Luxembourg toolbox for private wealth management

Transcription

1 Luxembourg toolbox for private wealth management Luxembourg

2 2 Luxembourg toolbox for private wealth management Luxembourg 2015 Contents Why Luxembourg? Taxation of Luxembourg resident individuals Redomiciliation of individuals to Luxembourg Redomiciliation of companies or funds to Luxembourg Allen & Overy LLP 2015

3 3 Allen & Overy is one of the best firms in Luxembourg. At least that s the consistent message from clients across all departments. They describe the firm as having a strong brand, good knowledge through to junior levels and being leaps and bounds above the rest. One even goes so far as to say that every lawyer was perfect. IFLR1000, Toolbox for HNWIs Providing high-quality tax advice across the world Key contacts

4 4 Luxembourg toolbox for private wealth management Luxembourg 2015 [ ]Luxembourg has built up a unique long-standing expertise in providing compliant tailor-made solutions to international clients with complex multi-jurisdictional issues who wish to develop and transmit their wealth. Pierre Gramegna, Luxembourg Finance Minister We have substantial experience in assisting HNWI, UHNIW and family businesses willing to preserve and develop their wealth, and to pass it onto the next generations. Our experts deliver tailor-made advice based on our local knowledge and on the world-class resources provided by the Allen & Overy network. Jean Schaffner, Tax Partner, Allen & Overy Luxembourg Allen & Overy LLP 2015

5 5 Why Luxembourg? Well known for its business friendly, economically and politically stable environment, Luxembourg has evolved over the years into a leading, safe and open-to-the-world business centre. Luxembourg is now a strategic gateway for investments into and out of Europe and, generally, for structuring investments worldwide. It offers a whole range of investment vehicles and structuring alternatives to lawyers who assist investors, asset managers, family offices and high-net-worth individuals (HNWIs). The Grand Duchy benefits from a vast experience, combined with international recognition, of private wealth management. By thinking and acting as a first-mover, by demonstrating innovation in terms of solutions and by strengthening day by day its capacities as a unique centre of excellence for wealth management, Luxembourg has great success in attracting foreign HNWIs. The most recent examples of this include the creation of a legal framework applicable to multi-family offices 1 and the bill of law on private wealth foundations 2. Luxembourg is and remains the first wealth management centre for international clients within the Eurozone, with EUR318 billion in Luxembourg private banking AuM (Assets under Management) in , and is also the second largest fund centre in the world, with more than EUR3.5 billion of net AuM at the close of June Safe yet user-friendly business environment AAA rating 20% debt-to-gdp ratio More than 75 double tax treaties Political and economic stability Investor-friendly environment Founding member of the European Union and the Eurozone Fully developed infrastructure of financial services and support functions Attractive tax regime within the European Union (EU) Leading financial centre in the heart of Europe Innovative and flexible legal and regulatory framework Highly educated workforce and multilingual culture 1 Law of 21 December Bill n 6595 filed on 22 July

6 6 Luxembourg toolbox for private wealth management Luxembourg 2015 Taxation of Luxembourg resident individuals The income tax regime applicable in Luxembourg for individuals has been adjusted over the last few years and has helped to establish Luxembourg as a European jurisdiction with one of the lowest tax burdens for individuals. The highest income tax rate currently amounts to just 40% (increased by a 7% surcharge, or 9% for individuals earning more than EUR150,000, for the unemployment fund). High-net-worth individuals may find Luxembourg an attractive jurisdiction in which to reside because it combines several appealing features: no wealth tax; limited taxation on dividends, as a 50% exemption is granted provided the issuer is a fully taxable company; no taxation on capital gains after a six-month holding period, except where the seller holds a substantial participation of more than 10% in the target company; a 10% final WHT on certain interests paid by a Luxembourg paying agent; no taxation on capital received under a life insurance contract; exemption of capital gains on the sale of the main dwelling of the taxpayer; and a possible exemption on inheritance tax on transfers to children and grandchildren, as well as between spouses. Allen & Overy LLP 2015

