What is the difference in setting up a Luxembourg private foundation in Luxembourg compared to other countries?
The Luxembourg private foundation stands up as a homologue of foundations in other countries. The Foundation enables to achieve the same degree of assets protection and estate planning, especially in the context of inheritances. But, as from a tax perspective, the Luxembourg framework is more attractive and some features of the law allows more flexibility or different type of structure (eg the issuance of certificate).
Can the Foundation be set up in a different country from the one the founder is resident in?
Yes. The founder, directors or members of the supervisory board may be non-resident. However the registered office of the Foundation is always be located in Luxembourg.
As a Foundation has no shareholder(s), does it mean that the founder is not considered as the owner ?
Indeed, the Luxembourg Private Foundation does not issue shares, thus no shareholders and therefore nobody “owns” the Foundation.
The founder dispossesses himself of his assets in favour of the Foundation and can appoint beneficiaries (including himself) during the constitution or after.
Once assets are given to the Foundation, they will no longer belong to the founder. Nevertheless, the founder can be part of the Board of Directors and manage the assets himself.
How does the Foundation repay beneficiaries ?
The founder decides in advance whom will be, how many beneficiaries will receive (or not) grants or annuities, or assets from the Foundation.
The founder can also sets conditions to distribute the assets of the foundation.
Can a Foundation be remunerated by dividends from companies of its assets ?
Indeed. The Foundation can also invest into participations or a securities portfolio which would then generate dividends. Likewise if the foundation holds IP rights, movable and immovable properties the foundation will then receive income related to these assets.
If assets were given to a Foundation based in Luxembourg, would the founder be freed of estate taxes on those assets?
Transfers of assets to the Foundation by non-residents or payment of incomes to non-residents will not be withheld at source. However and depending on the country in which they are resident these income could be taxable there and also some exemptions might apply. (eg sometimes the transfer of assets is not a taxable event at all or the assets transferred to beneficiaries are not taxable, etc).
What is the amount of the “flat registration duty”?
The amount of a fixed registration fee is set at EUR 75 and must be paid to the Land Regitration and Estates Department.
Does the board have to be composed of members all living in the country where the Foundation is based in?
No. The settlor, directors or members of the supervisory board may all be non-resident. The important thing is to keep a link with Luxembourg where the administration is based; thus entities usually appoint one Luxembourg-based director at least.
Is there a minimum assets’ worth recommended to set up a Foundation?
No, there isn’t. There is only a minimum contribution to be brought to the entity: EUR 50,000 in cash or in kind. After what other assets can be contributed or simply lent to the Foundation.
Who values the assets in the Foundation?
The initial contribution, made in kind is under the responsbility of the founder, who will then be in charge of the valuation of the assets transferred to the Private Foundation. The valuation of the assets brought subsequently to the Foundation will be under the responsbility of the Board of Directors of the Foundation, whose role is clearly defined in the Constitution Acts. The Board has the power to accomplish all the useful tasks to the realisation of the objectives of the Foundation. It can be assisted by external service providers to valuate the assets.
What is a “custodian” when it comes to the valuation of the assets?
A custodian can be appointed by the Board of Directors to hold some or all the assets of the Foundation. The custodian of financial instrument often gives a valuation of the financial assets and helps the process of fair value adjustment done by the Manager.
A custodian can also hold other types of assets like art collection, participation in private equity or other alternative investments. It minimises risks in the safeguard of the Foundation’s assets.
Custodian and experts in valuation are independent from the Foundation and its Manager.
Would a Foundation be more advantageous than charitable donations in terms of tax exemptions?
It depends where the founder, beneficiaries are resident, at the set up and after the death of the founder. Don’t hesitate to contact us to analyse of a specific situation.
Does the Foundation need to be not for profit and for the public’s interest to be eligible for tax exemption?
The Foundation cannot perform commercial or financial activities, but is a “for-profit” vehicle. It can be used for the private estate of the settlor without being for the public interest. The Foundation can be set up to make profit on its assets and generate incomes.
Does the settlor need to be a High Net Wealth Individuals?
The Foundation is an ideal structure for family groups or whoever is seeking for an appropriate vehicle to obtain protection and tax optimisation for his assets. Many players willing to structure their investments via a trust might consider the Foundation as more appropriate as they can manage it themselves. There is not need for the settlor, founder to be a HNWI at the beginning. Some very small Foundation can be set up at the beginning of the career of its settlor and grow over time.