Establish a Trust in Luxembourg - Tailored Asset Protection Services
Establish a Trust in LuxembourgUpdated on Monday 17th May 2021
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Luxembourg is one of the world’s largest and most reputable financial centers, however, it does not attract only professional investors who usually set up investment funds here, but also private wealthy individuals interested in protecting their assets in a safe and legal manner. In order to welcome their needs, the government has enabled the Trust Law in 2003 when it became a signatory of the Hague Convention. Under the new Trust Law, Luxembourg acknowledges international trusts and fiduciary contracts.
Our Luxembourg lawyers can offer more information on the legislation governing the establishment of trusts in the Grand Duchy. You can also rely on us if you need assistance in setting up a trust in Luxembourg.
Who can set up trusts in Luxembourg?
Trusts are entities designed for local and foreign citizens who want to protect their assets. Most of the times, trusts are created by individuals or families and are administered by companies specialized in offering fiduciary services. This is why Luxembourg is a preferred destination for those who want to establish trusts.
Trusts in Luxembourg can take various forms, among which the most popular are:
- family offices which are great wealth management structures for large families, no matter if the members are Luxembourg citizens or not;
- limited partnerships created with the purpose of holding the private assets of individuals;
- private foundations can also be created with the purpose of ensuring the protection of personal assets;
- family trusts which can take the form of special limited partnerships and which are protected by the Trust Law in Luxembourg;
- private placement life insurances which are quite popular in Luxembourg as they are forms of investments for individuals and families.
No matter the type of trust you decide to create, our law firm in Luxembourg can help you draft the trust deed in accordance with the law.
Settlors and trustees in Luxembourg
The creation of a trust in Luxembourg implies several participants, among which the settlor who is person establishing the conditions under which the trust is set up, and the trustee who will follow the instructions of the settlor in regard to the administration and distribution of the estate or other assets left in the case of the fiduciary.
What should be noted is that the establishment of a Luxembourg trust cannot begin until all the parties are clearly agreed upon. This implies for the settlor to nominate the names of the trustee or trustees and of the beneficiaries.
In Luxembourg, the trustee can be a natural person or company offering specialized fiduciary and asset management services and is bound by the trust deed to respect the wishes of the settlor and act to the administration and transfer of the assets to the beneficiaries in accordance with the conditions established in the agreement.
If you need information on how a trust deed is created, our lawyers in Luxembourg will explain the conditions to be met. We can also verify the authenticity and correctness of such documents.
Beneficiaries in a Luxembourg trust
There are several aspects in relation to the beneficiaries of a trust in Luxembourg. The first one is the fact that the settlor decides who they are. The trust deed can contain their names, however, it is also possible for descriptions of the beneficiaries to be added (details like age, sex and family connection to the settlor). This is allowed because it is possible for the settlor to add new beneficiaries to the deed (this usually occurs in the case of unborn children).
Our law firm is at the service of those interested in setting up a trust in Luxembourg.
You can also watch our video on how to create a trust in Luxembourg:
Requirements for creating a Luxembourg trust
The requisites related to the establishment of a trust in Luxembourg are simpler than in the case of opening a company. However, there are a few aspects to be considered. First of all, the trust deed must clearly delimit the assets to be protected. The names of the settlors, beneficiaries and fiduciaries must be written in the trust deed. Apart from these, the entity must have a unique name which must be followed by the word ‘trust’. This is a mandatory requirement in order for the trust to not be mistaken with another legal entity.
The duration of the trust must also be specified in the document. As a general fact, a trust can be set up for up to 100 years in Luxembourg.
Our Luxembourg lawyers can help both nationals and foreign citizens create various types of trusts here.
Elements of the trust in Luxembourg
Foreign and local wealthy individuals can set up trusts or private family offices with the purpose of protecting their estate. The trust is one of the most useful estate planning and even wealth management tools in Luxembourg. The Luxembourg trust must contain three essential elements:
- the settlor;
- the trustee;
- the beneficiary or beneficiaries.
The settlor is the person creating the trust, while the trustee is the individual or company managing the estate on behalf of the settlor and to the wellbeing of the beneficiaries. The new Trust Law provides for the fiduciary contract which is also very useful when it comes to those who can administer an estate under the Trust Law. Moreover, Luxembourg companies acting as fiduciaries for the settlors of trusts must be authorized by the Financial Regulator in the Grand Duchy. The last element of the trust is the beneficiary who is the party in favor of which the trust was created.
The deed of trust in Luxembourg
In order to create a trust in Luxembourg, the settlor and the trustee must draw up a private agreement, also known as a deed of trust through which the two parties agree on the assets which will be administered. The deed of trust must be signed before a public notary in Luxembourg.
