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In
July, 2006, the European Commission ordered the government
of Luxembourg to dismantle its system of tax breaks for financial
holding companies, after concluding that the preferential
tax regime in favour of Luxembourg’s Exempt, Milliardaire
and 1929 Financial Holding companies violates EC Treaty state
aid rules. (The existing regimes are described in Offshore
Legal and Tax Regimes.)
"It
distorts competition and trade by altering the level playing
field between financial undertakings and induces them to create
dedicated structures in Luxembourg to reduce their current
tax liabilities," the EC stated.
In
June 2005, Luxembourg amended the 1929 law by abolishing the
exempt status for holdings receiving more than 5% of their
yearly dividend income from participating companies which
have not been subject to a tax comparable to the one applied
in Luxembourg. While this narrowed the scope of the law, the
EC argued that the regime still constitutes state aid, as
the tax advantages remain unchanged.
Luxembourg
did finally abolish the holding company regimes as of 1st
January 2007, allowing existing companies to retain their
tax benefits until 2010. As originally drafted, the legislation
would have removed tax benefits from any company that changed
its share-holdings during the 'grandfather' period.
However,
in August, 2006, Tenaris, a leading global manufacturer of
pipelines for the oil and gas industry, sought clarification
of the decision by the European Commission. Tenaris believes,
based on the reasons that led the EC to allow a transition
period, that the above described effect should not apply to
listed companies with publicly-traded securities.
"As
neither listed companies nor their shareholders are able to
prevent trading in the listed companies’ shares, a different
interpretation would defeat the purpose of the transition
period that the EC deemed necessary to accommodate the expectations
and reorganization needs of such companies and their shareholders,"
the company stated.
An
appropriate amendment was added to the law to deal with this
point.
The
replacement for the holding company regime is the Family Private
Assets Management Company, or SPF, brought into being in 2007,
and aimed at the wealth management sector.
Societe
Anonyme (Joint Stock Company)
The
Societe Anonyme, abbreviated SA, or joint stock company, is
formed under the Commercial Companies Law 1915, as amended.
SAs must have a minimum capital of EUR31,000 divided into
freely transferable shares held by at least two shareholders,
who may be resident or non-resident persons or juridical entities.
The shareholders' liability is limited to the amount of their
subscribed (not necessarily paid-up) capital. There is a Board
of Directors (at least three), and day-to-day management may
be delegated to a managing director.
Incorporation
takes 2 or 3 days; the SA's statutes must be printed in French
or German; a director must give his name, address and occupation.
There must be registered office in Luxembourg, but only the
share register need be kept there. Accounts need to be submitted
annually to the Registrar of Companies, but need only be audited
if a company exceeds a certain size: either the balance sheet
is greater than EUR3.125m, or sales are greater than EUR6.25m,
or there are more than 50 employees.
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Societee
a Responsabilite Limitee (Limited Liability Company)
The
Societe a Responsabilite Limitee, abbreviated SARL, or limited
liability company, is also formed under the Commercial Companies
Law 1915, as amended. The SARL must have a minimum paid-up
capital of LUF 500,000 divided into 'participation certificates'
which are not freely transferable. There may not be more than
40 shareholders, and they are liable for the amount of their
paid-up capital. If there are fewer than 25 shareholders an
annual gemeral meeting is not necessary.
In
other respects, the SARL is similar to the SA.
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General
Partnership
General
Partnerships are recognised in Luxembourg law either as a
Societe Civile (most professional partnerships take this form)
or as a Societe en Nom Collectif (for instance, a family business
might choose this form). The partners are liable jointly and
severally for the full debts of the partnership. Partnerships
must be registered with Greffe du Tribunal de Commerce.
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Limited
Partnership
Limited
partnerships in Luxembourg have general partners, who are
responsible for management, and have unlimited liability,
and limited partners, who are liable only to the extent of
their capital contributions to the partnership. A limited
partnership can either be a Societe en Commandite Simple in
which case it is subject to the same rules as a general partnership,
or it can be a Societe en Commandite par Actions, in which
case the limited partners are issued with shares and the partnership
is treated in the same way as an SA (see above) in most respects.
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Branch
of Overseas Company
An
overseas company can carry on business in Luxembourg through
a branch office, but will need to obtain a permit as does
every business. A branch office will normally constitute a
permanent establishment from a tax point of view (see Domestic
Corporate Taxation).
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'Holding'
Company
The
Luxembourg Holding Company and 'Soparfi' (Societe a Participation
Financiere) are the forms which permit 'offshore' activity
in Luxembourg: see Offshore
Legal and Tax Regimes for a full description. However,
they are not separate legal forms as such, and employ one
of the above forms, either SA, SARL or Societe en Commandite
par Actions, as a legal base.
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