What are holding companies?
When speaking of holding companies, the term “holding” refers to the function or purpose of a business entity. This denomination does not define a legal form or a specific tax regime but a specific activity: the administration of participations and assets under an existing legal form.
Creating a holding company in Luxembourg is very common and there are many such companies in Luxembourg as they offer many advantages to their owners. The following are some of the main uses and advantages of holding companies in Luxembourg:
Participation in the parent-subsidiary directive
One of the advantages of a holding company is the possibility of benefiting from the Parent-Subsidiary Directive, provided that the requirements established by this regulation are met. Among the benefits offered by this directive is the tax exemption on dividends of its subsidiaries, the tax exemption on capital gains realized on the sale of participations and the tax exemption on liquidation income, such as dividends paid on the liquidation of a subsidiary.
Control and management
Holding companies allow the ownership of several subsidiaries to be concentrated in a single entity. This facilitates the supervision and control of strategic decisions, asset management and the implementation of unified corporate policies throughout the business group.
In addition, this type of company usually does not need its own premises and as it does not carry out any commercial activities, it does not usually need an establishment permit and can therefore resort to domiciliation.
Asset protection
Holding companies make it possible to isolate strategic or valuable assets such as property, patents or intellectual property rights from the operational risk faced by subsidiary companies.
Accounting consolidation
Holding companies make it possible to consolidate the financial statements of all their subsidiaries into a single one and provide a clear view of the financial health of the corporate group.
Succession planning
Holding companies provide an efficient way to structure the transfer of assets from one generation to the next and to minimize inheritance taxes. In cases of family ownership, holding companies allow the founders to retain control over the assets even when they transfer part of the ownership to successors or heirs. These types of companies are therefore frequently used by high-net-worth families to organize their wealth and plan for succession.
Legal framework for holding companies in Luxembourg
Let us now take a look at the legal framework by examining the legal forms available for holding companies in Luxembourg and the requirements for opening such a company.
Available legal forms
Since the “holding” designation only refers to the purpose of the company and not to its legal form, a holding company can have multiple legal forms to operate in Luxembourg, some of the most common ones are the following:
- Limited company (SA): this is a common legal form for large companies in Luxembourg and is ideal for holding companies that require flexibility in the issuance of shares and the ability to be listed on the stock exchange.
- Limited Liability Company (SARL): this is widely used by small and medium-sized companies and may be suitable for a medium-sized holding company or a family group.
- Limited partnership by shares (SCA): this is a hybrid form between a limited partnership and a limited liability company, it is ideal for structures where specialized management is needed, generally carried out by a managing partner, and where additional capital is to be raised from investors.
- Cooperative company (SC): Although this type of structure is less common for holding companies, it can also be used and can be useful for business groups seeking a cooperative or collaborative structure.
General requirements
The requirements for establishing a holding company in Luxembourg vary according to the legal form adopted. However, some requirements are common to all of them:
- Minimum capital stock: it is necessary to provide an initial capital stock, the amount of which depends on the legal form.
- Drafting and signing of the articles of incorporation: it is necessary to draft the articles of incorporation and formalize them. Depending on the type of company, this may require the intervention of a notary.
- Shareholders or associates and governance structure: depending on the type of company, there are specific requirements regarding the number of associates or shareholders and the governance of the company.
- To have a bank account: it is necessary to open a bank account in Luxembourg where the share capital is deposited.
- Having a registered office: when incorporating a company it must have a registered office in Luxembourg, this place constitutes its principal place of business and must be mentioned when the company is registered in the Luxembourg Trade and Companies Register (RCS).
- Have a legal name: it is necessary to choose a legal name for the company and make sure that it is available.
- Registration: the company must be registered in the Trade and Companies Register (RCS).
Parent-Subsidiary Directive requirements
In addition to the general requirements, the holding company must meet certain requirements in order to benefit from the Parent-Subsidiary Directive:
- Legal form: the company must have an admissible legal form, such legal forms are those listed in the Annex to paragraph 10 of art. 166 LIR.
- Tax status: the company must be a Luxembourg resident entity, fully subject to corporate income tax (IRC).
- Residence and taxation of subsidiaries: the subsidiaries must be capital companies resident in an EU Member State or in a country having a tax treaty with Luxembourg and must be subject to a tax comparable to the IRC.
- Minimum holding threshold: the company must directly hold at least 10% of the share capital of the subsidiary or have acquired this holding for a minimum amount of 1.2 million euros in the case of dividends or 6 million euros in the case of capital gains.
- Minimum holding period: the shareholding in the subsidiaries must be held for an uninterrupted period of at least 12 months, or there must be a firm commitment to hold the shareholding for this period.
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Learn moreProcess to set up a holding company in Luxembourg
Registering a company in Luxembourg, holding or not, requires multiple steps and can take some time, so it is important to plan and above all to be familiar with the process, which is outlined below.
