The ideal vehicle for an entity to make an investment in Spain through a Luxembourg company is the Société de participations financières (SOPARFI).
The SOPARFI is a Luxembourg company that can take the form of Sàrl, SA or SCA. It is not a regulated or subject to supervision vehicle. It is subject to the general corporation taxation that, together with the trade communal tax, totals 29.63 percent. It is also subject to a wealth tax of 0.5 percent of its value at 31 December of each year.
However, it has the regime called "participation exemption", which consists of an exemption on dividends, capital gains and liquid fees received from its subsidiaries in the following cases:

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• Dividends and liquid fees of the companies in which have the participation of more than ten percent or whose purchase price was over 1.2 million euros, and if the investment is held for at least twelve months.
• Capital gains from the disposal of shares in associated companies always being at least ten percent, or the purchase price of at least six million euros: and if the investment had been maintained for at least twelve months.

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There is also fifteen percent retention in Luxembourg on dividends distributed by the SOPARFI. However, there is no any retention for the distribution of the liquid fees.

​REASONS FOR USING THE SOPARFI FOR MAKING INVESTMENTS IN SPAIN AND BY INTERNATIONAL FUNDS.

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We identify two fundamental assumptions:

a)  When the venture capital fund is a tax-transparent vehicle for the Spanish tax authorities. The objective is to avoid that the dividends coming from Spanish participating societies, or gains arising from the disposal of investments in Spanish subsidiaries, are charged directly to investors in the venture capital fund. SOPARFI use is like an intermediary bar that allows retaining profits obtained in the SOPARFI until we are interested in the distribution of them to the fund.

 

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Dividends distributed by the participating company are exempt from tax in Spain by applying the parent-subsidiary directive, if meets the following conditions:

 

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• That the share exceeds ten percent for a period of one year and
• Concerns about the direction and management of the participating society through appropriate material and human resources.

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​Neither the interest is paid by the subsidiary to the SOPARFI taxed in Spain under Royal Legislative Decree 5/2004, of 5 March, approving the revised text of the Law on Income Tax for Non-Residents, as the SOPARFI resident in a country of the European Union.
Patrimonial capital gains arising from the Spanish society´s participations transfer are not subject to taxation in Spain as it is not a real estate company, according to the Convention between Spain and Luxembourg of June 3 1986 to avoid double taxation.

b) Although it seems contradictory to what we have just stated, the other assumption that can motivate the use of a SOPARFI to invest in Spain is that it is an asset or real estate company investment. If done directly by a non-resident, the capital gain arising from its tax transfer to eighteen percent in Spain and then corporation tax in the country of residence at the standard rate is subject to a deduction that could set the tax paid in Spain.
Making the investment through a vehicle in Luxembourg, you can arbitrate the double taxation agreements with Luxembourg or the parent-subsidiary directive to check, case by case, if you get better tax treatment when it comes to pay corporation tax in the country of the investor. In any case, using a SOPARFI, by applying property arising from the transfer of shares in real estate companies or direct transmission of real estate assets, are not taxable in Luxembourg.

​CONCLUSIONS

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A good tax treatment, a flexible legal regime and familiarity achieved by this jurisdiction among institutional investors, are the reasons why Luxembourg is one of the major international financial centers.
The vehicles of Luxembourg are used both to invest in Spanish private equity and to constitute equity funds in Luxembourg or facilitate investment in Spain by international funds. The vehicles used are the SICAR and SOPARFI.