7 7 Redomiciliation of individuals to Luxembourg Migration process No visas or residence authorisations are required for citizens of a European member state or of the Europe Free Trade Area. A straightforward administrative procedure must be complied with upon entry into Luxembourg. Third-country nationals who wish to stay in Luxembourg for a period of more than three months must apply for a residence authorisation with the Luxembourg Ministry of Foreign Affairs and Immigration before their entry into the territory of Luxembourg (the application can be filed by a Luxembourg qualified lawyer on behalf of the applicant) as well as, depending on their nationality, apply for a visa. There are several categories under which third-country nationals can apply for a residence authorisation, depending on the motive of their stay and/or their status. The residence authorisation will ultimately be transformed into a residence permit. Step-up in basis A bill deposited on 13 October 2015, amending, among others, the Luxembourg income tax law, will introduce into Luxembourg legislation the so-called step-up basis principle for individuals becoming Luxembourg residents. In the case of relocation of an individual to Luxembourg, capital gains realised upon the sale of an asset acquired before settling in Luxembourg may be taxed twice: first in the former country of residence of the taxpayer (for instance, if an exit tax is levied in such country) and again in Luxembourg. To avoid double taxation, Luxembourg will allow newly relocated residents to value certain assets at their fair market value, which will be considered as the acquisition price for the purpose of the computation of any future capital gain upon the disposal of such assets. This mechanism will be available for all shareholdings, including substantial participations, ie participations representing at least 10% in a Luxembourg or non-luxembourg resident collective entity. The introduction of a step-up clause into the Luxembourg legislation will surely remove a significant obstacle to HNWIs relocating to Luxembourg.

8 8 Luxembourg toolbox for private wealth management Luxembourg 2015 Redomiciliation of companies or funds to Luxembourg Over the last decade, Luxembourg has become one of the main destinations for funds/companies moving from offshore to onshore. During the past five years, over 540 fund units totalling 140 billion Euros in assets under management have been re-domiciled to Luxembourg from both offshore and European jurisdictions 5. The main reasons for this are driven not only by the reputation of the Grand Duchy and its excellent image as a centre of competence, but also for its recognised efficiency in the management of diversified types of assets (eg RE and PE within the Eurozone) and its international workforce. The combination of certain tax aspects, such as a broad double tax treaty network and an efficient participation exemption regime, allows substantial minimisation of tax friction on capital gains realised on an exit or on dividends paid by the acquired company. Moreover, there are no exchange controls or investment restrictions. Any non-resident investing in Luxembourg may freely transfer the necessary funds, either in euro or in any other currency traded in the free market. Foreign-owned enterprises may raise loans, either within Luxembourg or from abroad, without restriction. There can be various scenarios resulting in a migration to Luxembourg: transfer of the registered office and/or the place of effective management; merger with an existing Luxembourg company/fund; or contribution in kind by the offshore company/fund of all its assets and liabilities to a Luxembourg company/fund. From a tax perspective, the treatment of such transfer depends on whether the designated country of emigration accepts the continuity of the legal status of the fund or the company at hand (ie allowing, as Luxembourg does, the dissociation between the place of incorporation and the place of effective management). In the event that the answer is no, the company would have to be liquidated in its country of origin before being re-incorporated into Luxembourg, thus inferring a rupture in its legal status. In the event that the answer is yes, the company will be registered in Luxembourg as a company already in existence. The situation differs depending on the criterion used for domiciliation in the respective jurisdictions. A transfer to Luxembourg is fiscally assimilated into the creation of the company. In this respect, the assets of the company have to be recorded in the opening tax balance sheet for a value not above their going concern value. However, the taxpayer has the choice to apply the lower commercial book value of the assets. The liabilities and debts have to be valued at or below their going concern value. Those valuation limits avoid losses generated abroad being introduced into Luxembourg s corporate income tax system. From a corporate and regulatory perspective, difficulties are minimal and lie essentially in the adaptation of the articles of association to fit both countries legal requirements in case the company is considered as having double nationality. If so, there can be incompatibilities between the involved jurisdictions corporate laws. The other difficulty, as far as public limited liability companies are concerned, is the need for a report by an external auditor. This is, however, more of a time/cost issue than a set-back in itself. 5 ALFI : Allen & Overy LLP 2015

9 9 Basically, the main questions to be answered before starting the migration process could be set out as follows: Is there any statutory barrier to continue as a company/fund outside the relevant country? Will the company/fund s legal personality continue after the migration? What will be the legal form of the company/fund once migrated to Luxembourg? Do I want to have passive/active control over the company/fund? How will my relatives/family be involved in the management of the company/fund? Our tax, corporate and funds specialists are able to help you find the appropriate answers for your own situation.

