Agefi Luxembourg - mars 2025

Mars 2025 9 AGEFI Luxembourg Banques / Assurances ByEmre AKAN ,Counsel,Tax&Gonzalo BURGALETA AZA , LegalAdvisor, Tax, DLAPiper Luxembourg L uxembourg legislation governing its bespoke vehicle for private wealthmanagement, the Société de gestion de patrimoine familial (“SPF”), has recently been amended. The Bill (1) brings several newmeasures, in- cluding the introduction of new fines up to EUR 250,000. This article explores the popular- ity of the SPF, key structuring considerations, andwhatmarket participants should be aware of considering the recent changes. Private wealth management is in vogue Figures recentlypublishedbyThe Economist reveal that people in advanced economies stand to inherit aroundUSD 6 trillion this year – about 10% of global GDP, up from5%onaverage ina selection of rich countries during the middle of the 20 th cen- tury. (2) Luxembourg is positioning itself as a key player in the wealth management space: private banking assets undermanagement (AuM) rose 76% between2008 and2018 from€225 billion to €395 bil- lion, with latest figures published by Luxembourg for Finance climbing to €508 billion AuM, repre- senting an additional increase of 29% since 2018. (3) Why an SPF? The SPF has become the investment vehicle of choice for many wealth managers, family offices and affluent taxpayers. Introduced in 2007 through theLawof 11May2007 (the “SPFLaw”) andreplac- ing the previous “Holding 1929” regime, the SPF is not per se a legal entity. Rather, the SPFLawsets out anattractive tax regime for certainwidelyused joint stock companies under the right conditions. Taking a closer look at the SPF regime, the reasons for its popularity become evident. These vehicles are fully exempt from corporate income tax, mu- nicipal business tax andnetwealth tax, andare only subject to an annual subscription tax of 0.25%. The Bill has increased the minimum annual subscrip- tion tax charge from EUR 100 to a still relatively modest EUR 1,000, with a cap at EUR 125,000. Regarding distributions to investors, the picture is more nuanced, but benefits remain substantial: preferential tax conditions are extended to the pay- ment of dividends, which are exempt from the usual 15%withholding tax if distributedby an SPF. Interest payments toLuxembourg resident individ- uals may be subject to a final 20%withholding tax under certain conditions, and director fees ( tan- tièmes) are principally subject to a 20%withholding tax on the gross amount of fees.Nowithholding tax should apply for interest paid to non-residents. Rules are rules… No specific authorization or license is required to benefit from the SPF regime. Taxpayers will how- ever need to complywith a set of requirements, re- strictions and compliance obligations. Failure to comply can lead to the Luxembourg Registration Duties, Estates, and VAT Authority ( L’Administra- tion de l’enregistrement, des domaines et de la TVA , in short the “AED”), the competent authority oversee- ing SPFs, applying the new remedies set out in the Bill, and in theworst-case scenario, result in theper- manent withdrawal of the SPF status. The SPF is designed as a vehicle tomanage private wealth assets. In terms of its activities, it is therefore intended for the acquisition, holding and selling of financial assets and participations in other compa- nies whether in Luxembourg or abroad. It cannot engage in commercial activities, andwhile there are no constraints on the activities of an SPF’s sub- sidiaries, the SPF itself is not allowed to engage in the management of these subsidiaries. Addition- ally, SPFs are generally restricted fromgranting in- terest-bearing loans, even to their subsidiaries. Akeyprohibition given the asset class’s popularity for providing attractive investment opportunities anduncorrelated returns, SPFs are alsobarred from investing into real estate, directly or through tax transparent vehicles. SPFs can however invest into tax opaque companies holding real estate. SPFs can be financed through debt or equity, with no specific thin capitalization requirements apply- ing. In practice, however, debt financing of an SPF tends to be limited to a debt portion of up to eight times the amount of the paid-in share capital and share premium of the SPF. That is due to the computationof the sub- scription tax base, which is broadly levied on the sumof paid in-share capital, share premium, and the debt exceeding this ratio. Keeping with its purpose as a pri- vatewealthmanagement vehicle, the SPF Law restricts eligible in- vestors to (i) natural per- sons managing their privatewealth, (ii) cer- tain patrimonial enti- ties such as family offices and trusts acting exclu- sively in the in- terest of the privatewealth of oneormore individuals, and (iii) certain inter- mediaries such as fiduciary agents acting on behalf of the first two categories of