Taxes

Holding company taxes in Luxembourg in 2025

Holding companies whose main function is owning and managing participation in other companies can access special tax regimes in Luxembourg. In this article, we will examine in detail the taxation of these types of companies in Luxembourg and review the special regimes they may apply that make them so attractive in many circumstances.

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Luxembourg holding companies are commonly referred to as SOPARFI companies. It is important to understand that this designation is not a separate legal form but a designation for companies that adopt the activity of a financial holding company as their main purpose and that meet the requirements that allow them to benefit from the tax regime applicable to holding companies.

Holding companies in Luxembourg

Holding companies are legal entities created to own and manage participations in other companies, either by maintaining ownership of shares or holding other assets. Holding companies, instead of carrying out their business activities, limit themselves to exercising control and management of the companies in which they have an interest, benefiting from the income generated by these companies. Below are some of their main characteristics:

Tax optimization of participations

Holding companies in Luxembourg may have multiple tax advantages such as tax exemption on dividends and capital gains derived from their participations in subsidiary companies if they meet certain requirements.

Ownership and control of other companies

Holding companies allow the ownership of several subsidiaries to be concentrated in a single entity. This facilitates the supervision and control of strategic decisions, asset management and the implementation of unified corporate policies throughout the business group.

Asset protection

Holding companies make it possible to isolate strategic or valuable assets such as property, patents or intellectual property rights from the operational risk faced by subsidiary companies.

Financial flexibility

They can act as financial centers for the entire corporate group, which allows centralizing treasury management and financial operations and optimizing the allocation of financial resources among subsidiaries.

A holding company is not limited to a single legal form, in Luxembourg a holding company can have any of the following legal forms to operate:

Limited company (SA)

This is a common legal form for large companies in Luxembourg and is ideal for holding companies that require flexibility in the issuance of shares and the ability to be listed on the stock exchange.

Limited Liability Company (SARL)

This is a legal form widely used by small and medium-sized companies and may be suitable for a medium-sized holding company or a family group.

Limited partnership by shares (SCA)

This type of company is a hybrid form between a limited partnership and a limited liability company. It is ideal for structures where specialized management is needed, generally carried out by a managing partner, and where additional capital is to be raised from investors.

Cooperative company (SC)

Although this type of structure is less common for holding companies, it can also be used and can be useful for business groups seeking a cooperative or collaborative structure.

However, no matter the legal structure of a Luxembourg holding company, it can be classified as a SOPARFI (Sociéte de Participations Financières) and thus benefit from a special tax regime if the company meets certain characteristics:

Main purpose of holding and managing participations
The company must have as its main purpose the acquisition of participations in other Luxembourg or foreign companies and the management of such participations. This means that the company's activities must be oriented towards holding shares and participation in other entities without actively engaging in regular business activities.The company must have as its main purpose the acquisition of participations in other Luxembourg or foreign companies and the management of such participations. This means that the company's activities must be oriented towards holding shares and participation in other entities without actively engaging in regular business activities.
Limitation on commercial activities
The holding of participations must be the main activity of a SOPARFI, however, this type of company can exercise a commercial activity but only for the provision of services to its subsidiaries. If the commercial activity goes beyond this, the company will have to comply with the legislation on the exercise of a commercial activity, that is, to have its own premises and establishment authorization, which will cause it to lose its special tax status.The holding of participations must be the main activity of a SOPARFI, however, this type of company can exercise a commercial activity but only for the provision of services to its subsidiaries. If the commercial activity goes beyond this, the company will have to comply with the legislation on the exercise of a commercial activity, that is, to have its own premises and establishment authorization, which will cause it to lose its special tax status.
Participation in subsidiaries
The company must own at least 10% participation in a subsidiary company or have an investment in that entity of at least 1.2 million euros. In addition, the participation must be held for at least 12 months or the company must undertake to hold it for that period.The company must own at least 10% participation in a subsidiary company or have an investment in that entity of at least 1.2 million euros. In addition, the participation must be held for at least 12 months or the company must undertake to hold it for that period.
Taxation of subsidiaries
Subsidiary companies must be companies with fully taxable Luxembourg capital or companies with non-Luxembourg capital fully taxable at a rate corresponding to corporation tax or companies resident in a Member State of the European Union.Subsidiary companies must be companies with fully taxable Luxembourg capital or companies with non-Luxembourg capital fully taxable at a rate corresponding to corporation tax or companies resident in a Member State of the European Union.

Taxation framework on holding companies

Let's now talk about Luxembourg holding companies' taxes. Holding companies, having the same legal structure as traditional companies, are subject to the same taxes as the latter: corporate income tax, municipal business tax and net wealth tax. However, those who meet certain requirements can benefit from the SOPARFI regime and its tax advantages.

In the following, we will therefore first look at the taxes payable by all holding companies in Luxembourg and then examine the exemptions applicable to holding companies that meet the requirements to benefit from the SOPARFI regime.