10 10 Luxembourg toolbox for private wealth management Luxembourg 2015 Toolbox for hnwis SOPARFI (SOciété de PARticipations FInancières) A Soparfi is an ordinary unregulated commercial company whose object is limited to holding participations in other companies and carrying out related activities, for example group financing activities. The Soparfi regime is based primarily on the participation exemption regime on dividend income as well as on capital gains (the so called Participation Exemption Regime). A Soparfi is generally incorporated in the form of a public limited liability company (société anonyme, S.A.) or a private limited liability company (société à responsabilité limitée, S.à r.l.). A Soparfi may also be incorporated as a partnership limited by shares (société en commandite par actions, S.C.A.). Summary of Luxembourg main taxation rates applicable to a Soparfi Corporate tax 29.22% (in Luxembourg-City) Net wealth tax 0.5% Withholding tax on interest 0% Withholding tax on dividends 0%-15% (if reduced under domestic law or a double tax treaty) Qualifying Shareholder Exemption of dividend WHT 10% shareholding 12-month holding period acquisition price of EUR1.2 million No WHT on capital gains No WHT on liquidation bonus LuxCo Exemption of dividends and capital gains Qualifying Subsidiary 10% shareholding 12-month holding period acquisition price of EUR1.2 million for dividends or EUR6 million for capital gains Allen & Overy LLP 2015

11 11 Limited partnership (SCS, société en commandite simple) SCS and SCSp With the adoption of the Luxembourg act of 12 July 2013 concerning alternative investment fund managers (the AIFM Law), Luxembourg took the opportunity to completely revamp the legal regime of the common limited partnership (société en commandite simple) and to introduce a new form of limited partnership without legal personality, the special limited partnership (société en commandite spéciale). Such companies may also be used in a wealth management context, especially as the new SCS regime is characterised by enhanced structuring possibilities. An LP is transparent for Luxembourg income tax and net wealth tax purposes. However, the profits of the LP may be subject to municipal business tax (the rate varies from municipality to municipality the rate applicable in Luxembourg City is 6.75%) if the LP carries out, or is deemed to carry out, business activities. If the LP is treated as a business undertaking for municipal business tax purposes, non-resident limited partners could potentially be considered as having a permanent establishment in Luxembourg, as a result of which they would be subject to personal or corporate income tax on their share of the business profits derived through the LP (subject to applicable double tax treaties). However, an LP carrying out private wealth management activities should not be treated as a business undertaking for municipal business tax purposes. SCS and SCSp may be set up as regulated (SICAR, SIF or part II SICAF) or non-regulated entities. They are established by way of a partnership agreement entered into between, for a limited or unlimited term, one or more unlimited partners (the general partners) with unlimited liability and one or more limited partners whose liability is limited to the amount of their investment, such amount constituting partnership interests. There is no statutory obligation for any of the partners to be based in Luxembourg. Flexibility is the driver of the SCS regime. This is broadly achieved by allowing the limited partnership agreement to freely organise certain key elements of an SCS, such as: the entitlements of partners to the profits and losses of the limited partnership; the rules governing transfers of partnership interests; the rules governing issues and reimbursements of partnership interests; voting rights of partners; as well as representation of the partnership interests by securities or (un-securitised interests in) capital accounts.

