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The transitory period for 1929 holding companies ending on 31 December 2010

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Patrick Mischo

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Schaffner Jean
Jean Schaffner



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30 September 2010

The law of 22 December 2006 abolished the 1929 holding company regime, but has granted a transitory period during which these companies were, under certain conditions, allowed to subsist. This transitory period expires on 31 December 2010.

The end of 1929 holding companies

In 2006, following a four-year preliminary review in cooperation with the Grand Duchy of Luxembourg, the European Commission decided that the Luxembourg holding company regime, introduced by the law of 31 July 1929, as amended and completed (the 1929 Holding Company Regime), was violating EU treaty state aid rules. Consequently, on 22 December 2006, the Luxembourg Parliament adopted a law abolishing the 1929 Holding Company Regime. However, for a transitory period ending on 31 December 2010, existing 1929 holding companies were allowed to benefit from the 1929 Holding Company Regime, provided the shares of the company were not transferred.

This transitory period is now drawing near an end, and it is time to decide upon the fate of the remaining 1929 holding companies. Existing 1929 holding companies will become fully taxable companies as of 1 January 2011, subject to corporation taxes and to wealth tax, unless they are liquidated or adopt another tax regime.

The SPF in a nutshell

The family estate management company (société de gestion de patrimoine familial, SPF) created by the law of 11 May 2007, was destined to offer an alternative regime to the 1929 holding company. Indeed, it offers most of the advantages of the 1929 holding company, while being fully compliant with EU regulations.

An SPF must be a limited liability company (S.A., S.à r.l., SCA or COOPSA), whose object is limited to the acquisition, holding, disposal and management of financial assets, with the exclusion of any commercial activity.

The key difference from the 1929 holding company is the SPF's limited pool of investors, which must be individuals or intermediary vehicles acting exclusively for the management of the private wealth of an individual or of a group of individuals. The SPF may further not be involved in the management of the companies in which it holds participations.

The SPF is exempt from Luxembourg corporation taxes and wealth tax. It is merely subject to an annual subscription tax, at a rate of 0.25%, with a minimum of EUR100 and maximum of EUR125,000 per annum.

It is however, excluded from the scope of Luxembourg double tax treaties and from the EU parent-subsidiary directive. Also, an SPF which, during a given financial year, derives at least 5% of dividends stemming from participations held in non resident private companies which are not subject to tax in their respective jurisdictions at a level comparable to the one applicable in Luxembourg, are excluded from the SPF tax regime for that financial year.

Conversion into an SPF

The conversion of a 1929 holding company into an SPF before the end of the transitory period is not a taxable event as such. The conversion from a 1929 holding company into a SPF requires that an extraordinary general meeting of shareholders is held before a Luxembourg notary to bring the articles in line with the requirements of the law of 11 May 2007.

In substance, (i) all references to the law of 1929 must be deleted, (ii) the articles must explicitly state that the company is governed by the law of 11 May 2007 on family estate management companies and (iii) the corporate object clause must be adapted to be in line with the provisions of the law of 11 May 2007.


Fully taxable holding companies are commonly designated as Soparfi, a term which appeared in 1990, and stands for "société de participations financières" (financial participation company). This denomination originated from practitioners and is not embedded in any legal text. A Soparfi is an ordinary limited taxable company with a specific corporate object, limited to the holding of participations and ancillary activities.

As a fully taxable commercial company, a Soparfi is subject to corporate income tax and municipal business tax on its commercial activities. In addition, a Soparfi is also subject to net wealth tax at a rate of 0.5%. assessed on the estimated realisation value of its assets on the wealth tax assessment date. Dividends and capital gains derived from qualifying shareholdings are, however, tax exempt under the Luxembourg participation exemption and no wealth tax is due on such shareholdings.

In a nutshell, a Soparfi enjoys the following advantages:

  • Tax exemption on dividends and capital gains derived from qualifying shareholdings (subject to certain minimum holding period and threshold conditions);
  • A withholding tax exemption on outbound dividend payments made to corporate shareholders based in the EU or in a tax treaty jurisdiction (subject to certain minimum holding period and threshold conditions);
  • A net wealth tax exemption on qualifying shareholdings (subject to certain minimum holding threshold conditions);
  • No withholding tax on most interest payments;
  • No withholding tax on the distribution of a liquidation bonus; and
  • It may benefit from Luxembourg's large double tax treaty network. There are currently over 50 tax treaties in force and more than 20 tax treaties are in the course of negotiation/ratification. In addition, it may benefit from the EU tax directives.

Conversion into a Soparfi

The conversion of the 1929 holding company into a fully taxable company will be automatic as of 1 January 2011, i.e., it will be subject to corporation taxes and to wealth tax and be attributed a tax number as of 1 January 2010.

However, it is nevertheless recommended to proceed to a change of the articles of association, in particular to (i) delete all references to the law of 1929 in the articles and eventually also in the name of the company, and (ii) to adapt and broaden the corporate object clause. Indeed, 1929 holding companies generally have had a limited corporate scope, being banned from carrying out certain activities (e.g., certain finance activities, holding of real estate).

What happens if no action is taken until year end?

A 1929 holding company which is not liquidated or does not adopt another tax regime will become as of 1 January 2011 a fully taxable company, subject to corporation taxes and to wealth tax.

In particular, wealth tax, which is levied at a rate of 0.5% of the company's net assets, may become an immediate issue if the company has important cash reserves or other taxable assets and no action has been taken before the end of the transitory period as the first wealth tax assessment date for former 1929 holding companies will already be on 1 January 2011.

The conversion into a Soparfi may also trigger adverse income tax issues, if, for example, investments have been performed into assets which do not qualify under the participation exemption and no efficient financing structures are in place. However, a careful restructuring may mitigate or even avoid tax exposure in Luxembourg.

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