status excludes access to the privileges offered by treaties, but offers various other benefits.

Holding Companies generally take the form of a Public Limited Company. Companies limited by shares are represented by bearer share certificates: this possibility ensures the company anonymity.

A Holding 1929 must keep within the limits of its prescribed activity:

  • participations in other companies,
  • management of the mortgages and loans of these companies
  • management of patents, licenses, Intellectual Property Rights, etc.
  • management of a portfolio (fortune management)

From 1-1-2004, no withholding taxes are applicable on the payment of interests or royalties between resident companies (Soparfi, Holding 1929, securitisation companies,... ).

The Holding 1929 regime has been amended following the final agreement on the saving tax directive (see banking) in Europe in order to definitively remove the harmful tax competition aspect to the regime.
From 1/7/2005, the holding 1929 companies are excluded of the tax exemption regime if they receive for more than 5% of their incoming dividends from companies resident in countries where the corporation tax is lower than the half of the Luxembourg corporation tax (22% / 2 = 11%). This law is not applicable to participation in companies resident in the E.U.
All holding 1929 companies set up before the vote of the law will benefit of a "grand fathering" clause and will go on receiving these incomes.

To be noted that the Law:

From 19/7/2006 any benefit under this regime can be granted to new investors. A new regime has been enacted : Private Asset Management Company (SPF)

Holding Company : « billionaire »

 By Billionnaire holding company, we understand the definition of the holding company to be:

  • are aimed by the law of 31 juillet 1929, but meet the criteria of  the  « Arrêté grand-ducal du 17 décembre 1938 sur le régime fiscal des sociétés de participations financières (Holding Companies) qui reçoivent des apports comprenant l'avoir d'une société étrangère s'élevant à un milliard de francs au moins » (with more than 1 billion of Lux Francs of assets = +- 25.000.000 Euro).

  • For resident beneficiary, the director's fees paid by such companies
      • are subject to withholding taxes &
      • subject to a annual global income taxation with tax credit for withholding tax paid 
  • For non resident beneficiary, the director's fees paid by such a company
      • are not subject to withholding tax &
      • not taxable at all on annual global income taxation

Notice : this non taxation is not possible for normal holding companies

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