FAMILY OWNED BUSINESS & PRIVATE WEALTH 2017-2018
International private clients update
Table of contents
International developments Home market: The Netherlands Home market: Belgium Home market: Luxembourg Home market: Switzerland
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Family Owned Business & Private Wealth Team
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More than ever entrepreneurs and high net worth individuals find themselves doing business on a global scale and making investments abroad. If you are an entrepreneur, high net worth individual or a related service provider, you face a complex framework of tax and legal rules both at home and abroad. International tax developments continue apace, such as efforts to combat tax avoidance, the need for transparency and the creation of a level playing field in cross-border situations. All these developments have an impact on legislation, regulations and policy, which in turn affect your (family) business and private wealth. This edition of `International private clients update 2017-2018' looks at the various (anticipated) international developments that might be of relevance to you. In this update we also share news about some of the changes in our four home markets: the Netherlands, Belgium, Luxembourg and Switzerland. Enjoy this read! If you need any further information on any of the topics, or if you would like a non-obligatory consultation, please do not hesitate to contact your Loyens & Loeff adviser or one of our advisers in the Family Owned Business & Private Wealth (FOB&PW) team. We are happy to help. With best wishes,
Rotterdam, 17 November 2017
Fred van der Leije Chairman of FOB&PW Tax Adviser / Partner
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The global financial crisis that followed the 2008 credit crunch, the digital revolution in trade and the advent of international terrorist organisations have created momentum in international politics to pass (tax) legislation that functions across borders and results in greater transparency in a complex legal environment. The decline in tax revenues as a result of the crisis and the need for greater transparency go hand in hand with the global approach to tax evasion and perceived tax avoidance. This approach has resulted in cross-border co-operation on an unprecedented scale such as has never been seen before. Jurisdictions are incorporating various technical measures in their national legislation at an unparalleled pace, with the goal of remedying the perceived harmful arbitrage between tax and legal legislative frameworks applicable in different countries. Examples of such measures include (i) implementation of the UBO register in EU member states, (ii) intermediaries' reporting obligation on cross-border (tax) planning schemes, (iii) expansion of information exchange between countries, (iv) the roll-out of the BEPS projects including the introduction of the multilateral instrument (MLI). It should also be noted that legislation and regulations are being harmonised at the level of private international law, for example in international inheritance law and matrimonial property law. This section highlights some of these (technical) measures that may affect you.
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Implementation of the UBO register in EU member states
Mandatory implementation The European Union (EU) has put a great deal of effort into tax transparency and anti-money laundering measures. All EU member states must keep a register containing the details of the individuals that are known as the `ultimate beneficial owners' of legal entities and other entities based in the EU; hence the new register is called the `UBO register'.
There is a separate arrangement for trusts, under which EU member states must set up a central register for trusts that are governed by the law of the respective member state.
Although EU member states were supposed to have implemented the UBO register by 25 June 2017, most of them including our home markets of the Netherlands, Belgium and Luxembourg failed to meet this deadline. Our home market of Switzerland is not part of the EU and is therefore not obliged to implement a UBO register, nor does it intend to do so.
Identify what this means for you It is advisable to identify the impact of the introduction of the UBO register for you and your family so that you know whether your privacy will continue to be adequately safeguarded in 2018. A person with more than 25% (economic and/or controlling) interest in an entity will always be designated as a UBO although member states may also apply a lower threshold. The UBO register will contain certain personal information of the UBOs of corporate entities and other legal entities, such as the name and date of birth of the UBO, as well as the nature and extent of the beneficial interest held.
Detailed interpretation of the rules EU member states are currently discussing whether the UBO register rules should be tightened, for example the minimum threshold required to qualify as a UBO, the possibility of mandatory public UBO registration, setting up a UBO register for trusts managed from an EU member state. It is therefore quite possible that EU member states will have to change their laws on UBO registers again within a few years.
