THE SOCIETE DE GESTION DE PATRIMOINE FAMILIAL AN EXCELLENT FINANCIAL AND TAX PLANNING TOOL

Transcription

1 THE SOCIETE DE GESTION DE PATRIMOINE FAMILIAL AN EXCELLENT FINANCIAL AND TAX PLANNING TOOL

2 Information available on this leaflet have the sole purpose of providing general information on the activities of GODFREY-HIGUET. It does not constitute legal advice and does not replace the legal documents duly published. Their reader should not be determined on its basis alone. Only a consulting GODFREY-HIGUET s lawyers can bring a legal opinion on a particular situation GODFREY-HIGUET, Association d avocats

3 «The 1929 holding company is dead, long live the SPF!». A victim of its own success, the holding 1929 (H29), described as an unfair tax competition vehicle because of its exorbitant tax status out of the ordinary jurisdiction, was abolished by a law of 22 December So the Luxembourg government replied to the decision by the European Commission, which deemed the H29 tax regime an illegal government aid according to the provisions of the Treaty of Rome. However, continuing its effort to develop the financial market by creating a flexible and innovative juridical environment, the Grand Duchy of Luxembourg introduced the law of 11 May 2007 (hereinafter the Law) on the establishment of a family holding management company (société de gestion de patrimoine familial, SPF), in absolute compliance with the laws of the European Union. It should firstly be noted that this law does not lay the foundations for a new juridical type of company, but rather defines a more favourable tax regime applicable to companies whose sole purpose is the management of private assets (1), without any activity in the economic cycle. Following the steps of the H29, the SPF allows one or more natural person investors to administer the management of all or part of their private chattel (stocks, bonds, bank assets, etc.). Established as a company, the liability of the investor is limited to that of the SPF, a condition particularly attractive if used as a technique of debt leverage within the management of private assets. Property transfers executed by the investor in favour of family members, or even third parties, are still permitted, without prejudice to the possibility of control of the transferred property by the investor himself/herself. Moreover, if the SPF is established as a public limited company (société anonyme, SA), its shares may be issued in bearer form: the anonymity of the holder is then preserved. Finally, the private character of the SPF allows the owner to freely determine how to manage the assets of the company and to be free, where applicable, from the principle of risk spreading imposed on other investment vehicles (SICAVs, funds investment, etc.). 1

4 For tax purposes, the SPF is exempt from most direct taxations. This exemption is perfectly integrated in the existent Luxembourg tax law, which traditionally avoids double taxation of investment incomes, allowing taxpayers to invest their assets in special entities benefiting from tax exemptions. With its simplicity, efficiency and discretion, the SPF is designed to be an excellent tool for the management of assets and taxes. The tax regime for family holding management companies will be discussed in the detail (II) after a presentation of its legal form (I). This study concludes with some considerations concerning monitoring and control of the SPFs (III). I. LEGAL REGIME A Company status In compliance with the first article of the Law, the SPF is required to have a company status: it may assume the legal form of a limited liability company (société à responsabilité limitée, Sàrl), a public limited company (société anonyme, SA), a company limited by shares (société en commandite par actions, SCA) or a société coopérative organisée sous la forme d une société anonyme (ScoSA), pursuant to the Luxembourg law. Partnerships shall remain excluded, including general partnerships (société en nom collectif, SNC) and standard limited partnerships (société en commandite simple, SCS). The company status is completed with the «family holding management company» (société de gestion de patrimoine familial) form, or, in short: «SPF». The minimum share capital amounts to 30,986.69, of which a quarter must be paid up at the moment of the constitution, for SA, and to 12, for Sàrl, which instead must be paid up in full. B Company object Pursuant to the law of 11 May 2007, the sole object of an SPF must be the acquisition, holding, management and creation of financial assets, excluding any commercial activity. In other words, the SPF may acquire, hold, manage and create any financial asset in 2

