In mid-July, the Chamber of Commerce will send out letters to its 90,000 members to collect the annual fee (the so-called bulletin de cotisation). For some members, it will be a flat fee of €350 only. For others, the annual fee may be a significant amount.
Background
In 2022, the Luxembourg Chamber of Commerce received some €52 million in membership fees. In that same year, the Luxembourg state collected ca. €70 million of insurance taxes and ca. €63 million of withholding taxes on directors´ fees. With this amount, the membership fee can be seen as a hidden cash tax.
After a brief look at the history and the services offered by the Chamber of Commerce, this article will highlight some controversial points of the membership fee, especially the flat fee of 350 Euro for holding and financing companies (Soparfi).
And like taxes, both the membership and the fee to the Chamber of Commerce are mandatory. Like taxes, unpaid fees are enforced by the direct tax authorities. The main difference is that taxes do not represent a payment to the state for a specific service, whereas the membership fee to the Chamber of Commerce does.
History and objectives of the Chamber of Commerce
Founded in 1841, the role and mission of the Luxembourg Chamber of Commerce were reinforced by law of 4 April 1924 which was modernised by the law of 26 October 2010.
Next to playing a consultative role in the legislative process, the Chamber of Commerce is mainly charged with articulating and defending the interests of all its members. It fulfils this mission by providing professional training, by promoting trade relations with foreign countries, by stimulating public and political debate on socio-economic issues and by supporting the creation and development of businesses and start-ups.
The membership fee
The annual fee paid by its members provides the Chamber of Commerce with the resources it needs to render these services to its members.
All natural persons, commercial companies and branches of foreign businesses located in Luxembourg that carry out a commercial, financial or manufacturing activity must become affiliated to the Chamber of Commerce.
The membership fee is calculated on the basis of the taxable commercial profit as defined in the income tax law, excluding tax losses carried forward, and realised two years before: The membership fee for 2024 will be based on the commercial income assessed by the direct tax authorities for the year 2022. Investment funds should not be subject to this annual fee assuming that they do not realise any commercial income. Members with negative income will be subject to a minimum fee of €70 (for private limited companies/S.à r.l. and partnerships) or €140 (for other capital companies). This minimum fee is also due for the first two years after entry into the trade register. Companies or partnerships that have been dissolved or liquidated remain subject to the membership fee until their removal from the trade register. Companies that are part of a tax consolidation group are also fully liable to pay the membership fee to the Chamber of Commerce on a stand-alone basis.
The annual fee for companies with a positive commercial income (excluding tax losses) is calculated by adding the amounts from the different brackets with decreasing rates:
- A rate of 0.20% for the commercial income up to €49.5 million;
- A rate of 0.15% for the commercial income over €49.5 million and up to €86.5 million;
- A rate of 0.10% for the commercial income over €86.5 million and up to €99 million;
- A rate of 0.05% for the commercial income over €99 million and up to €111.5 million; and
- A rate of 0.025% for the commercial income over €111.5 million.
As the membership fee is calculated on the basis of the commercial income before the deduction of tax loss carry-forwards, it may generate unexpected liquidity problems for companies that are recovering tax losses (i.e., whose current year profit is totally set off by tax loss carry-forwards). These companies would not have to pay any income or business taxes but would have to pay the membership fee to the Chamber of Commerce.
Companies whose main activity is holding financial participations and which are listed as “sociétés de participation financière (Soparfi)” under the NACE code 64.202 can benefit from a flat fee of 350 Euro.
Recent controversies over the flat fee
After the constitutionality of the mandatory membership fee was confirmed in March 2013 in 21 judgments, there have been several court decisions in recent years and months on the eligibility for the flat fee of €350.
The flat fee was introduced in 2010 because of the large number of holding and financing companies at that time and the high volatility of their commercial income. The legislator assumed that holding and financing companies would have few employees and would not benefit from the services of the Chamber of Commerce to the same extent as other members.
Unfortunately, the legislator failed to introduce a clear definition of “sociétés de participation financière (Soparfi)” (i.e., companies mainly holding financial participations). As a result, many court cases revolve around the interpretation of this undefined term.