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Intermediaries' reporting obligation on cross-border (tax) planning schemes
Mandatory reporting by EU member states of cross-border tax planning schemes The European Commission has proposed that any intermediary that devises or promotes a particular crossborder tax planning scheme must report it to their home tax authorities. This proposal is a direct consequence of the publication of the Panama Papers and is intended to prevent tax base erosion. The European Commission's goal is for this measure to take effect in all EU member states with effect from 2019.
Examples The measure targets aggressive tax planning schemes, but these are not defined. The proposal presumes a number of `hallmarks', which conceivably include situations in which: (i) no tax is levied on a cross-border payment, both in the country of origin and the country receiving the payment, (ii) a payment is made to a country with a corporate income tax rate that is lower than half of the average EU rate of corporate taxation, (iii) a loss is shifted across borders, or (iv) the scheme is set up to prevent automatic exchange of information.
Who has a reporting obligation? Tax advisers, lawyers, consultants and bankers are examples of intermediaries. The Dutch government is still deliberating on the conflict between the reporting obligation on the one hand, and, on the other hand, the informal right of non-disclosure between tax advisers and their clients, and the legal right of non-disclosure (attorney-client privilege). If the intermediary is not required to report the scheme, the taxpayer must. If the intermediary is not based in the EU, the reporting obligation falls upon the taxpayer.
What has to be reported? The intermediary or taxpayer must report at least the following information:
-the identity of the taxpayer and the intermediaries, and any parties affiliated with the taxpayer and the intermediaries;
-a description of which of the `hallmarks' is used in the scheme;
-a description of the scheme and, in abstract terms, a description of the business activities;
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- the (proposed) implementation date of the scheme; -an outline of the national tax provisions that create the
tax benefit (if applicable); -the value of the transactions in the scheme; -the identification of the other member states involved
in the scheme and all involved entities in those member states.
Reporting in a central EU database There is no threshold amount of tax savings above which a report must be made. The requirement to report a scheme does not necessarily imply that it is illegal or harmful. Under the proposal, the tax authorities in every EU member state will exchange information by entering the reports in a central EU database. The tax authorities in another member state will have access to that database and can initiate an investigation if necessary. The idea is that this will give the tax authorities in another member state an early warning of a potential aggressive tax planning scheme.
Reporting deadline According to the proposal, the details of a scheme will have to be reported within five days of providing the scheme to the taxpayer. Criticism has been levelled about this short deadline and it is unclear whether it will be maintained.
Expansion of information exchange between countries
Tax authorities are exchanging more and more information The tax authorities in our four home markets and beyond are engaging in more and more automatic exchange of data, both as recipient and as originator. Information can also be exchanged spontaneously at the request of another state. A number of developments are described below.
Exchange of information about `rulings' with the tax authorities If your international (family-owned) business has what is known as a `ruling' with the tax authorities in a country, you should be aware that international and European agreements have been made about the exchange of information about these agreements. Existing rulings
also fall within the scope of these agreements. The tax authorities in the country in question check the supplied information before sharing it with other countries.
Country-by-country reporting, master file and local file With a view to greater transparency, the OECD has proposed that multinational enterprises with a consolidated annual turnover of 750 million and over should prepare a report. This is called country-by-country reporting.
The report contains aggregated information on the earnings, pre-tax profit, tax paid on profits, the tax on profits included in the annual accounts, the paid-up capital, the accumulated profit, the number of employees and the tangible assets other than cash or cash equivalents for every country in which the multinational operates.
The country-by-country report also contains a description of each group entity that is part of the multinational group, indicating the state in which the group entity is resident for tax purposes and, if different, the state under whose law that group entity was founded as well as the nature of the primary business activity or activities of that group entity. The reporting entity of the multinational corporation must submit a report annually (from 2016) to the tax authorities where it is based. Country-by-country reports will be exchanged for the first time in mid 2018.
In addition, multinational enterprises with annual turnover of 50 million and over are obliged to create and keep a `master file' and `local file' which must be available every year when the return is submitted. The tax authorities can request this information as part of the justification for transfer pricing.
