Limited Partnership for holding Private Assets
The Luxembourg Special Limited Partnership (SLP) for asset protection and estate management is an entity which can be set up easily and managed through Luxembourg to hold assets all over the world (aircraft, yachts and real estate). The SLP can be held by an individual or a patrimonial entity, such as a trust or a foundation, wherever they are resident; The SLP can also hold, other types of assets such as financial assets, IPR, etc.; Several members of a family office can hold shares in the SLP and be attributed certain rights, depending on their share in the assets; One member can receive the right to use a particular asset and another member the right to use another asset of the SLP; The right to a potential sale of one of the SLP’s assets can also be attributed to one or several particular members of the SLP (father and sons, between two branches of a family, etc.); The entity can be adapted in any circumstance and amended from time to time as the SLP is set up as a contractual relation between the members; The SLP is not subject to tax in Luxembourg and thus not subject to corporation, duties, wealth taxes or any donation or inheritance taxation (assuming there are no Luxembourg resident members); The members appoint a general partner who can be in Luxembourg or abroad; A managing director can be appointed to manage all, or specific assets; The members’ identities are not disclosed to the public; The financial statements are not published and access to them can be restricted among members, depending on the right they have in the articles of association.
A trust is a private legal agreement (trust deed) between the individual who places his assets in the trust (the settlor) and the individual or corporation entrusted with the protection, management, and ultimate distribution of the assets (the trustee). The assets are held in trust for the persons entitled to benefit from the capital assets and/or income held under the agreement (the beneficiaries).
A family Office may find trusts are useful because they provide:
a supplement to a will or a testament, asset protection, confidentiality, flexibility, investment in participation, financial instruments, etc., real estate ownership, efficient tax planning strategies, and can hold assets such as boats, planes, etc.
Setting up and managing a trust allows controlling participations to protect, maintain and administer a family’s wealth, their assets and possessions around the globe, while retaining an overview of the decisions. Additionally, advice on international tax should be considered for transferring assets and organising the administration; as well as the creation of an inheritance plan in order to respect the family founder’s will, family governance, and forced heirship rule.
Luxembourg proposes a Private Foundation which has the form of a legal entity acting like a Trust and operating like a company.
This orphan structure is set up by a founder who makes a contribution of assets at the incorporation of the foundation. These assets, which are held in Luxembourg or abroad in a separate manner from the patrimony of the founder, are managed by a foundation council or board of directors.
Upon incorporation, the founder appoints one or more beneficiaries or defines the way the foundation council will distribute the foundation’s assets. The Founder may be an individual or a corporate body established in Luxembourg or abroad.
Private Placement Life Insurance
Life insurance is considered to be a form of investment for private clients and HNWIs who wish to invest in products with a minimum of risk. Private placement life insurance is a vehicle used to protect or secure private clients and HNWIs’ investments within a unique legal framework.
When the private life insurance policy is subscribed, the investment portfolio is transferred to a separate account (in the private bank of choice) solely for the life insurance policy. The portfolio will then be invested according to the investment policy chosen. The asset manager and a custodian bank are selected by the investor (also named the policy holder), with approval of the insurer. The policy holder generally gives full control of the investments to the asset manager, whose role is to oversee all investments and to be responsible for all investment decisions.
Separate account assets are segregated from the asset of the insurer. The life insurance company becomes the legal owner of the investable assets, and beneficiaries are named by the policy holder.
The SPF is a dedicated vehicle for holding and managing the financial assets of an individual or family such as shares, bonds, cash, savings, equities, currencies, precious metal, derivatives, options, warrants, futures, or any other financial instruments. It is an unregulated entity and does not require any business licence. The SPF is exclusively designed for investors managing their private wealth; therefore shares of the SPF cannot be used for public placement and cannot be publicly offered or quoted on a stock exchange. Eligible investors are: a) Individuals managing their private wealth, or b) Private wealth management entities acting for one or several individuals (trusts, family offices), or c) Intermediaries acting on behalf of a. or b.
SICAR (société d’investissement en capital à risqué)
The investment company in risk-capital (société d’investissement en capital à risque or SICAR), is a regime that is designed specifically as a vehicle for investment in private equity and venture capital. In contrast to investment funds, a SICAR is not required to respect the principle of risk diversification in its asset allocation. Investment in a SICAR is limited to “well informed” investors. SICARs are taxable in principle, but most income from investments such as interest, dividends and capital gains are exempt.
SIF (specialised investment fund)
Investment in the specialised investment fund (SIF) is likewise limited to professional investors and may invest in all types of assets. The principle of risk diversification is maintained, but the law does not define any quantitative limitations. SIFs are exempt from taxation, except a subscription tax of 0.01% (0% for certain SIFs).
As for real estate investments, a variety of structures can be used: regulated entities (in the form of an undertaking for collective investment or an investment company in risk capital) or unregulated (in the form of a commercial company or a securitisation vehicle). The choice of structure will depend on the tax regime applicable to the investor and his objectives.
SOPARFI (société de participation financières)
While the principal purpose of the société de participations financières (SOPARFI) is to optimise the management of holdings in a group of enterprises, a SOPARFI can also perform activities related to the management of its holdings (such as financial advice or financing of activities), as well as undertake any commercial activity that is directly or indirectly connected to the management of its holdings. These companies benefit from double taxation treaties and fall within the scope of the European Parent- Subsidiary Directive, which enables them to gain, under certain conditions, tax exemption on share-related income (dividends and capital gains). In addition to the role they play for company headquarters, SOPARFI are equally useful for structuring a portfolio of real estate.
Luxembourg law also offers numerous opportunities for the creation of regulated and unregulated securitisation vehicles (SV) and securitisation funds. These vehicles benefit from a neutral tax regime (no additional tax burden at the level of the SV; taxation occurs only at investor level) and can be used for the securitisation of any type of risk or asset, opening up a large field of applications. As such, SVs are used to transfer risk, deconsolidate the ownership off the owner’ or issuers’ balance sheet/wealth (thus securing bankruptcy remoteness and discretion), or for refinancing purposes. Tax efficient, obligations vis-à-vis SV’s investors and other creditors ((future) dividends, interest, etc.) are considered to be deductible “interest payments” for income tax purposes. In this light, if properly structured, the taxable income of an SV can in that case be minimal. The distributions are not subject to withholding tax.