12 12 Luxembourg toolbox for private wealth management Luxembourg 2015 Family estate management company (SPF, société de gestion de patrimoine familial) Upon the abolition of the 1929 Holding Company regime in 2006, the family estate management company (SPF) was introduced as a replacement vehicle, aimed at combining an attractive tax regime and the security of using a company to manage private wealth. An SPF is, basically, a company whose corporate object is limited to the acquisition, holding and management of financial assets, with the exclusion of any commercial activity. Qualifying financial assets include cash and assets on deposit, as well as financial instruments such as shares, bonds, depository certificates, trade receivables, monetary market instruments, options and commodities. It is, however, prohibited for SPFs to acquire real estate properties directly or to grant interest-free loans to companies in which it holds a participation. Apart from those specific exceptions, an SPF may basically hold any asset that could be held by an individual managing his/her private wealth. It is available only to individual investors, as well as to vehicles acting exclusively with a view to managing the private estate of one or several individuals. A listing of securities issued by an SPF on a stock exchange or the offering of such securities for public placement is specifically excluded. An SPF may be set up as a public or private limited company, a partnership limited by shares or a cooperative company organised as a public limited company. An SPF is exempt from corporate income tax, municipal business tax and wealth tax. It is subject to an annual subscription tax (taxe d abonnement) of 0.25%, calculated on its paid-in share capital increased by share premium and indebtedness, which exceeds eight times the share capital plus share premium. The subscription duty is levied at a minimum amount of EUR100 and capped at EUR125,000 per annum. Allen & Overy LLP 2015

13 13 Specialised Investment Fund (SIF, fonds d investissement spécialisé) On 13 February 2007, a law relating to specialised investment funds entered into force pursuant to market demands for a lightly regulated onshore vehicle for alternative products. The purpose of the law on SIFs is to subject funds reserved for sophisticated investors to a separate and more flexible regime than other regulated funds. SIFs thus constitute a new category of investment funds that may be viewed as a useful alternative to other Luxembourg vehicles, notably for hedge funds, private equity, real estate investments and management of private wealth. SIFs may be established under a contractual form (as a Fonds commun de placement, FCP-SIF) managed by a management company, or under a corporate form. In the latter case, a SIF may have a variable capital (Société d investissement à capital variable) or a fixed capital (Société d investissement à capital fixe). A SIF may be comprised of several fully segregated sub-funds. SIFs are subject to the approval and supervision of the Luxembourg supervisory authority (Commission de Surveillance du Secteur Financier, the CSSF) and must have their depositary and central administration located in Luxembourg. A minimum capital (share capital and share premium) of EUR1.25 million must be reached within a 12-month period following the approval of the CSSF (for FCP-SIFs, the net assets must reach EUR1.25 million within the same period), but only 5% of the capital needs to be paid-up on subscription. The definition of eligible investors encompasses: (i) institutional investors; (ii) professional investors (such as banks and investment companies); is (iii) other well-informed investors who have adhered in writing to the status of well-informed investors and who either: (a) invest at least EUR125,000 in the SIF; or (b) have their financial expertise confirmed by a credit institution, an investment firm or a management company; and (iv) persons who are effectively involved in the management of the SIF s investments. SIFs may invest in an unlimited range of assets, such as equity funds, bond funds, cash funds, funds of funds or hedge funds, real estate funds, private equity funds, and infrastructure funds. Furthermore, SIFs benefit from a more flexible regime than other funds: (i) there is no promoter requirement, and no approval by the CSSF of the investment managers of a SIF is necessary; and (ii) flexible valuation rules (no legal requirement as regards the frequency of calculation of the net asset value and valuation on the basis of the fair market value or another method of valuation as set out in the SIF s constitutional documents). Last but not least, the tax regime applicable to SIFs is particularly attractive. Indeed, SIFs are exempt from Luxembourg corporation taxes and net wealth tax, as well as from withholding taxes on distributions. The SIF regime is hence one of the most favourable forms of Luxembourg investment fund for individual tax purposes. SIFs are subject to an annual subscription tax at the current rate of 0.01% calculated on their net asset value (with certain exemptions applicable to units owned by a SIF in another UCI that has already been subject to subscription tax and, under certain conditions, to SIFs investing in monetary market instruments or in micro-finance institutions or for pension pooling funds). No income tax at the level of the SIF. No ad valorem tax on SIF s shares issuance. No taxation of capital gains realised on the sale of assets held by the SIF. No wealth tax. Annual subscription tax (0.01% of the value of the SIF s net assets).

