A draft bill to amend the law of 11 May 2007 on the
Luxembourg « SPF» has been introduced on 15 July in
order to comply with the principles of both the Treaty on the
Functioning of the European Union and the Agreement on the European
Economic Area (EEA).
As a replacement for the traditional Holding 1929 companies, a
law establishing a new private asset management vehicle –
the Société de gestion de Patrimoine
Familial («SPF») - was passed by the Luxembourg
The current SPF regime
Drafted to answer the needs of private investors, the law on the
creation of the SPF was passed by the Parliament on 11 May 2007
("The SPF Law") and aimed at establishing a legal
framework for the management of private assets.
According to article 1 of this law, the legal form of a SPF
precludes any form of partnership. As a result, a SPF can only be
set up under the form of an S.àr.l.
(Société à responsabilité
limitée – limited liability company), an S.A.
(Société anonyme – limited
liability company by shares), a COOPSA (Société
cooperative organisée sous forme de SA –
cooperative company organised as a limited liability company by
shares) or an SCA (Société à commandite
par actions – limited liability partnership
company). Its shareholders and investors are either individuals
managing their personal assets or entities acting on behalf of such
A SPF may acquire, hold, manage or dispose of financial assets but
is not allowed to conduct any type of commercial activity. Thus, a
SPF benefits from the limited liability of the legal person.
The private nature of the company allows the investors to choose
how they want the assets to be managed and thereby gain more
freedom from the principle of risk diversification imposed on
Undertakings for Collective Investment ("UCI").
SPFs are allowed to invest in any kind of equities and other
transferable securities, bonds and other debt instruments, forward
contracts, swaps, options and structured products.
With respect to the minimum social capital of a SPF, the Law of
2007 is silent. Accordingly the statutory Law of 1915 on commercial
companies as amended applies, that is to say, EUR 31,000 for the SA
and EUR 12,500 EUR for the S.à r.l..The statutory law also
applies as regards the paids-up capital.
From a Luxembourg tax perspective, the SPF is exempted from
corporate income tax, municipal business tax and net wealth tax
according to the article 4(1). However a SPF that receives more
than 5% of its total dividend income during a year out of
participations in non-resident and non-listed companies which do
not have to pay an income tax similar to Luxembourg corporate
income tax, cannot benefit from the tax scheme provided by article
4(1) of the SPF Law. A resident company of an EU Member State that
appears on a list drawn up on the basis of the modified Directive
90/435/CEE, automatically meets the requirements of comparable
taxation. Thus, it is a general practice that a tax, which is
levied abroad and comparable to a tax levied in Luxembourg, should
be collected for an effective tax rate at least equal to half of
the Luxembourg rate, i.e. 10.5 %.
Why amending the SPF Law?
Pursuant to a decision of the European Commission, some of the
provisions contained in the SPF Law are incompatible with certain
provisions of the Treaty on the Functioning of the European Union
(« TFEU ») and certain provisions of the Agreement on
the European Economic Area (« EEA »). Given the
precedence of European law over national legislation, amendments to
the law are needed.
Indeed, according to the European Commission, the current law
applies different tax regimes to similar statuses, which would
deter a Luxembourg SPF from investing in a non-resident company
rather than in a Luxembourg-based company.
What is this draft bill about?
Technically, the bill will repeal both paragraphs 2 and 3 of the
SPF Law and amend articles related to those two paragraphs.
In concrete terms, the bill repeals the exclusion criteria
regarding the tax exemption for any SPF receiving more than 5% of
its dividends coming from non-resident and non-listed companies
which do not have to pay an income tax similar to Luxembourg
corporate income tax.
If this bill is passed, it will allow SPF holding major
shareholding in any non-resident companies (even in low tax
jurisdictions) to take advantage of the favourable tax treatment as
provided for by article 4(1) of the SPF Law. It could therefore
increase the foreign investments made by the SPFs and bring new
business perspectives with a wider market potential.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A new legislation, according to which the Tax Department will have the authority to tap into bank accounts of taxpayers without a court order in order to obtain any unsettled taxes, is expected to be enacted soon.
Companies which are incorporated in Malta are deemed to be resident and domiciled in Malta and chargeable to tax on a world-wide basis, irrespective of where the income generating activitiy is carried out.
Third country nationals may take up residence in Malta in terms of the Global Residence Programme Rules (GRP) Rules.
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