CMS Luxembourg The Private Foundation

CMS Luxembourg The Private Foundation

The Private Foundation - Project to create under Luxembourg laws a Fondation Patrimoniale (Private Foundation) - Bill of Law N 6595; - To complete the range of vehicles and/or products dedicated to the management of private wealth or wealth planning; - To align Luxembourg with other jurisdictions such as Germany, Switzerland or The Netherlands; - Philosophy: Two concepts: Will theory ( Autonomie de la volonté ) and Third Party Beneficiary ( Stipulation pour autrui ).

The Private Foundation - Practical use i. Management of private wealth / wealth planning; But... ii. Orphan structuring for securitisation SPV is also possible; iii. Protection against take-over and public bidding should not be neglected.

The Private Foundation - Overview Intervening parties of a Private Foundation: Supervisory Board (upon conditions) Beneficiaries Certificates Director / BoD Private Foundation «Fondation Patrimoniale» Founders Assets

The Private Foundation - Formation - The Private Foundation has the legal personality; - Formed by a notarial deed (also possible to adopt internal regulations); - The future law will impose the minimal content of the notarial deed; - An initial contribution of EUR 50,000 (cash or CIK); - Formed for a fixed or an unlimited term; Clean break: legal transfer of the assets contributed into the Foundation / clean break from the estate of the foundatory; - May have one or several foundatories and beneficiaries (with connection or not); - Publication of extract of the deed to ensure appropriate confidentiality but all KYC must be available at the registered seat of the foundation; - Orphan structure (no shareholder and no shareholders meeting).

The Private Foundation - Governance - The Foundation has usually three parties: The Foundatory A Director or a Board of Directors (and a Supervisory Board upon conditions) and The Beneficiaries - Director / Board of Directors has / have similar powers and is / are subject to a similar responsability regime as in a company (to validly engage / represent the Private Foundation, etc ).

The Private Foundation - Activities - A private Foundation is the legal owner of the assets contributed; - It cannot proceed to commercial/industrial activities; - It may have all type of tangible and intangible assets, securities (listed or not, equity, derivatives), LP interests, IP rights, receivables, art works, precious metals, real estate properties etc.; - It may have a majority shareholding in an entity and may exercise its right as shareholder but may not intervene in the management (cannot act as director for instance); - It can issue certificates that represent economic rights while retaining the legal ownership of the assets. It allows to achieve the split between legal ownership of the assets (the Private Foundation) and the transfer of economic rights connected with the assets (the certificate holder(s)).

The Private Foundation - Focus on Certificates - Article 12 of the Bill of Law; - To operate the distinction between the legal ownership of the assets by the foundation and the economic property of the assets; - The transfer of assets representative of the certificate may be irrevocable unless otherwise provided in the constitutive documentation;

The Private Foundation - Focus on Certificates - Features of the certificates: registered certificate / no certificates at the bearer; transferability of the certificates in accordance with the constitutive documentation; must be foreseen by constitutive documents of the Foundation; different categories of certificates possible but always linked with specific assets; issued against contribution in kind and reverse process possible; restriction for the transferability to a limited number of holders (founders, beneficiairies, entities for private estate); allow the allocation of cash generated by underlying assets lodged into the Foundation.

The Private Foundation - Focus on large Private Foundations - If a Private Foundation meets any of the two criteria it qualifies as a «large» private foundation: More than 5 beneficiaries or A valuation in excess of EUR 20 Mio. - «Large» Private Foundations must: Form a Supervisory Board; and Appoint an audit firm.

The Private Foundation - Focus on Confidentiality - Assets are lodged into the Private Foundation (opacity); - There is no shareholder; - Publication of extract of the notarial deed only (Art. 9); - Must have annual accounts deposited at the Trade and Companies Register but without publication (Art. 26); - Compliance with AML legislation and regulations but all the documentation remains at the registered seat of the Foundation (Art. 28); - Cooperation with authorities (Art. 28).

The Private Foundation - Dissolution - Amendments / modifications of the notarial deed are exclusive rights of the Foundatory; - Voluntary dissolution and liquidation of the Private Foundation is the exclusive competence of the Directors / Board of Directors; - A director may be appointed as the liquidator.

The Private Foundation - Tax aspects 1. Direct taxation 1.1. The Private Foundation - Fully taxable to income tax - CIT/MBT (i.e. 29,22%); - Tax exemption of income from movable property (e.g. interest payments, dividends, etc.) as well as capital gains arising from the sale of the assets generating that income; - No withholding tax on the «distributions» made to the beneficiaries; - Exempt from net worth tax.

The Private Foundation - Tax aspects 1.2. The founder - Luxembourg resident founder: may be taxed on the transfer of certain assets to the foundation; - Non-resident founder: may be taxed depending on the tax regime applicable in his country of residence.

The Private Foundation - Tax aspects 1.3. The Beneficiaries (i) Luxembourg tax residents - Taxation of the «distributions» (in cash or in kind) as miscellaneous income; - Tax exemption of 50% of income arising from the foundation; - No withholding tax based on the law of 23 December 2005 (RELIBI). (ii) Non-Luxembourg tax residents - No subject to Luxembourg taxation on income arising from the foundation; - No withholding tax based on the Savings Directive.

The Private Foundation - Tax aspects 2. Indirect taxation - Contribution made to create the Foundation and subsequent payments: fix registration duty; - Transfer made by the Foundation in the founder s life time: transfer tax computed based on the family relationship between the founder and the beneficiary (i.e. registration duty ranging from 1.8% to 14.4%); - Upon founder s death: inheritance taxes due by the beneficiaries at the rate of 0%, 12% or 40% based on the family relationship between the founder and the beneficiary.

The Private Foundation - Tax aspects 3. International aspects - Foundation and foreign tax legislations on trust or trust-like entities; - Access to the double tax treaties? - Withholding taxes and Parent-Subsidiary Directive; - Absence of inheritance and gifts tax treaties.

The Private Foundation vs Other vehicles Lux Foundation Trust (general concept) S.A. SPF Legal Personality Third Party Management Confidentiality Freedom of Governance Third Party Beneficiary Tax Neutrality Depends Opacity / Transparency Opaque Transparent Opaque

The Private Foundation vs Other vehicles Lux Foundation Jersey Foundation Dutch Foundation Belgian Foundation Legal Personality Third Party Management Confidentiality Freedom of Governance Third Party Beneficiary Tax Neutrality Depends Depends Opacity / Transparency Opaque Opaque Opaque Opaque

Summary Unregulated Regulated UCITS Private Foundation, Holding & Securitisation vehicle (conditions) Non-AIF Part I SIF Part I SICAR AIF Part II SIF Part II SICAR Part II UCI + De minimis regime registration of AIFM

Contact details Investment Funds Team Vivian Walry Partner Cédric Buisine Senior Associate French English German French English T +352 26 27 53 21 T +352 26 27 53 31 F +352 26 27 53 53 F +352 26 27 53 53 E vivian.walry@cms-dblux.com E cedric.buisine@cms-dblux.com

Contact details Tax Team Vincent Marquis Head of Tax Jean-Philippe Monmousseau Senior Associate Viviana Raymond Senior Associate French English French English Spanish English French Portuguese - Italian T +352 26 27 53 24 T +352 26 27 53 29 T +352 26 27 53 34 F +352 26 27 53 53 F +352 26 27 53 53 F +352 26 27 53 53 E vincent.marquis@cms-dblux.com E jean-philippe.monmousseau@cmsdblux.com E viviana.raymond@cms-dblux.com