Taxation

The tax treatment of Luxembourg Private Foundations is different depending on the fact that the founder is resident and non-resident in Luxembourg.

 

For residents, the Law seeks to establish a level playing field with the taxation of inheritance and gifts in direct ownership.

 

For non-residents there is generally no taxation except for Luxembourg situated properties

 

Tax regime of the Foundation itself

 

The Law also defines the tax regime which applies to the Private Foundation.

In relation to direct income taxes, the Law establishes the Foundation as a separate taxable entity independent of the founder or his dependents, beneficiaries or administrators. The Foundation is a taxable body like a normal taxable company but it is exempt of income taxes on three categories of income:

  •  Financial income derived from  Financial assets
  •  Capital gains on these financial assets
  •  Income from life insurance policies

It is not subject to Wealth Tax.

With regards to indirect taxes, the Law introduces upon death of a resident founder a special registration fee exactly in line with rates currently applied to inheritance. (0%, 12% or 40%)

The result of this is that registration fee becomes payable on the net assets of the Private Foundation upon the death of the founder.

If the Founder is non resident, the tax applied on the “net assets” is limited to the real estate assets situated in Luxembourg (in case of death of a founder who has lived abroad).

The transfer of assets or property to the Foundation gives rise only to a fixed registration duty.

The removal of assets is taxed as a gift provided it is done during the lifetime of founder: the common regime on gifts is applied in this case (0%, 12% or 40%).

IncomesTax Advantage
Capital gain on ArtworksTax exemption, if assets are held at least 6 months
Income derived from artworksNo income tax, no wealth tax
Certificates issued by the FoundationNo taxation at the Foundation level Rental income or capital gains are due to the Certificate holder. No withholding tax at source on the interest income
Income derived from weather management of a portfolio of securitiesTax exemption
Other IncomesTac exemption subject to conditions

The Luxembourg government issued a draft law on such private foundation in the summer of 2013. But these provisions have not come into effect since the bill has yet to be voted.

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