LOCATION: Borders Belgium, France and Germany. Population 400,000.

ADVANTAGES OF LUXEMBOURG COMPANIES:

THE 1929 LUXEMBOURG HOLDING COMPANY: The incentive to establishing such a company is that it is not liable to Luxembourg tax on either income or capital gains. In addition, distributed reserves are not subject to withholding and net worth taxes. The downside is that all Luxembourg's tax treaties specifically exclude 1929 holding companies whilst the EU does not allow it's Parent/Subsidiaries 'Directive' 90/435 to apply. In other words, such companies will always be subject to the full withholding tax on distribution. In most cases this will result in a liability of between 25% - 50% destroying the raison d'etre behind the company in the first place. Of course, there are still some uses for 1929 companies but they are principally restricted to those instances where the paying company is located in a jurisdiction where certain intellectual property distributions can be made without any withholding taxes whether or not covered by a tax treaty. Prime examples being both the Netherlands and Switzerland in respect to royalty payments.

SOCIETE DE PARTICIPATION FINANCIERE (SOPAFI) OR A 1990 LUXEMBOURG HOLDING COMPANY: The most important fact to known about these 1990 companies is that they do benefit from Luxembourg's double taxation treaty network and the EU Parent/Subsidiary Directive. To obtain and ensure these benefits it is necessary to pay the normal Luxembourg corporate tax of 33.3%, a nominal net worth tax and a municipal business tax bringing the total tax take to just under 40%. Of course, as a 'normal' Luxembourg company the standard 15% dividend payment withholding tax, subject to treaty modifications, will apply. However, provided the criteria of the EU Parent/Subsidiary Directive are satisfied there should be no withholding tax problems for companies operating within the European Union. However, the real point of the 1990 holding companies is that once they have a 10% interest in the paying company or an investment of, at least, 1,240,000.00 Euros (approximately US$1,725,000.00) thereto, dividend payments will be totally exempt from further Luxembourg taxation. In respect to capital gains derived from any share dispositions these will also be tax exempt provided the holding company has, at least, a 25% interest in the company from which the capital gain income was derived or that such investment realises a gain of 6,200,000.00 or more Euros (approximately US$8,600,000.00).

CORPORATE REQUIREMENTS

Name: Name availability must be checked with the Company Registrar. Luxembourg companies limited by shares follow the French designations of societe a responsabilite limitee (private) or societe anonyme (public).

Capital: The minimum capitalisation for a Sari and SA is 12,400.00 and 31,000.00 Euros respectively. In the case of a Sari the capital must be fully paid up whilst for a SA it is possible to pay only 25% of the value of the issued capital up front. "1929" companies are virtually always SA's. If a 1929 company is required to grant inter-company loans or provide security there is a minimum capitalisation requirement of 1,240,000.00 Euros of which 25% must be fully paid up. "1977" companies must have an issued share capital in excess of 25,000,000.00 Euros. "1990" companies need technically only satisfy the standard capitalisation requirements, however, the existence of a debt equity ratio of 85:15 will inevitably demand a much higher issued capital base if the company is to be a useful tax treaty mitigation vehicle. It is important to note that a Stamp Duty of 1% is charged on a Luxembourg company's issued share capital. Further, notarial fees tend to increase in proportion to issued share capital.

Registered Office: All Luxembourg companies must maintain a registered office address within the Grand Duchy. All company books and/or registers must be maintained at this office.

Registered Agent/Nominees: To establish local management and control virtually all Luxembourg companies employ local "nominee" directors" and agent facilities.
Board of Directors: All companies must have a properly constituted board of directors. There is a minimum requirement of three directors and a statutory auditor. Directors can be of any nationality and can either be individuals or companies. Details on directors are kept on public record.

Shareholders: There is a minimum of two shareholders required. Shareholders can be of any nationality and can be either individuals or companies.

Books, Records and Seal: A full register of members and charges must be kept at the registered office.

Powers of attorney: All companies may grant a general or specific power of attorney to any legal person, to act on it's behalf, to execute contracts, agreements, deeds and any other instruments. These powers are not a matter of public record.
Certificates of good standing: Confirmation of a companies status can be provided by the Registrar.

Bearer shares: Both registered and bearer shares are available for SA companies. In the case of bearer shares it is necessary to fully pay up the issued share capital. Sari's can only issue registered shares.

Annual Meetings: An annual general meeting must be called within 18 months of the date of incorporation and thereafter every 12 months. If bearer shares have been issued full and proper notification of an AGM must be given in the Memorial Gazette and also in a Luxembourg newspaper. If all the shares are registered then no public notification is needed merely the issuance of a registered letter to the recorded subscribers.

Trusts: The concept of a trust is not currently legally recognised within the Luxembourg jurisdiction although it is possible that the Hague Convention on Trusts, 1984, could be ratified in the future.

ANNUAL FEES & GOVERNMENT TAXES