Extension of Luxembourg Foundation Law

On 22 July 2013 the Luxembourg Minister of Finance has submitted the draft law No. 6595 to the Parliament aiming at a fundamental reform of Foundation Law in Luxembourg (Law of 21 April 1928).

The foundation according to the current legal situation is basically restricted to philantrophic, religious, social, scientific, artistic or educational purposes, or must have its mission on the areas of sport or tourism. In general the foundation must be a non-profit organization (Article 27 of the Law of 21 April 1928, as amended).

Family foundations, foundations serving private interest or company-affilated foundations known from foundation regimes in other countries such as the Dutch Stichting are not yet permitted under Luxembourg law. The foundation according to current Luxembourg law was therefore not suitable for private wealth management.

With the new foundation law the attractiveness of Luxembourg as a location for family offices and private wealth management vehicles will increase and the influx of wealthy individuals to Luxembourg will further be stimulated.

Overview of the new legal and fiscal framework

Setting up a family foundation requires a notarial deed that is to be published in the Luxembourg Register of Commerce and Companies. Founding members, beneficial owners and the amount contributed do not have to be disclosed.

The family foundation may be represented by one or several managers who can be natural and legal persons.

The foundation may issue registered certificates linked to predetermined assets and liabilities and representing rights defined in the incorporation act.

The family foundation is subject to general obligations to keep accounts in Luxembourg and has to prepare financial statements. However these need not be published in the Luxembourg Register of Commerce and Companies.

The family foundation is subject to general corporate income and business tax. It is, however, exempt from net wealth tax. It also benefits from an exemption for dividends, interest payments and capital gains on securities. Payments to non-resident beneficiaries are not subject to withholding tax and should not be taxable in Luxembourg.

At the death of a Luxembourg foundation member the transfer of net assets (total of all assets minus debts) to the beneficiaries is subject to a registration tax depending on the degree of relationship to deceased´s heir. For spouses of the founder, his/her partner, and his/her direct ascendant or descendant the transfer of net assets is tax exempt.

The present draft law further strengthens Luxembourg´s competitiveness as an attractive location for family offices and high net worth individuals.