1️⃣ Choosing the legal structure
Before starting the formalities, it is essential to choose the most suitable type of company for the business. In the previous sections, we mentioned some of the most common types of companies for holding purposes.
2️⃣ Choose a name for the company
Before creating a company it is necessary to choose a name for the company and it is advisable to check the availability of such name. Although this availability check is optional, it is highly recommended as it ensures that the chosen name is not in use and avoids rejections during the official registration of the company. The availability check is done by filing an application for a name availability certificate electronically with the Luxembourg Business Registers (LBR).
It is important to note, however, that the free name certificate does not allow the name in question to be reserved. Any available name may be used by the first person who requests it at the time of its registration with the RCS.
3️⃣ Open a Bank Account
In the case of companies such as SARL or SA a bank account must be opened in the name of the company being formed to deposit the minimum required share capital. Once the capital has been deposited, the bank issues a certificate of blocking of funds which must be presented to the notary as proof. For this step the final articles of association are not required but it is necessary to present at least a draft of them.
4️⃣ Draft the articles of association of the company
In order to register the company, it is indispensable to first draft its articles of association, which must contain essential information such as the name of the company, the registered office, the corporate purpose, the duration of the company and the capital stock, among others. Once the articles of association have been drafted, they must be signed privately or before a notary, depending on the type of legal form chosen.
5️⃣ Register with the registry of commerce and companies (RCS)
Once the articles of association have been signed, it is necessary to register the company in the Luxembourg Trade and Companies Register (RCS). This registration is usually carried out by the same notary, however, as of November 12, 2024, it is necessary that as part of the process, any person associated with the company to be registered (partner, director, manager, authorized representative, auditor, etc.) provide a Luxembourg national identification number (LNIN).
Individuals who do not yet have a LNIN must submit an application to the RCS to obtain one as part of the company registration procedure. This application requires the presentation of an identity document showing the full name, date, place and country of birth, sex, nationality and postal address. Furthermore, if the postal address does not appear on the identity document, it is necessary to present proof of address dated less than 6 months ago, which can be:
- A certificate of residence issued by the municipality in which you live
- A sworn statement by the interested party, stamped or countersigned by the regional authority responsible for confirming residential addresses, by an embassy, by a notary, or by a police station
- A water, electricity, gas or Internet bill if none of the above documents can be presented.
Registration in the RCS is compulsory and confers legal personality on the company, officially recognizing it as a legal entity in Luxembourg.
6️⃣ Apply for an establishment permit if necessary
If the holding company does not engage in any activity other than holding shares it will not need an establishment permit but if it conducts business operations, including with its affiliates or subsidiary companies it must apply for an establishment authorization for the services it provides.
7️⃣ Register for tva purposes (if applicable)
If the company conducts business operations and expects to turnover more than 50,000 euros per year it must register with the TVA administration to obtain a TVA number.
Taxation
Taxes that holding companies in Luxembourg are subject to are the same as for other companies: corporate income tax, municipal business tax and net wealth tax.
Corporate income tax
The corporate income tax rate in Luxembourg depends on the taxable income according to the following schedule:
- If less than 175,000 euros: rate of 14% applicable to all taxable income.
- Between 175,000 and 200,000 euros: a lump sum of 24,500 euros plus the application of a rate of 30% to the part of the taxable income between 175,000 and 200,001 euros.
- Above 200,000 euros: 16% rate applicable to all taxable income.
In addition, all legal entities based in Luxembourg must contribute to the employment fund, so this rate must be increased by 7% in favor of this fund. This increases the normal tax rate from 16% to 17.12%.
Municipal business tax
Another tax payable by companies in Luxembourg is the Municipal Business Tax (MBT). The rate of this tax depends on the municipality where the company operates. In Luxembourg City, the MBT rate is 6.75% in 2025. There is, however, a tax allowance of 17,500 euros but this applies only to sole proprietors and partnerships. The relief is automatic and is not subject to specific conditions or formalities.
Net wealth tax
Finally, a third tax to be paid by holding companies in Luxembourg is the net wealth tax, which is levied on the net wealth of the company and its rate is as follows:
- 0.5% on the part of the net wealth less than or equal to 500,000,000 euros.
- 0.05% on the part of the net assets exceeding 500,000,000 euros.
Establishing a holding company in Luxembourg is a wise strategy for many international companies and investors interested in optimizing the management of shareholdings, taking advantage of a favorable tax environment and benefiting from the legal and regulatory stability of the country.
This article has unveiled the basics of this strategy illustrating the main requirements and procedures to establish this type of companies, however, this guide is still a summary and when putting things into practice many doubts or questions may arise that have not been addressed here. If you are interested in this topic and would like to get personalized help, do not hesitate to contact us, EasyBiz is at your disposal.
