Here is a general overview of the main asset holding vehicles that you can establish in Luxembourg across all assets while utilizing various investment strategies. By knowing the different business structures, you gain better understanding of their unique set-up and requirements for each structure.
A private foundation set up in Luxembourg is considered a legal entity that functions similarly to a trust and operates like a company. This orphan structure is established by a foundation who makes a significant asset contribution at the time of foundation incorporation. Assets may be situated in Luxembourg or overseas in a separate manner from its founder. A private foundation is managed by a council or board of directors.
At the time of incorporation, a foundation founder must appoint one or more beneficiaries. Furthermore, it is the role of the founder to enumerate all rules on how council members should distribute the assets. A foundation founder may be an actual person or legal corporation set-up in Luxembourg or overseas.
Limited Partnership for Holding Private Assets
A Special Limited Partnership or SLP is designed to deliver superior estate management and optimal asset protection. This business entity can be easily established in Luxembourg. Additionally, the SLP set-up can hold high-value assets such as real estate properties, aircraft, and watercraft that are situated all across the globe.
Here are the defining characteristics of a Special Limited Partnership or SLP:
- A SLP is not subject to Luxembourg tax; hence members do not have to pay for corporate tax, wealth taxes, or donation/inheritance taxes for non-Luxembourg residents.
- All financial records are kept confidential and may only be viewed by its members or based on the right they hold as stated in the articles of association.
- An appointed managing director is responsible in handling all or certain assets in the SLP.
- Family office members may hold shares in a SLP structure. The rights they hold in a SLP will depend on the percentage of shares they have in the assets. For instance, one member may be given full rights to one specific asset and another member is given the right to use a totally different or separate asset in the SLP structure.
- Given a SLP is a contractual agreement between members, it may be redesigned in any case and may be modified from time to time.
- Members of a SLP cannot be disclosed in public records or documents.
- The right to facilitate the sale of assets in the SLP is attributed to one member or a particular set if members in the structure.
- The SLP should have one appointed general partner who may be a resident of Luxembourg or otherwise.
- This can be established by a one person or a patrimonial organization, such as in the case of a foundation or trust. It may also feature other types of valuable assets, including IPR and many more. A SLP can be set-up in Luxembourg regardless of the location of an individual or entity.
Private Placement Life Insurance
Life insurance is treated as an investment by private individuals and high net worth clients who are looking to invest in services with as little risk as possible. A private placement life insurance is an asset holding vehicle that is designed to protect the investments made by clients utilizing a distinct legal structure.
This is how a Private Placement Life Insurance works:
- When a private life insurance policy is utilized, a client’s investment portfolio is moved to a separate account and under the private financial institution of a client’s choosing.
- A policy holder gives full power to the asset manager who will be primarily responsible of organizing all investments and related decision-making activities.
- A separate account asset will be safeguarded from the asset of the insurer. In essence, the life insurance provider will legally own all investable assets, while policy holders will appoint their respective beneficiaries.
- An asset manager and custodian bank will be appointed by the policy holder, and with the approval of an insurance.
- This account will solely be used for life insurance management purposes. The portfolio will only be used to invest in various policies.
Regulated and unregulated securitization funds or vehicles can be established in Luxembourg. Securitization vehicles gain from neutral tax regimen, which means there are no additional tax burden on the SV, however, taxation is assessed among its investors.
This investment vehicle may be used to securitize any risk or assets, thus paving the way in its importance in a wide variety of applications.
Securitization vehicles are used for various activities, including:
- De-consolidate ownership from the shoulders of an issuer balance sheet
- Refinancing purposes
- Secure bankruptcy remoteness and discretion
- Transfer risks
Dividends and interest are deductible for income tax purposes. A properly structured securitization vehicle will be assessed of minimal taxable income. Lastly, distributions are not assessed of withholding tax.
SICAR or investment company in risk capital is an investment vehicle for venture capitals and private equities. Unlike investment funds, SICARs are not mandated to follow the risk diversification principles in its asset allocation activities. Finally, SICAR investments can be used by well-informed investors only. By rule, SICARs are assessed with tax but most earnings generated from investments like dividends, capital gains, and interests are tax exempt.
Specialized Investment Fund or SIF
A SIF is only limited among professional investments who can invest all types of assets. General risk diversification principles stand but there are no set laws that clearly define any restrictions or limitations. SIFs are not subject to taxation but are required to pay for subscription tax set at 0.01%.
A SPF is a dedicated vehicle for holding and managing various financial family and individual assets, including bonds, cash, equities, currencies, derivatives, options, futures, savings, precious metal, warrants, and many more.
- A SPF is an unregulated legal entity that does not require to obtain a business license to be fully operational.
- SPF shares may never be used for public placement, may not be publicly offered, or listed on a stock exchange.
- This structure is exclusively designed for private investors managing their personal wealth.
Eligible investors of SPF are as follows:
- Individuals managing their personal wealth
- private wealth management organizations that are acting on behalf of one or more trusts or family offices
- Intermediaries action on behalf of private individuals, trusts, or family offices
A SOPARFi is designed to maximize holdings management in a group-setting enterprise. A SOPARFI may also conduct various activities that are mainly associated holdings management. In this case, they may engage in financial consulting and commercial operations that may or may not be directly connected to its own holdings management activities.
A SOPARFI benefits from double taxation treaties and fall within the scope of the EU Parent-Subsidiary Directive. This allows SOPARFis to benefit from certain tax exemptions on share-related capital gains and income. Lastly, a SOPARFI is an excellent vehicle for enhancing a real estate portfolio.
In essence, a trust is a private trust deed or written legal document between an individual who places his assets under the trust, which in turn refers to the settlor and trustees (individuals or corporation) that are responsible for the distribution, management, and protection of income and assets.
The assets are held in trust for beneficiaries or individuals who are entitled to enjoy from capital assets and income held under the trust deed.
Setting up a family trust is advantageous due to the following reasons:
- An alternative to a will or testament
- Protection of assets
- Can hold a variety of movable and immovable assets
- Privacy and confidentiality
- Efficient tax planning tactics
- Investment in participation
- Ownership of real estate
- Various financial instruments
The administration and management of a trust allows appointed members to safeguard and maintain family wealth, including assets and valuable possessions anywhere in the world while at the same time retaining access to major decisions. Recommendations on international regimes should be considered when transferring assets and managing a family trust. It is also crucial for decision makers to design an inheritance plan to ensure the execution of a family founder or settlor’s will, family governance, and heirship rule in the long run.
If you want to learn more about these asset holding vehicles in Luxembourg, we are here to help. Our Damalion experts will provide you with in-depth information about these structures and help you choose one that fits your needs.