In addition, the legislator introduced a second condition: a Soparfi must be classified as such by the STATEC, the National Institute for Statistics and Economic Studies. However, the STATEC has not defined Soparfis in NACE code 64.202 either, but uses a tautology: “Cette sous-classe comprend les sociétés de participation financière, en abrégé "Soparfi" et toute autre forme de société holding de type similaire.”
In addition to this legal uncertainty, the current administrative procedure complicates the situation of companies wishing to benefit from the flat fee: Firstly, the STATEC can withdraw the NACE code 64.202 and assign another statistical code without consulting the company concerned. Thus, companies that may have benefited from the flat fee of €350 for some years may suddenly face an increased fee in the following year when the NACE code 64.202 was withdrawn without prior notice. Second, three different public bodies are involved in the assessment of the flat fee: the direct tax administration assesses the commercial income, the STATEC assigns the NACE code 64.202 to a Soparfi and the Chamber of Commerce finally issues the fee notice in mid-July each year. Companies may have to deal separately with these three public bodies to manage and resolve disputes over the flat fee.
In an appeal decision of 9 June 2022 (n° 47072C), the administrative court clarified that a company's activities are to be qualified first and foremost by reference to its corporate object as set out in its articles of association. In this case, the company claimed to be a Soparfi. However, its articles clearly stated that the “principal activity” was to invest in real estate and that the “further object” was to hold shares in companies. The court acknowledged that real estate investments could be made either directly or through special purposes vehicles. But this would not alter the fact that the principal activity was the investment in real estate. The court stressed that a company could not argue against this legal classification by claiming that its actual activities were different: it is the responsibility of the company to align its articles of association with the actual situation.
In a final judgment of 20 July 2023 (n° 46566, not appealed), the administrative tribunal confirmed the general position of the direct tax authorities that an unregulated alternative investment fund in the form of a common limited partnership (SCS AIF) does not generate active commercial income, but only derives passive income from capital. The tribunal therefore annulled the membership fee. In this case, the STATEC had classified the SCS AIF under NACE code 64.309 as an investment fund, while the direct tax authorities had apparently assessed commercial income for this partnership and communicated this to the Chamber of Commerce. The tribunal referred to the administrative circular 14/4 from 9 January 2015 according to which alternative investment funds are not considered to carry out a commercial activity but to have an investment object. As a result, the investment fund did not have to pay any fee in the absence of commercial income.
While the previous cases involved claims against the fee notice from the Chamber of Commerce, the most recent cases decided by the administrative court on 5 March 2024 involved claims by some partnerships against the statistical classification of the STATEC. The ultimate objective of these judicial claims was to be classified as Soparfi under NACE code 64.202 in order to benefit from the flat fee of €350. Surprisingly, one claimant had the legal form of a société en commandite spéciale (see case n°49367C). However, these special limited partnerships are not members of the Chamber of Commerce, as they do not have legal personality. The lawsuit of this SCSp was pointless, as these special limited partnerships do not have to pay any fee to the Chamber of Commerce. In the other two cases (n° 49365C and 49366C), unregulated alternative investment funds in the form of a common limited partnership (sociétés en commandite simple) claimed against the statistical classification under NACE code 64.309. This code is reserved for unregulated investment funds that do not have the legal form of SICAV, SICAF, SICAR or FCP. However, the claimant could not provide any evidence to support a classification as a holding and financing company (Soparfi). The court also highlighted that the claimants had not replied to the survey on economic activities from the STATEC.
Conclusion
The membership fee to the Chamber of Commerce can add up to a significant amount, especially for companies planning to use tax losses or for partnerships in the fund industry for which the direct tax authorities assessed commercial income. Holding and financing companies (so-called Soparfis) should also carefully monitor their statistical classification. If the STATEC changes the NACE code 64.202 without prior notice, these companies may be charged a much higher fee than the flat fee of €350. In these cases, the membership fee to the Chamber of Commerce may feel like a hidden cash tax.
Companies and partnerships should consider their exposure to the membership fee when drafting their articles of association. In cases of disputes, due care should be given to the choice of legal remedies and the right strategy.
