Participation in a company other than a Joint Stock Company
The Minister of Finance authorized the participation (3) of a holding company in a company other than a joint stock company, under certain conditions:
– the authorized capital must be a minimum of fifty million francs;
– the holding company may not assume any administrative or management function within the held company;
– the sole objective of the company in which the holding company has a participation must be the taking of participations in joint stock companies to the exclusion of all industrial and commercial activity;
– the company in which the holding company has a participation will not be able to borrow money; this bar must be the direct result of the holding company’s contract which allows it to have access to all information in relation to its participation;
– the legal status of the company in which the holding company has a participation will be such that the responsibility of the holding company will be limited to its investment and that any claim on the part of a third party will be assumed by the management of the company.
Investment funds have expanded in Luxembourg since 19 59 both in the form of investment companies and mutual funds, each of the latter being managed by a separate management company. Emanating from law practice, these juridical forms were originally subject to holding company law as enacted by the law of July 31, 1929.
The choice of Luxembourg as the domicile for investment funds found a new scope with the introduction of the August 25, 1983 Act which set up specific fiscal and legal regulations. Under this law, the structure of the investment company with variable share capital or SICAV (Société d’Investissement à Capital Variable) received its consecration. lnvestment funds were endowed with the following ad hoc tax structure:
– the 1 °/o contribution capital was replaced by a fixed rate of fifty thousand francs, payable at constitution and covering any subsequent capital increases;
– an annual subscription tax of 0.06°/o calculated on the base of the total net assets of the funds estimated on the last day of each fiscal quarter.
The March 30, 1988 Act, the most recent relating to investment funds. confirmed this fiscal structure.
Dividends paid by these funds are made without withholding tax and are not taxable in the case of non-residents. The holding company status still applies to advisory companies under certain conditions fixed by the ‘Administration de l’Enregistrement.
These conditions are that:
– the social aim of the company may only allow assistance of one investment fund;
– the advisory company must invest 5°/o of its authorized capital in the fund, within a minimum of 2 million francs;
– the advisory company may own other transferable securities, but 25°/o of the authorized capital must be invested in the Luxembourg Public Fund at a minimum of one rnillion francs;
– the capital of an advisory company must be more than three million francs.