5 the same way as an individual manages his private assets. The mentioned financial assets are financial instruments as defined by the law of 5 August 2005 on the financial warranty agreements and cash and assets of any kind held in account. Paragraph 8 of the first article of the law of 5 August 2005 gives the concept of financial instruments the broadest sense it may have, including all chattel and other securities, financial futures, be them materialized or non-materialized, transferable by registration into account or by remittance, bearer or registered, endorsable or nonendorsable. In summary, the Law offers the benefits of a wide range of investment instruments (2). C Activities of the SPF Being the SPF bound to the sole management of private assets, the scope of its authorised activities is restricted to those of an individual managing his/her private assets. Therefore, the SPF may: - hold shares in the capital and/or hold voting rights within a company, excluding, however, any involvement in the management of its subsidiary; it may not therefore act as administrator within its subsidiary bodies (conversely, the exercise of these functions by SPF shareholders is not prohibited). The SPF is deemed herein to be a passive investment vehicle. - invest in a wide range of financial products, including structured products and derivatives, buy or sell options on securities, currencies or indices; - sign, purchase or sell bonds and other debt securities; - make simple current account deposits that generate interest; To ensure financing of its investments, the SPF may obtain loans - against payment of interest - both from third parties (banks, etc...) and from its shareholders. Conversely, the SPF may not: - engage in commercial activities or any activity that may be deemed such (e.g. trading of financial assets); - perform paid services; 3

6 - exercise or be commissioned for directorship, management or administration duties; - receive income from exploitation licenses relatively to intellectual property rights; - grant non-negotiable loans, even in favour of companies of which the SPF is a shareholder (it may, however, in a collateral fashion and without any income being generated, grant advances or endorse a commitment in favour of a society of which the SPF is a shareholder, and may of course subscribe to bond issues against surrender of mandatory securities - either in a registered or bearer form). D SPF shareholders Pursuant to the article 3 of the Law, shares or units of an SPF can be exclusively held by: - Natural persons managing their private assets; - Asset entities (e.g. trusts and funds) acting solely in the interests of the private assets of natural persons; - Intermediaries holding the shares in trust or on behalf of eligible investors; - By another SPF, or any holding company which has no economic activity, owned in turn by eligible investors (excluding thus any commercial company). Being the SPF a purely private management vehicle, its shares may not be sold through tender offers nor be publicly listed. It should be noted that whilst the original presented bill devised eligible shareholder groups limited to a «small circle» of investors, the use of the term «familial» in the title of the law does not imply requirements for any kind of kinship. II. TAX REGIME A Income tax and wealth tax SPFs are granted tax exemptions for most of the direct taxations. SPF are in fact exempt from community income tax (impôt sur le revenu des collectivités, IRC) and trade tax (impôt commercial communal, ICC) on all incomes (dividends, interest and capital gains), as well as from wealth tax (impôt sur la fortune, IF). However, the SPF shall lose the benefits of this favourable tax regime in case more than 5% of the dividends received during a 4

7 fiscal year are obtained from investments in foreign and unlisted companies that are not subject to taxation levels comparable to the Luxembourg company taxation rates (3). In other words, at least 95% of dividends paid by unlisted foreign companies must come from subsidiaries subject to taxation rates comparable to those in force in Luxembourg. In case of loss of eligibility to this favourable tax regime, all income received during the relevant fiscal year shall then be taxable at the standard rate (i.e % in 2011). This tax penalty does not imply loss of the SPF status: the exemption will apply again in subsequent years provided that the maximum threshold of 5% dividend is duly observed. It must be noted that this threshold is only evaluated on dividends, excluding any other source of income such as interests or capital gains. NOTE: a bill presented on the 15 July 2011 aims to annul this favourable tax regime exclusion criterion for SPFs. If this amendment is approved, the new law will come into force on 1 January 2012 and will thus allow SPFs to receive unlimited dividends from a foreign company, even if poorly taxed or not tax-exempt. On an international level, SPFs are not granted the benefits against double taxation provided by the laws in force in the Grand Duchy of Luxembourg, since they hold tax exemption rights on the totality of their income. Analogously, SPFs are not eligible for EU tax regime benefits applicable to parent companies and subsidiaries. B Applicable taxation on the income paid by the SPF 1. Dividends paid by the SPF are specifically exempt from any withholding tax, whether or not the shareholders reside in Luxembourg. 2. The interests paid by the SPF in favour of its creditors too are, in principle, exempt from any withholding tax in Luxembourg. This principle is tempered by: - the 10% withholding tax on interests paid to natural persons residing in Luxembourg, pursuant to the law of 23 December 2005; 5