qualifying investors. SPFs will also need to comply with certain filing obligations. Subscription tax returns need tobefiled and paid quarterly and tax payments must be made in a timelymanner.Additionally, SPFsmust electronically submit an annual certificate as proof of compliancewith applicable rules and restrictions regarding eligible investors and certainmatters re- lated to the payment of interest to Luxembourg tax resident individuals. In practice, this involves en- gaging a qualified domiciliation agent or external auditor to certify compliance. A look at the recent updates The recent legislative changes clarify audit proce- dures for SPFs, require that SPFs include “société de gestionde patrimoine familial” or “SPF” in their name, and as previously mentioned, increase the minimum subscription tax charge to €1,000. Most notably, theAEDnowhas a broader range ofmech- anisms to address non-compliance with the rules, including new fines. These changes in some sense providewelcome clar- ifications and leeway for taxpayers. In its comment on the draft version of the Bill, the Conseil d’État praised the legislative changes, noting that existing remedies i.e., the outrightwithdrawal of the SPF sta- tusonly,wereinappropriateanddisproportionatein their effect. Indeed, whereas previous non-compli- ance coulddirectly lead to thewithdrawal of the SPF status after certain delays, the updated SPF Law in- troduces additional remedies and limits the with- drawal of the SPF status tomore serious breaches. Under the updated SPF Law, the Director of the AED may impose fines of up to (i) €10,000 for is- sues such as non-compliancewithnaming require- ments or failure to submit the requisite compliance certificate or subscription tax return, and (ii) €250,000 for more serious breaches, such as where an SPF has non-qualifying investors or engages in unauthorized activities like commercial activities, managing a subsidiary, or directly holding real es- tate assets in a non-compliant manner. The amended SPF Lawspecifies that in cases of se- rious breaches, theAEDmay request the SPF to rec- tify the non-compliance within a 6-month period. This affords taxpayers the opportunity to remedy such breaches and respond to the AED’s findings. If the Director of the AED determines that the SPF has failed to comply after this period, the benefit of the SPF status can be permanently withdrawn, meaning that the company will be fully taxable as from the day of the withdrawal decision notifica- tion. Additionally, if an SPF continues to use the “SPF” denomination after status withdrawal, fur- ther fines of up to €5,000 permonth of non-compli- ance may be imposed. While thesefines canbe significant, theymaybe less severe than the permanent loss of the SPF regime. Taxpayers should remain vigilant or run the risk of incurring potentially substantial penalties. Closing remarks The SPFLawoffers an attractive tax regime for cer- tain private wealth management activities. To en- sure they can benefit from the carrot, and not just suffer the stick,wealthmanagers, familyoffices and affluent taxpayers, should seek advice from expe- rienced professionals. This is crucial not only due to the requirements and restrictions discussed in this article but also due to international tax consid- erations – the SPF regime’s advantages mean that these vehicles are generally not eligible for double tax treaty protection and certain European Direc- tives on taxation. (4) Arecent Circular fromtheLuxembourg tax admin- istration, which allows SPFs to obtain a tax resi- dence certificate under certain conditions, is a positive development in this respect, but its practi- cal impact remains to be seen. Careful structuring, considering overall investment objectives, asset types, and involved jurisdictions, is essential for op- erating an efficient structure. At DLA Piper, we regularly assist our Clients in structuring their private wealth activities. We pro- vide market-tested advice tailored to our Clients’ unique interests and challenges throughout the globe, with a presence in over 40 countries through more than 80 offices. If you have any questions, please reach out to us. 1) Bill 8414, published on 24.12.2024 inMémorial A n°589 2) Inheriting is becoming nearly as important as working 3) WealthManagement - Luxembourg for Finance 4) Council Directive 2011/96/EU of 30 November 2011 (Parent- Subsidiary Directive); Council Directive 2009/133/EC of 19 Octo- ber 2009 (Merger Directive); Council Directive 2003/49/EC of 3 June 2003 (Interest and Royalties Directive) With every carrot comes a stick: Luxembourg tightens rules on its popular wealth management vehicle, the SPF I n February 2025, the PwCBusi- ness Barometer stood at -5, slightly improving from-6 in January 2025. Despite remaining innegative territory, the indicator’s growth reflects a renewed sense of confidence