Luxembourg is Europe’s leading fund location – and offers two very different tools for participations and wealth. The SOPARFI is a fully taxable holding that receives dividends and capital gains from qualifying participations tax-free. The SPF, by contrast, is a family wealth management company that pays no income tax at all but is limited to passive asset management. Company formation in Luxembourg therefore starts with the question of which purpose comes first.
The tax burden at a glance
At a glance: for regular companies, the tax burden consists of corporate income tax, the solidarity surcharge and the municipal business tax. Since 2025, corporate income tax has been 16% (14% for income below €175,000); in Luxembourg City this results in an overall burden of 23.87%. There is also a net wealth tax of 0.5% on net assets, with a minimum of €535 to €4,815 depending on the balance sheet. Taxes are administered by the Direct Tax Administration (ACD).
SOPARFI or SPF
The two holding forms compared:
| For entrepreneursSOPARFI | SPF | |
|---|---|---|
| Purpose | participations and business activity | exclusively passive asset management |
| Shareholders | any | individuals and their wealth structures |
| Corporate and net wealth tax | yes, with participation exemption | no |
| Subscription tax | none | 0.25%, minimum €1,000, maximum €125,000 |
| Tax treaties and EU directives | applicable | not applicable |
The SOPARFI receives dividends and capital gains tax-free if it generally holds at least 10%, or shares with acquisition costs of at least €1.2 million (dividends) or €6 million (capital gains), for at least twelve months. The SPF, on the other hand, is fully exempt from corporate and net wealth tax and pays only the subscription tax, payable quarterly to the Registration Duties, Estates and VAT Authority (AED); in return, it may neither carry on a commercial activity nor interfere in the management of its participations.
80% exemption for IP income
Net income from qualifying patents and software is 80% exempt from corporate income tax; the effective burden is therefore below 5%. The exemption for IP income requires the development to have been carried out essentially by the company itself. Anyone planning company formation in Luxembourg to exploit their own technology will find one of the most favourable frameworks in the EU.
SARL, SA and SARL-S
Both SOPARFI and SPF are usually formed as a SARL or SA. The SARL requires €12,000 of share capital, the SA €30,000; the simplified SARL-S is possible from €1 but is open only to individuals and suited to small operating start-ups.
Luxembourg levies 15% withholding tax on distributions to shareholders, which falls to 0% for EU parent companies and under many of its roughly 90 double tax treaties.
Funds and investment assets
As Europe’s largest fund location, Luxembourg also offers funds and structures for investment assets beyond the classic holding. The special limited partnership (SCSp) is a partnership without legal personality whose terms can be designed very freely; it is tax-transparent and widely used for private equity and real estate funds. The reserved alternative investment fund (RAIF) is not directly supervised by the financial regulator CSSF but via an authorised fund manager and can therefore be launched much faster.
Both structures are aimed at professional and well-informed investors. For entrepreneurs with shareholding portfolios or co-investments, they can be an alternative to the SOPARFI.
Tax regime for newcomers
With its 2025 reform, Luxembourg simplified its tax regime for highly qualified newcomers: under certain conditions, 50% of annual gross remuneration is exempt from income tax. For entrepreneurs who want to combine a Luxembourg holding with a personal move, this is an additional planning factor.
Notary, blocked account, register
Company formation in Luxembourg runs through a notary and the register; the formation comprises five stages:
- Business permit: for operating activities via Guichet.lu; pure holdings generally do not need one.
- Pay in the capital: into a blocked account with a Luxembourg bank.
- Notarial formation: with articles of association, for the SPF with express submission to the SPF law.
- Registration: in the Trade and Companies Register (RCS).
- Tax registration: with the tax administration or, for the SPF, with the AED.
With complete documents, the company is usually formed within two to three weeks.
Accounting and obligations
The key obligations for bookkeeping, accounts, audit and VAT at a glance – so you know from the start what running your company involves.
| Obligation | Rule |
|---|---|
| Annual accounts | Approval within six months, filing with the RCS within one month thereafter |
| Statutory audit | Approved statutory auditor from 2 of 3: total assets €4.4m, turnover €8.8m, 50 staff; reform with higher thresholds pending |
| Tax return | Annual return; the SPF pays subscription tax quarterly to the AED |
| VAT: registration | Standard rate 17%; pure holdings and SPFs are generally not VAT-registered |
| Ongoing register duties | Keep the register of beneficial owners (RBE) up to date |
As of 2026. Bookkeeping and filings are usually handled by specialised accountants in the target country.
Is Luxembourg right for you?
Luxembourg is not a location for every business but for specific structures. Whether it is right for you is shown in the overview:
Suitable for
- Business holdings with participations in the EU
- Private securities portfolios in an SPF
- Investment structures and funds
- Companies with income from patents and software
Less suitable for
- Small business owners with a simple service business
- Founders unable to commit €12,000 of capital
- Ventures looking for the lowest tax rate in the EU
- Online shops without a holding or investment angle
For wealth with succession planning, the foundation in Liechtenstein is also an option; holdings within the EU at a lower rate are offered by Malta and Cyprus. Alternatives and rates are shown in the overview of all locations and the tax comparison; which holding form fits can be assessed in an initial call.