14 14 Luxembourg toolbox for private wealth management Luxembourg 2015 Private wealth foundation (fondation patrimoniale) In order to broaden its legal toolbox and attract HNWIs and entrepreneurs, Luxembourg is about to create a new vehicle especially tailored to satisfy the specific needs of these demanding clients: the private wealth foundation (fondation patrimoniale) 8, which will be dedicated to wealth structuring and management, and to estate planning. The aim of the legislator is to offer a modern and flexible structure to private clients pursuing goals as diverse as preserving their wealth, maintaining the continuity of a family business, passing along their assets to the next generation or protecting a family member in a position of vulnerability. The legal regime of the private wealth foundation will be characterised by its flexibility and confidentiality. The private wealth foundation will be an orphan entity, having neither shareholders nor members. The basic mechanism will be as follows: the foundation, having its own legal personality, will manage the assets allocated to it by a founder to pursue a particular goal (such as the development of an investment portfolio or the management of a business) or for the benefit of one or more beneficiaries. The founder will thus hand over control over the contributed assets, as they will become the property of the foundation, but will have great latitude to determine in advance how the foundation will have to manage them. In terms of governance, the private wealth foundation will offer great flexibility. The foundation may hold a variety of assets: it will be able to own any kind of movable or immovable property, either tangible or intangible, subscribe to or be the beneficiary of insurance policies, act as settlor or beneficiary of foundations, trusts or fiduciary arrangements, and hold participations in a company (without taking part in the company s management). A foundation may thus invest without restrictions into any type of assets, from securities to real estate or works of art. This will distinguish the foundation from other Luxembourg vehicles such as, for example, the SPF, which cannot hold real estate directly. Additionally, the foundation may issue certificates linked to any asset held by it to any individual or entity acting in the course of the management of the estate of individuals, enabling it to allocate to the holder of certificates the profits derived from the certified assets. Further, the rights attached to these certificates may be freely determined in the founding deed of the foundation, in its extra-statutory documentation or in the issuance documentation of the certificates. This innovative tool, inspired by existing Belgian and Dutch comparable mechanisms (stichting administratiekantoor), will here have a broader scope and more flexible features than in any other country, as any kind of assets (and not only shares) may be certified. The private wealth foundation will thus constitute a particularly flexible vehicle, adaptable to almost any need of high-networth individuals. It will likely become an alternative to foundations already available in other jurisdictions and may further be a perfect solution for entrepreneurs wishing to solve potential conflicts between their heirs with respect to the future management of their business. Further, the foundation, as opposed to trusts or fiduciary arrangements, will be an opaque entity, which means that it will itself be a taxpayer, independent from its founders or beneficiaries. As such, it will be fully subject to income tax at the standard corporate income tax rates, but will benefit from an exemption for investment income derived from securities, such as shares, profit-sharing bonds or loans, and for capital gains derived from the disposal of the assets generating such exempt income, as well as for the payment of the capital or the surrender value in relation to a life, death or disability insurance policy. It will further be subject to municipal business tax, even if it will not be allowed to carry out a commercial activity. The private wealth foundation will also be exempt from net wealth tax, exactly like individuals. Income distributions by the foundation to its beneficiaries or founders will be exempt from withholding tax. In the case of a payment in kind to a beneficiary or to the founder, the transfer of assets is meant to be tax neutral. 6 Bill 6595 filed on 22 July Allen & Overy LLP 2015