among some busi- nesses inLuxembourg. Business confidence in Luxembourg is showing signs of recovery, although it still remains in negative territory. According to STATEC, recent months have seen a decrease in the percentage of companies reporting financial constraints, along with an improved employment outlook. Followinga sharp decline inQ3 2024, confidence in the ser- vice sector has risen for the fourth conse- cutive month, reaching its highest level in two and a half years. A similar trend is evident in the retail sector,whichexpe- rienced a significant drop in confidence in Q3 2024 but has since rebounded. Meanwhile, confidence in the industrial sector has seen marginal improvement but remains volatile, with ongoing monthly fluctuations. Incontrast,confidenceintheconstruction sector has fallen to levels not seen since the2009 financial crisis,withapproxima- tely 60% of firms reporting insufficient demand – up significantly from just 10% atthebeginningof2022.STATECreports that40%ofjoblossesduetobankruptcies last year occurred in the construction industry. However, job losses in the construction sector are showing signs of stabilisation, improving from -1.6% in early 2024 to -0.6% inQ4. Onabroaderscale,Luxembourg’slabour market presents a mixed outlook. As of January2025,theunemploymentratehas decreased to 5.8%. Employers reported 3,426newjobvacancies,markinga14.6% increase fromDecember, indicating sus- tained demand for hiring. However, the number of job seekers rose by 6.1%year- on-year in January, highlighting the ongoing challenges many individuals face in finding employment. Overall, the labourmarketcontinuestoadapttochan- ging economic conditions, presenting both challenges and opportunities for workers in the comingmonths. The Euro Area economy remained in expansion territory in February, with the EurozoneCompositePMIholdingsteady at 50.2. However, underlying conditions remain fragile, as weak demand and contractingbusinessvolumescontinueto dampen growth, leading todeteriorating confidence and a seventh consecutive month of declining employment. While inflationeasedto2.4%,businessesstillface significant cost pressures, with input prices rising at the fastest pace in nearly two years. However, as overall disinfla- tionprogresses,theECBhasimplemented its sixth rate cut inninemonths, lowering interest rates by 25bps. The central bank has also raised concerns about economic growth,promptingadownwardrevision of the 2025 forecast to 0.9%. A potential turningpointcouldemergeifnewlyelec- ted German Chancellor Friedrich Merz follows throughonhisplan toamend the German constitution to ease fiscal constraints. Such a shift would enable a historicincreaseinpublicspendingaimed at revitalising Germany’s sluggish eco- nomy,withpotentialspillovereffectsthat couldsupportbroaderEuroAreagrowth. At a global level, the trade war initiated by the Trump administration has escala- tedfurther,withtheU.S.Presidentimpo- sing a 25%tariff on steel andaluminium imports, effective from 11 March. In res- ponse,theEUhasannouncedswiftcoun- termeasures, planning to impose tariffs on EUR 26bn (over USD 28bn) worth of U.S. goods starting in April. Similarly, Canadawill implement retaliatory tariffs amounting to CAD 29.8 billion, while China has begun imposing tariffs on key U.S. agricultural exports. The intensifica- tion of the trade dispute has significantly impacted business confidence and eco- nomic projections in the U.S. The latest forecastfromtheAtlantaFed’sGDPNow model anticipates an annualised real GDP contraction of -2.4% for the first quarter. Labour market data reflects a similar trend,with jobgrowthslowing in February—payrolls increased by only 151,000, while the unemployment rate edgedup to 4.1% from4.0%. Financial markets have responded to these economic indicators with heighte- ned volatility. The S&P 500 entered cor- rection territory, declining by 6% in the firsttendaysofMarch,whiletheNasdaq dropped by over 7% within the same period. Inflation moderated in February to2.8%,highlightingtheoveralleconomic slowdown. The monthly PwC barometer, in collaboration with AGEFILuxembourg, isaneconomicconfidence indi- cator that is intended to be a simple and pragmatic tool aimed at capturing the economic atmosphere of the Grand Duchy each month. The indicator is based on a number of sentiment indices published monthly by Eurostat and Sentix, which are based on surveys (businesses, consumers or investors/ analysts). The indicators used are: consumer confidence (EA for euroareaandLUXforLuxembourg),industrialconfi- dence(EAandLUX),constructionconfidence(EAand LUX),financialconfidence(EA),retailconfidence(EA), services confidence (EA) and the Sentix Index (EA). The evolution of the barometer over the past four years is displayed on the graph below. PwCMarketResearchCentre, IHSMarkit,Sentix,STATEC The monthly PwC Barometer