Corporate income tax
The corporate income tax rate in Luxembourg depends on the taxable income according to the following schedule:The corporate income tax rate in Luxembourg depends on the taxable income according to the following schedule:
- If less than 175,000 euros: the applicable rate is 15%.
- Between 175,000 and 200,000 euros: Flat amount of 26,250 euros plus the application of a rate of 31% on the taxable income between 175,000 and 200,000 euros.
- Over 200,000 euros: the applicable rate is 17%.
In addition, all legal entities based in Luxembourg must contribute to the employment fund, so this rate must be increased by 7% in favor of this fund. This increases the normal tax rate from 17% to 18.19%.
Municipal business tax
Another tax that must be paid by holding companies in Luxembourg is the municipal business tax or MBT. The value of this tax depends on the municipality, in the municipality of Luxembourg it amounts to 6.75%. However, a tax allowance of 17,500 euros on taxable profits must be taken into account.Another tax that must be paid by holding companies in Luxembourg is the municipal business tax or MBT. The value of this tax depends on the municipality, in the municipality of Luxembourg it amounts to 6.75%. However, a tax allowance of 17,500 euros on taxable profits must be taken into account.
Net wealth taxFinally, a third tax to be paid by holding companies in Luxembourg is the net wealth tax, which is levied on the net wealth of the company and its rate is as follows:
- 0.5% on the part of the net wealth less than or equal to 500,000,000 euros.
- 0.05% on the part of the net assets exceeding 500,000,000 euros.

Tax exemptions in Luxembourg

Companies that can be considered SOPARFI can benefit from a special tax regime:

No taxation on dividends from subsidiaries.
No taxation on capital gains from the sale of subsidiaries.
No taxation of liquidation surpluses.
Taxation of about 5.2% on net income from certain intellectual property assets such as patents, utility models, software copyrights or plant breeders' rights.

Taxes on holding companies in different countries in Europe

The taxation of holding companies in Europe is a complex and varied issue with each country having its own regimes designed to attract international investment. In general, many European countries have implemented participation exemption systems that allow holding companies to receive dividends and realize capital gains from their subsidiaries with little or no tax burden.

Luxembourg is known for its favorable tax regimes for holding companies offering significant exemptions and low effective tax rates although it is not the only one. Other countries such as Belgium, the Netherlands, Germany, France, and Spain also have similar systems, although with variations in the requirements and exemption levels.

Although a trend towards greater tax harmonization can be seen in Europe, driven by EU and OECD initiatives to combat tax evasion, there are still significant differences between countries. These differences allow companies some degree of tax planning, however, it is highly advisable to consult with a specialist advisor if you wish to do so.

Country	Corporate tax rate	Participation exemption	Corporate net wealth tax rate
Luxembourg	17% (15.75% for income up to 175,000 euros)	Yes	0.5% (with exemptions)
Germany	15% (plus solidarity surcharge and local trade tax)	Yes	No net wealth tax
France	25%	Yes	No net wealth tax
Belgium	25%	Yes	No net wealth tax
Spain	25%	Yes	No net wealth tax

How to form a holding company in Luxembourg

Since holding companies have the same legal form as traditional companies, the process for their creation is basically the same. However, registering a company in Luxembourg, holding or not, requires multiple steps and can take some time, so it is important to plan and most importantly to thoroughly understand the process. Here is the step-by-step procedure to form such a company in Luxembourg.

Choose the legal structure
Before starting the formalities, it is essential to choose the most appropriate type of company for the business. In the previous section we mentioned some of the most common types of companies for holding shares.Before starting the formalities, it is essential to choose the most appropriate type of company for the business. In the previous section we mentioned some of the most common types of companies for holding shares.
Reserve the name of the company
Before creating a holding company, it is necessary to check that the business name or is available. This is done by applying for a certificate of name availability electronically with the Luxembourg Business Registers (LBR).
Open a Bank Account
In the case of companies such as SARL or SA, a bank account must be opened in the name of the company being formed to deposit the minimum share capital required. Once the capital has been deposited, the bank issues a certificate to be used for the official registration of the company.In the case of companies such as SARL or SA, a bank account must be opened in the name of the company being formed to deposit the minimum share capital required. Once the capital has been deposited, the bank issues a certificate to be used for the official registration of the company.
Draft the company's articles of incorporation
The company's bylaws are the documents that define the internal functioning of the company, the rights and obligations of the partners, and the management structure. For some structures, the bylaws must be formalized before a notary. The bylaws must include:The company's bylaws are the documents that define the internal functioning of the company, the rights and obligations of the partners, and the management structure. For some structures, the bylaws must be formalized before a notary. The bylaws must include:
- Name and type of company.
- Registered office (domicile).
- Corporate purpose (business activity).
- Share capital and the distribution of shares among the partners.
- Management structure (administrators, boards, etc.).
Sign the bylaws before a notary (if applicable)
If the legal structure requires a notarial formalization as is the case of a SARL or SA, the founding partners must go to a notary to sign the company's bylaws.If the legal structure requires a notarial formalization as is the case of a SARL or SA, the founding partners must go to a notary to sign the company's bylaws.

Is also important to keep in mind that if the holding company does not exercise any activity other than the holding of shares, it will not need an establishment permit nor will it have to register for VAT purposes. However, if it conducts business operations, including with its subsidiaries or affiliates, it will be obliged to register for VAT purposes and apply for an establishment permit for the services it provides.

The tax regime for holding companies in Luxembourg in 2024 is one of the most attractive in Europe, as evidenced by the large number of holding companies that have set up in the Grand Duchy. However, the field of taxation is extremely complicated and strategies that may be useful for one company may not be useful for others or must be applied differently. It is therefore essential that any company wishing to set up a holding company in Luxembourg or in another country and thus take advantage of favorable tax regimes should consult a specialized advisor.

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