The Private Wealth Management Company (hereafter referred as SPF) has been introduced by the law of May 8, 2007 in order to propose an alternative to H29 held by private individual investors. This law is a consequence of the decision of the EU commission on the incompatibility of the H29 regime with EU state aid rules.
The SPF is a vehicle designed for the management of the Private Wealth in a tax efficient manner providing for a deferral of the taxation when proceeds are distributed to the investors.
The scope of eligible investors is defined in article 2 of the law. The shares of the SPF are strictly reserved to
Individuals acting in the scope of the management of their private wealth
Estate corporation acting exclusively in the interest of private individuals
An intermediary acting on behalf on the two above mentioned eligible investors.
The second category refers to trust, foundation or “stichting administratie kantoor”. The comments on the initial draft project mention that shares can also be owned by a group of individuals forming a restricted club of investors. The shares of the SPF may further not be quoted on a stock market.
There are three corporate legal forms which can be used :
Public Limited Company (SA) – Luxembourg equivalent of the NV
Limited Company (SARL) – Luxembourg equivalent of the BVBA
Partnership Limited by Shares (SCA)
Authorisation and supervision
The SPF is not subject to any prior authorization.
The overall supervision of the SPF falls in the scope of the Indirect Tax administration (i.e. “Administration de l’Enregistrement et des Domaines”).
The domiciliation agent needs to certify on a yearly basis that the SPF did not receive more than 5% of bad dividend.
The domiciliation agent needs also to ascertain that the shares of the SPF are well held by eligible investors.
Finally, the domiciliation agent needs also to issue a statement on the fact that the SPF did comply with its obligation of paying agent if any or has sub delegated this function to a financial establishment.
The SA, SCA must have a minimum capital of EUR 31,000 where 7,250 need to be fully paid up
The SARL must have a minimum capital of EUR 12,500 where 100% must be fully paid up
SPFs are obliged to create a legal reserve which is equal to 5% of the profit until the legal reserve reaches 10% of the share capital.
Investment policy and corporate object
The activities of the SPF are strictly limited to management of the private wealth
The SPF cannot
carry out any commercial activities
hold directly real estate
lend money or grant a caution unless in restrictive conditions being on ancillary basis and for free
The SPF can
hold an important participation but may not interfere in its management
invest in the broadest scope of financial assets (gold, currencies, securities such as bonds, swap, etc.)
Legal and regulatory framework
The registered office and the head office of a SPF must be situated in Luxembourg.
The SPF is not required to entrust its assets with a custodian bank.
Central administration / domiciliation
The central administration concept does not apply as such for SPF as they are less regulated, the administration consists in providing a domicile, accounting and tax services for these companies.
Offering document and annual report
The SPF can only be used for a restricted circle of investors. There is thus no need to issue any Private Placement Memorandum.
Publication of annual accounts together with the report of the statutory auditor if needed must be done within 7 months from the end of the period to which these reports refer to.
Issue of new shares
An SPF can in principle freely issue new shares provided that they are subscribed by eligible investors. The type of legal form and the existence of pre emptive rights or restriction on transfer of shares may influence the increase of the share capital.
The contribution can either be in cash or in kind.
Dividend distributions are decided by the annual general meeting of the shareholder
Since 2009 and under certain conditions, interim dividends can also be decided by the board of directors (S.A.) or the board of managers (S.à.r.l).
Net asset valuation
There is no particular asset valuation for SPF. The valuation is based on a prudent approach meaning that most of the time the acquisition price is the higher amount allowed for the valuation. Depreciation and value adjustments should be accrued in case of a decrease in value of a given asset value.
The recent amendments in the accounting law however allow the fair market value method for the valuation of financial instruments.
An SPF cannot create segregated compartments like SICAR or a SIF.
It could however create tracking instruments to allocate specific income to a given investor.
The SPF is not subject to corporate income tax, municipal business tax and net wealth tax.
The SPF is subject to a subscription tax at a rate of 0,25% assessed on the share capital plus share premium plus the amount of debt which exceeds 8 times the amount of the share capital and share premium.
The maximum subscription tax cannot be higher than 125.000 EUR per year while the minimum cannot be lower than 100 EUR per year.
During the year of its incorporation or of its liquidation the subscription is due on prorata basis.
The SPF is a paying agent within the meaning of the savings directive and the law of December 23, 2005 introducing a final withholding tax on certain interest income. This means that interest income paid to non resident may suffer a withholding tax of 35% while interest served to Luxembourg resident tax payer could benefit from the final 10% withholding tax.
Dividends paid to resident or non resident shareholders by an SPF are not subject to any withholding tax.
Due to the fact that an SPF is not subject to income tax dividends paid by a subsidiary company may be subject to withholding tax regardless of the percentage of shareholding held.
Dividend distributed by the SPF to resident shareholder may further not benefit from the 50% exemption provided by article 115, 15 a) of the Luxembourg Income Tax Law. Such dividends are therefore fully taxable in the hand of Luxembourg residents.
Capital gains realized on the sale of the SPF’s shares by non-resident shareholders are exempt from taxation in Luxembourg.
Practical example on the computation of the subscription tax
The basis of the subscription tax will be :
= 31.000 € + 69.000 € + (1.000.000 € – (8 * (31.000 € + 69.000 €)))
= 100.000 € + 1.000.000 € – 800.000 €
= 300.000 €
The basis of the net wealth tax will be :
= 31.000 € + 69.000 € + (800.000 € – (8 * (31.000 € + 69.000 €)))
= 100.000 € + 800.000 € – 800.000 €
= 100.000 €
Exemple (3) : optimisation of Example one
The ideal debt equity ratio is 9/1
Incorporation of the debt in the share capital for 1/9 of the total liabililties 1.100.000