Luxembourg: An Update for Wealth Management and Innovative Products
By Francis Hoogewerf FCA
Posted: 9th September 2014 09:10
Luxembourg, being a crossroad between France, Germany and Belgium, makes it an ideal destination for entrepreneurs. The country has a very strong reputation in banking, investment funds and is an ideal location in Europe to centralise cross-border tax arrangements.
The status of the country, as the number one investment centre in the EU and the second largest investment fund centre in the world, makes Luxembourg an attractive and globally renowned private wealth management destination, especially in the uncertain post-2008 environment.
There is a strong and growing need for a wealth management facilitator aimed at centralising all the numerous financial operations of families with diverse cross-border relations. Therefore, the Luxembourgish government passed the Family Office Act on 21 December 2012, establishing a precise legal framework to regulate activities.
Keeping in view of the internationalised assets that are subject to diverse legal and fiscal regulations and complex inheritance rules, it is a real challenge and a heavy burden on modern success. The need for professional, personalised assistance that goes beyond traditional asset management is growing exponentially.
Clients with significant diversified holdings require a greater degree of independence from their advisers with respect to service providers and suppliers of investment products. This is precisely one of the core mandates of the Family Office – long-term loyalty to the client family and to seeking the best possible solutions to its investment needs, interests and goals.
The Luxembourg State has also come close to finalising the legal framework for the set up of private foundations. Building on previous efforts towards becoming a centre for foundations – various previous laws and notably the creation of the “Fondation de Luxembourg” by the Luxembourg State in December 2008 – the country has taken a decisive step to capture the opportunity that lies in the foundation concept and its potential to provide diversification in the product offering of the financial industry.
On 22 July 2013 a draft law (bill of Law No. 6595) was introduced, which outlines the legislative basis for a “fondation patrimoniale” – a private family foundation. The Luxembourg Foundation offers an advantageous way to centrally pool and manage a family’s assets for the sake of effective asset management, succession and estate planning through all stages of life, including the opportunity to ensure the continued existence of a company even after the owner’s death.
The creation of a foundation has been designed to be a relatively simple process. A foundation is established before a notary with an initial equivalent to at least €50,000 paid in cash or in kind. The extract of the notarial deed is filed with the Luxembourg Register of Commerce and Companies (RCC) but the founder, beneficiaries and amounts contributed do not have to be disclosed. Subsequently the foundation must prepare annual accounts but it does not have to file them with the RCC.
Special Limited Partnerships (SCSp)
The preamble to the Luxembourg draft legislation states that the standard Limited Partnership is a very long-established type of company. Limited Partnerships have been little used or understood in Luxembourg, France and Germany; even though the number of standard Limited Partnerships and Partnerships Limited by shares for Commercial and Company Registers has been growing in recent years.
The bill introducing the EU Alternative Investment Fund Managers Directive (AIFM) enhanced the corporate legal framework of Luxembourg Partnership by:
1. Improving the SCS regime (a common limited partnership)
2.Introducing a new form of Limited Partnership in Luxembourg Law SCSp(a Special Limited Partnership)
The new SCS and SCSp can be related to the Anglo Saxons Limited Partnership, whose success mainly lies in the corporate flexibility and tax transparency it provides. The new SCS will particularly be attractive to the investors, in particular in the fields of private equity and the Real Estate Funds industry and young entrepreneurs with innovative ideas.
SCSp can also be used for funds set up under Specialized Investment Fund and SICAR regimes, which are the two most important regimes for alternative investment funds in Luxembourg.
Among countless lucrative projects, one worthy of mentioning is the very first of its kind in the EU: the Luxembourg Freeport (LFP). It is a highly securitised logistics hub for managing, handling, storing and trading valuable goods under a regime of suspension of VAT and customs duties. To name just a few types of goods, which can be stored at the LFP are: works of art, precious metals, jewels, diamonds and vintage cars.
The LFP is a 4 storied building of approximately 22,000 sqm, with an Investment of over €55million. The LFP is expected open for business in September 2014.
The customers of the LFP are private and public collectors, museums, investors, galleries, Investment funds and other entities that require high end storage and related services.
Hoogewerf & Cie was set up by Francis Hoogewerf FCA, a UK chartered accountant, in Luxembourg, in 1970. He practices as an “Expert comptable”, Domiciliary Agent, International Tax Advisor and is now practicing for Family Offices.
Hoogewerf & Cie specialises not only in cross border work with or from the EU, but also with China and Russia. He has concentrated a lot on Holding companies and on client projects.
Francis Hoogewerf can be contacted via email at email@example.com