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The Luxembourg Constitutional Court has declared the minimum wealth tax regime for Sociétés de Participations Financières (SOPARFI) unconstitutional

The Luxembourg Constitutional Court has declared the minimum wealth tax regime for Sociétés de Participations Financières (SOPARFI) unconstitutional

We would like to review the relatively recent decision of the Luxembourg Constitutional Court, which declares unconstitutional the minimum wealth tax regime for financial holding companies. (SOPARFI).

This decision follows a careful examination of the tax law, which had introduced differentiated tax rates depending on the composition of the company’s assets.

Under the system, Luxembourg resident companies are taxed on the basis of their net worth, with different tax rates depending on the tax base. Entities whose sum of financial fixed assets, receivables from affiliated companies and from companies with which the taxpayer has a participating interest, marketable securities and financial assets exceeds 90% of their total assets and their balance sheet total exceeds €350 000 are subject to a minimum IF of €4 815, while for other companies the minimum rate varied between €535 and €32 100 depending on their total gross assets.

Minimum wealth text table

Unfortunately, this differentiation resulted in unequal treatment of taxpayers in similar situations in terms of their balance sheet total, but with different asset structures.

The Court found unjustified the requirement that certain assets must exceed a specific limit in order to benefit from special tax conditions. The Court concluded that this provision violated the principle of taxation based on the taxpayer’s ability to pay, which should be assessed on the basis of the taxpayer’s overall economic capacity.

This decision by the Constitutional Court has significant financial repercussions for those of our clients who are affected by the minimum wealth tax regime for SOPARFIs from the 2023 tax year onwards, where the Direct Tax Administration is already applying the new standardised taxation.

We are committed to keeping you informed of any relevant developments so that you can make the right decisions. Our team remains available to answer your questions and concerns. Please do not hesitate to contact us for more information or to discuss how this decision may affect you. 

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