The Luxembourg international trust
One of the reasons why Luxembourg is an appealing country for foreign citizens, not only investors, is because it provides for the creation of international trusts. This type of trust allows foreign citizens who are not ordinary residents of Luxembourg to establish trusts here and to protect their assets in one of the largest financial centers in the world.
Foreign citizens can act as settlors, beneficiaries and even fiduciaries in Luxembourg international trusts. Also, the assets which can be protected by creating a trust in the Grand Duchy must not be transferred to Luxembourg, as they can be located anywhere in the world.
The creation of a family trust in Luxembourg
Luxembourg is a great country for foreign private individuals to protect their assets, as they can set up family trusts through which their estates can benefit from enhanced protection.
Family trusts address private persons who want to have their assets administered by professionals, and Luxembourg is one of the best countries in Europe to obtain that, as it offers specialized personnel for such purposes. The assets can be held in trust by a natural person of company who can handle the management and distribution of assets to the beneficiaries in accordance with the desires of the settlors.
For this purpose, private high net worth people can use specialized services offered by professionals.
Another way of protecting assets is through the creation of a family office. This option is usually available for those who have multiple beneficiaries they will leave the assets held by the trust in Luxembourg. The family office is a very useful tool as:
- it can be used to arrange the distribution of the estate through a will;
- it offers increased asset protection and confidentiality;
- it is flexible;
- it enables the trustee to invest in financial instruments (if instructed so);
- it can hold a wide range of assets;
- it can be used for owning real estate;
- it can use various tax planning solutions.
The creation of a trust in Luxembourg as a family office enables its members to protect and administer the family’s estate with full decision-making powers.
If you are interested in setting up a trust in Luxembourg by organizing it as a family office, our local lawyers can advise on the procedure.
New obligations for trustees in Luxembourg
At the beginning of 2019, a new law under which the creation of a beneficial owners’ register was passed by the Luxembourg legislator. The same law was amended in 2020 when it provided for the establishment of a register for fiduciaries and trusts.
The new act addresses companies registered with the Luxembourg Companies House that need to provide information about beneficial owners. The information must be obtained and kept by trustees or fiduciaries.
Trusts must also have their information with the register under the provisions of the same law. They must be registered with the Administration of Domains and VAT. Exceptions apply to fiduciaries and trustees that reside or have domiciles in Luxembourg and to EU-based service providers who enter multiple business relations.
The following information must be submitted with the Register:
- the name and identification number;
- the date the trust was enacted;
- the name, nationality, date and place of birth and country of residence of the beneficial owner;
- the extent of the beneficial owner’s involvement in the trust.
If you need information on the new legislation, you can rely on our Luxembourg lawyers for updates.
Taxation of the trust in Luxembourg
There are several laws which need to be respected when it comes to the taxation of trusts and trustees in Luxembourg. It should also be noted that trusts are supervised by the Financial Regulator or CSSF.
Before explaining the conditions for trusts and trustees to be taxed in Luxembourg, it should be noted that only professionals can act as trustees if they are registered in the Grand Duchy. As such, only credit institutions and professionals can act as trustees.
The Tax Adaption Law and the General Tax Law in Luxembourg provide for the following when it comes to the taxation of trusts:
- the settlor will be taxed upon the transfer of assets to the fiduciary, according to Article 11 in the Tax Adaptation Law;
- the settlor can also be taxed on the assets acquired by the fiduciary through the fiduciary agreement;
- in the case of irrevocable and discretionary trusts, the entity itself can be subject to taxation if the beneficiary cannot be identified;
- certain registration fees also apply when it comes to the taxation of trusts, such as the transfer tax on the assets transferred from the trustee to the beneficiary;
- the trust is not subject to VAT payments in Luxembourg, according to the General Tax Law.
With respect to the taxation of trusts, the Luxembourg law provides for a special tax status for this type of establishment. You can find out more information on the taxation of trusts from our attorneys in Luxembourg.
Our lawyers in Luxembourg can offer more information on the taxation and advantages of trusts.
Why invest in Luxembourg?
Luxembourg is one of the most desirable investment destinations in Europe. No matter if you want to set up a business or a trust in Luxembourg, you should know that:
- in 2017, Luxembourg ranked 20th in the Global Competitiveness Report;
- in 2018, Luxembourg has attracted 5.6 billion USD in foreign direct investments;
- in 2018, the total stock of foreign direct investments held by Luxembourg was 164 billion USD;
- in 2019, Luxembourg ranks 66th out of 190 countries in the World Bank’s Doing Business Index.
We also invite you to contact us if you are interested in setting up a trust in Luxembourg.