8 - the 35% withholding tax (4) on interests paid to natural persons residing in another EU member country or EU associated or dependent countries (Dutch Antilles, Aruba, Guernsey, Jersey, Isle of Man, British Virgin Islands and Montserrat) pursuant to the directive 2003/48/EC on the taxation of the income obtained by savings in the form of interest. 3. The shareholders are subject to taxation on the interest and/or dividends they receive from the SPF, in compliance with the tax regime in force in their country of residence and according to their tax status. C Applicable taxation on the capital gains obtained by non-residents Non-residents are neither subject to any Luxembourg withholding tax nor to taxation on capital gains obtained through the sale of their SPF units or shares, or on profits originated from the liquidation of the SPF, regardless of the amount of shares held and of the holding period of the sold securities. D Value added tax Given the limited nature of its object, SPFs are not subject to VAT. E Annual registration tax The SPF is bound to the payment of a 0.25% annual registration tax calculated on the sum of: - The total paid-up capital, plus - Any premiums, and, where applicable, - The portion of debt, in any form whatsoever, in excess of eight times the sum of paid-up capital plus the share premiums. This annual registration tax may not be less than 100 and may not exceed 125,000. The due amount shall be declared and paid quarterly. F Capital duty The capital duty was abolished by a Luxembourg law which came into force on the 1 January III. MONITORING AND CONTROL A A limited tax control Unlike companies subject to ordinary law (which fall under the Direct Tax Administration, "Administration des Contributions Directes"), tax audits for SPFs lay within the jurisdiction of the Registration and 6

9 Domains Administration (Administration de l Enregistrement et des Domaines). Tax control is limited to the research and review of the evidence and the data concerning the tax status of SPFs, as well as the elements required to ensure and verify the correct fulfilment of tax burdens and duties payable by SPFs (namely the annual registration tax and the withholding tax on interest, pursuant to the directive 2003/48/EC on the taxation of the income obtained from savings in the form of interest payments). Within this tax control, the compliance of SPFs may be verified at the relevant head office. B Bank secrecy Analogously to H29s and OPCs, the law extended the provisions for bank secrecy for tax matters to SPFs by ruling that no tax related information concerning a taxpayer shall be demanded to SPFs. C Statement In return, the bookkeeper of the SPF must submit to the Registration and Domains Administration, every year and by the 31 July at the latest, a statement of nonobjection declaring: - Compliance with the provisions relative to the shareholders of the SPF; - that no more than 5% of the dividends earned by the SPF have been obtained by foreign or unlisted companies which are not subject to tax rates lower than 11%; - Compliance with the legal obligations as a paying agent (confer supra: obligation to levy a withholding tax on the interest paid by the SPF to a natural person residing in Luxembourg or any other EU member country). NOTES G.-H. (1) We acknowledged that the title of the Law gives rise to confusion. For convenience, the acronym «SPF» is hereby used to designate both the tax regime enforced by the Law and the company subject to such tax regime. (2) Trademarks and patents are not considered financial assets. (3) The Luxembourg fiscal administration considers that a foreign tax is comparable to the Luxembourg tax if the three following cumulative criteria are met: 1. The foreign tax is perceived by a corporation on a 7

10 mandatory basis; 2. The tax bases are determined according to equivalent rules to the Luxembourg legislation; 3. The foreign tax is perceived at an effective rate that cannot be inferior to 50% of the rate of I.R.C. in Luxembourg; the current rate of I.R.C. being 22%, the effective rate of the foreign tax must be of at least 11%. (4) Such interest may nevertheless be exempt from withholding tax in Luxembourg in case of disclosure of information to the State of residence of the beneficial owner of the interest paid. 8

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