15 15 Fiduciary operations A fiduciary contract is a contract whereby a person, the principal (fiduciant), confers ownership rights over fiduciary assets to a credit institution or similar regulated entity (fiduciaire) under certain obligations, ie the fiduciary liabilities agreed upon in the fiduciary contract. The fiduciary agent obtains legal title over the assets designated in the fiduciary contract. There is a transfer of ownership and, from a civil law perspective, the fiduciary agent is the legal owner of these assets. Upon termination of the agreement, the assets are transferred back to the principal or to a third party. The fiducie may be used for a wide range of transactions, including as wrapper to facilitate investments, but also for gift and inheritance purposes. The Luxembourg tax treatment of fiduciary operations is based on general tax principles. Assets transferred to a fiduciary agent or acquired by a fiduciary agent from a principal are attributable to the principal for tax purposes. Therefore, from a tax point of view, the principal will be considered to hold the fiduciary assets and be the beneficiary of the income derived from these assets for purposes of Luxembourg wealth tax, income tax and municipal business tax, having as a consequence that the fiduciary agent will in principle not be subject to taxation in Luxembourg on fiduciary assets held or on the income made on the transfer of the fiduciary assets back to the principal. Neither the fiduciary assets nor the income generated by them are reflected in the tax balance sheet of the fiduciary agent. To benefit from this favourable tax-neutral treatment, the fiduciary agent has to be prepared to provide, upon request by the Luxembourg tax authorities, the identity of the principal or beneficiary and the details of the operations performed by the fiduciary agent on their behalf. It is thus the economic beneficiary of the fiducie who is subject to taxation on income and gains derived from the fiduciary agent. For example, if the fiducie is used for estate planning purposes, income derived from the assets transferred to the fiduciaire is taxable in the hands of the beneficiary, as soon as he is entitled thereto. Otherwise, income is taxable with the fiduciant.

16 16 Luxembourg toolbox for private wealth management Luxembourg 2015 Providing high-quality tax advice across the world AFRICA Casablanca Johannesburg AMERICAS New York São Paulo Toronto Washington, D.C. ASIA PACIFIC Bangkok Beijing Hanoi Ho Chi Minh City Hong Kong Jakarta* Mumbai** New Delhi** Perth Seoul Shanghai Singapore Sydney Tokyo Yangon EUROPE Amsterdam Antwerp Barcelona Belfast Bratislava Brussels Bucharest* Budapest Düsseldorf Frankfurt Hamburg Istanbul London Luxembourg Madrid Milan Moscow Munich Paris Prague Rome Warsaw MIDDLE EAST Abu Dhabi Doha Dubai Riyadh* * Associated offices ** Associated firms Allen & Overy LLP 2015

17 17 A&O offices with tax capacity A&O offices Relationship firms

18 18 Luxembourg toolbox for private wealth management Luxembourg 2015 Key contacts In Luxembourg Jean Schaffner Partner Tel jean.schaffner@allenovery.com Patrick Mischo Partner Tel patrick.mischo@allenovery.com Florent Trouiller Counsel Tel florent.trouiller@allenovery.com Julie Chartrain-Hecklen Senior Associate Tel julie.chartrain@allenovery.com Sabrina Bodson Associate Tel sabrina.bodson@allenovery.com Our Luxembourg desk managers Nicolas Fermaud in charge of U.S.-Luxembourg desk Tel nicolas.fermaud@allenovery.com Shaohui Zhang Head of Luxembourg-China desk Tel shaohui.zhang@allenovery.com Marc Tkatcheff in charge of Luxembourg-Latin America desk Tel marc.tkatcheff@allenovery.com Jacques Wantz in charge of Luxembourg-Russia desk Tel jacques.wantz@allenovery.com Emmanuel Lamaud in charge of Luxembourg-Asia Pacific desk Tel emmanuel.lamaud@allenovery.com Allen & Overy LLP 2015

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20 Luxembourg Allen & Overy 33 avenue J.F. Kennedy L-1855 Luxembourg PO Box 5017 L-1050 Luxembourg Tel GLOBAL PRESENCE Allen & Overy is an international legal practice with approximately 5,000 people, including some 527 partners, working in 45 offices worldwide. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi Amsterdam Bucharest (associated office) Budapest Ho Chi Minh City Hong Kong Moscow Munich Seoul Shanghai Antwerp Casablanca Istanbul New York Singapore Bangkok Barcelona Doha Dubai Jakarta (associated office) Johannesburg Paris Perth Sydney Tokyo Beijing Düsseldorf London Prague Toronto Belfast Bratislava Frankfurt Hamburg Luxembourg Madrid Riyadh (associated office) Rome Warsaw Washington, D.C. Brussels Hanoi Milan São Paulo Yangon Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy LLP 2015 CS1509_CDD-42973_ADD