Business

Starting a holding company in Luxembourg in 2025

Luxembourg offers an extremely favorable environment for holding companies, which is manifested in the constant increase in the number of holding companies in the country. Through this article we will then examine their characteristics, their main advantages, and the basic steps to create one, as well as other details of interest.

Table of content

In Luxembourg, holding companies that meet certain characteristics may be referred to as SOPARFI. However, this denomination is not a separate legal form. Instead, it is a way of calling companies that adopt financial holding activity as their main purpose and that meet the requirements that allow them to benefit from the tax regime applicable to holding companies.

Holding company in Luxembourg

Holding companies are legal entities whose purpose is to own and manage participation in other companies, either by maintaining ownership of shares or holding other assets. Holding companies, instead of developing their own commercial activities, limit themselves to exercising control and management of the companies in which they have participation, benefiting from the income generated by these companies.

There are two types of holding companies in Luxembourg: SOPARFI (Société de Participations Financières) and SPF (Société de Gestion de Patrimoine Familial). As their name in French indicates, SOPARFIs are companies intended to hold financial participation in other companies, while SPFs are companies intended exclusively for the management of private assets.

It is important however to understand that both SOPARFIs and SPFs are not legal forms as such, they are simply designations that can be applied to companies that comply with a certain regulatory framework and can take advantage of special tax regimes. Below are some of their main characteristics:

Holdings in subsidiaries

A holding company is mainly engaged in owning shares or participations in other companies.

Absence of direct commercial activities

Holding companies do not carry out direct commercial or productive activities; their role is limited to the administrative and financial management of the business group.

Multiplicity of legal structures

Holding companies can be incorporated under different types of legal forms.

Autonomy of subsidiaries

The subsidiaries of a holding company operate independently with their own commercial activities and management, although they are subject to the strategic decisions made by the holding company.

Holding companies have a lot of advantages, such is the case that this type of company enjoys an unprecedented popularity. In Luxembourg, almost half of the commercial companies registered in the country are pure financial holding companies, with assets amounting in 2021 to no less than 6.5 trillion euros. Below we will then look at some of the main uses and advantages of holding companies in Luxembourg:

Tax optimization of participations

Holding companies in Luxembourg 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.

Control and management

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.

Physical location

Holding companies usually do not need their own premises and as they do not conduct any commercial activities they generally do not need an establishment permit which allows them to use domiciliation.

Simplification of mergers and acquisitions

A consolidated group under a holding company facilitates strategic mergers or acquisitions as it allows the holding company to operate as the central purchasing entity while maintaining the operability of the subsidiaries.

Accounting consolidation

Holding companies allow the financial statements of all their subsidiaries to be consolidated into one and provide a clear view of the financial health of the corporate 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 the subsidiaries.

Estate and succession planning

Holding companies make it possible to structure the transfer of assets from one generation to the next in an efficient manner and to minimize inheritance taxes. In cases of family ownership, holding companies allow the founders to retain control over the assets even when they transfer part of the ownership to successors or heirs. These types of companies are therefore frequently used by high-net-worth families to organize their wealth and plan for succession.

Legal regulation on holding companies in Luxembourg in 2024

As we saw above, holding companies in Luxembourg can take different legal forms; however, regardless of the legal form, for this type of company to be considered as SOPARFI and benefit from the special tax regime intended for holding companies. The Luxembourg regulation establishes that holding companies must comply with certain characteristics:

Main purpose of holding and management of 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 participating 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, i.e. to have its own premises and an 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.

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.

Taxes for holding the commercial activity goes beyond this, the company will have to comply with the legislation on the exercise of a commercial activity. The company will have to have its own premises and an establishment authorization, which will cause it to lose its special tax status.

Corporate income tax
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
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 tax
This is levied on the net wealth of the company at the following rates:
- 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 wealth exceeding 500,000,000 euros.

However, one of the main attractions of holding companies in Luxembourg and more specifically of those companies that can be considered as SOPARFI is the tax regime to which such companies have access and which entails the following benefits:

No taxation on dividends from subsidiaries.
A total exemption from withholding tax on dividends from subsidiaries.
No taxation on capital gains from the sale of subsidiaries.
No taxation of liquidation surpluses.
No withholding tax on liquidation distributions.
No withholding tax on arm's length interest payments if the interest is not profit-sharing.
Taxation of about 5.2% on net income from certain intellectual property assets such as patents, utility models, software copyrights or plant breeders' rights.

How to start a holding company in Luxembourg in 2025

Registering a company in Luxembourg, holding or not, requires multiple steps and can take some time, so it is important to plan and know the process well. Here is then the step-by-step procedure:

Choosing the legal structure
Before starting the formalities, it is essential to choose the most appropriate legal structure for the company. In Luxembourg, a holding company can have one of the following legal forms:
- Public limited company (SA).
- Limited liability company (SARL).
- Limited partnership by shares (SCA).
- Société Coopérative (SCOP)
Domiciliation of the company
Every company must have a registered office in Luxembourg so suitable premises are necessary. However, as holding companies generally do not carry out commercial activities, they do not need an establishment permit which makes it possible to resort to domiciliation.
Choice of a name for the company and verification of its availability
Before establishing a company, the entrepreneurs must choose a name for the company and check its availability. This is done by filing an application for a certificate of name availability electronically with the Luxembourg Business Registers (LBR).
Opening of a bank account and deposit of the share capital
Before signing the deed of incorporation it is necessary to open a bank account in the name of the company being formed and deposit the share capital. Upon doing so the bank will issue a certificate of blocking of funds which must be presented to the notary as proof. For this step, the final articles of association of the company are not required but it is necessary to present at least a draft of the articles of association.
Drafting, validation and signing of the articles of association
In order to register the company, it is essential to first draft its articles of association, which must contain essential information such as the name of the company, the registered office, the corporate purpose, the duration of the company and the capital stock, among other details. Once they have been drafted, depending on the legal form chosen, the presence of a notary may or may not be necessary for their validation and signature.
- Companies with limited liability: the articles of association must be validated by a notary and signed in his presence.
- Companies with unlimited liability: the articles of association can be signed privately and the presence of a notary is not required.
Registration with the Registry of Commerce and Companies (RCS)
Once the articles of association have been signed, it is necessary to register the company with the Luxembourg Register of Commerce and Companies (RCS), a step that is usually carried out by the same notary. This registration is mandatory and confers legal personality to the company, officially recognizing it as a legal entity in Luxembourg.
Publication in the RESA
Once registered with the RCS, the incorporation of the company must be published in the Recueil Electronique des Sociétés et Associations (RESA), which is the official gazette of Luxembourg where all acts related to companies are published. This publication is a necessary step to make the existence of the company known to the public and to ensure transparency about its incorporation, domicile, share capital and administration. In Luxembourg, the notary is generally responsible for coordinating this publication.

Luxembourg

Business

Guide

How to register a company in Luxembourg

Establishing a holding company in Luxembourg represents an extremely interesting alternative for all those companies and individuals who wish to optimize the management of their shareholdings and benefit from all the advantages that this type of company offers. As we have seen throughout the document, the advantages are numerous, which is why a large number of companies have chosen to create this type of company in the Grand Duchy.

At the end of the article we have mentioned the step by step to create this type of company, however, before creating one it is highly recommended to consult with a specialized advisor. This will be of great help not only in terms of advice on how to create a holding company in Luxembourg but also, and not less importantly, will be of great help in terms of analyzing the usefulness of creating a holding company for your specific case, the best strategies to adopt and the best ways to proceed.