Part II · Jurisdictions · No. 11

Luxembourg

A small EU member state with disproportionate weight in cross-border holding and asset-management structures. The SOPARFI corporate vehicle, the SPF family wealth vehicle, the lowest EU standard VAT, the Luxembourg Freeport, and an enormous fund-administration industry combine to make Luxembourg a central node in European private-wealth structuring.

Why this jurisdiction matters

Luxembourg is in the EU and the eurozone, so its entities have full EU passport rights for funds, banking, and corporate purposes. It combines EU access with a tax regime favorable to holding companies under the participation exemption. Approximately 4.5 trillion euros in fund assets are administered through Luxembourg; the fund industry is the world's second-largest.

The relevant tax regime

• Corporate income tax. Combined corporate income tax plus municipal business tax plus solidarity surcharge around 24.94% in Luxembourg City.
• Participation exemption. Qualifying dividends and capital gains on participations exempt from corporate tax — the basis of SOPARFI structuring.
• SPF (Société de Gestion de Patrimoine Familial). A family wealth-holding vehicle exempt from corporate income tax in exchange for restrictions on activity. Used for private investment portfolios.
• Net wealth tax. 0.5% on corporate net wealth above €500 million (with reductions for participations).
• VAT. 17% standard rate, the lowest in the EU; reduced rates 8% and 3%.
• Individual income tax. Progressive to approximately 45.78%.
• No inheritance tax between spouses or direct descendants in some cases; rates vary by relationship.

Registration or residency mechanics

SOPARFI: Luxembourg société anonyme or société à responsabilité limitée under standard corporate law, with substance in Luxembourg. SPF: established under the law of 11 May 2007; investment activity restricted to financial assets. Luxembourg Freeport: separate operating company under Luxembourg customs supervision.

Reporting and disclosure

CRS and DAC6 (EU mandatory disclosure rules) participant. Beneficial-ownership register (RBE) public for most entities. FATCA Model 1 IGA in force.

The substance question

Luxembourg has implemented EU anti-tax-avoidance rules (ATAD I and II), the principal purpose test in tax treaties, and substance requirements for holding companies. Substance — directors, premises, management decisions — is required to claim treaty and EU directive benefits.

Recent changes

Implementation of OECD Pillar Two minimum tax for large groups. Tightening of EU rules on holding-company substance under ATAD III ("Unshell Directive") proposals. Continuing reform of beneficial-ownership transparency.

Common asset classes parked here

• Fine art — Luxembourg Freeport.
• Investment portfolios held through SPF.
• Family-office holding-company structures using SOPARFI.
• Cross-border fund investments using Luxembourg fund vehicles (SICAV, FCP, RAIF, SCSp).

Reviewed May 2026