Common Reporting Standards In 2017, 49 countries, including most EU member states, have automatically exchanged information about the previous year based on what are known as Common Reporting Standards. A further 50 countries, including Switzerland and Austria, will follow in 2018 when they will automatically exchange information about 2017. Financial institutions must ascertain the country of residence or tax residence of their clients. In addition to the identity of the client, this information comprises the account
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number, account balance, interest and dividend income, the values of capital and life insurance policies, and the income from financial products such as securities. The financial institutions will then forward this information to the tax authorities in their country. The tax authorities will then exchange the information with the tax authorities in the client's country of residence or tax residence. In this way, the tax authorities in the country of residence or tax residence receive information about persons or enterprises that are active abroad and will check this information.
The Common Reporting Standards are a response by the OECD to the US Foreign Account Tax Compliance Act (FATCA), a law that aims to tackle undeclared savings and tax evasion by US taxpayers.
The roll-out of the BEPS project
Global initiative The OECD launched the BEPS (Base Erosion and Profit) project in 2013 at the request of the G20. This project targets legal and illegal tax planning strategies that exploit gaps and mismatches in tax rules between jurisdictions to artificially shift profits to low-tax or no-tax locations. Such practices undermine the fairness and integrity of tax systems because businesses that operate across borders can use BEPS to gain a competitive advantage over enterprises that operate at a domestic level. Moreover, when tax payers see multinational enterprises legally avoid tax, it undermines voluntary compliance by all taxpayers. The foregoing led to the publication of fifteen BEPS Action reports on 5 October 2015.
Since it was launched in 2012, the BEPS project has grown into a global initiative, the results of which in the form of various technical measures are quickly being adopted into tax laws and regulations in a large number of jurisdictions.
Identify what this means for you If you and your international (family-owned) business operate in multiple jurisdictions, it is recommended to identify the extent to which the anti-BEPS measures which will be implemented may affect you personally and/ or your business.
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Examples of important BEPS topics To give you an impression, we discuss below a number of major topics in the BEPS project which we believe will have a substantial impact on the tax position of high net worth individuals and their enterprises:
1.Matching taxation and value creation A key principle in the BEPS project is that taxable profit must be allocated to jurisdictions where economic activities are actually carried out (i.e. matching taxation with the place where value is created) To put this into practice so-called `significant people functions' play a central role. People performing such functions are the ones who take fundamental business decisions that lead to the assumption of risks and the ownership of assets or the on-going management of those risk an assets The locations of people performing such functions make it possible to establish where value is created. As such, the nexus of such people with one or more jurisdictions is a key piece of information. In practice, high net worth individuals are often key decision-makers, which can lead to a perceived value creation and hence local taxation.
2.Tax treaty abuse Tax treaties are concluded between jurisdictions to prevent double taxation. The BEPS-project identifies tax treaty abuse as one of the most important sources of BEPS concerns. First of all results on this topic clearly convey the message that tax treaties are not intended to be used to generate double non-taxation. Secondly, the practice of artificiality `interposing' entities in one or more jurisdiction with the aim of obtaining tax treaty benefits (`treaty shopping'), thus reducing the overall effective tax exposure should be countered. This is done by introducing `minimum standard' anti-abuse measures. In brief, this should result in tax treaty benefits only being available for bonafide structures, which show economic reality, whereby the principle of `substance over form' plays an important role. The `minimum standard' anti-abuse measures will be incorporated in most tax treaties around the world (see the
`Introduction of the multilateral instrument (MLI)' section on p. 10). In short, these provisions will have an enormous impact in practice. Zooming in on high net worth individuals, such persons frequently do business or make investments via relatively (deemed) passive holding companies, at least without a material business enterprise. We note that such entities under certain circumstances could fall inside the scope of the anti-abuse measures, as a result of which tax treaty benefits will be denied.
3.Migration of entities In practice entities can migrate from one jurisdiction to another by relocating the place of effective management. In some cases an entity will be considered to have two tax residency's (`dual residency') thus being exposed to potential double taxation. In most cases tax treaties resolve such issues by allocating the exclusive taxing rights to the jurisdiction in which the place of effective management is executed. Consequently, the jurisdiction of origin should not have taxing rights after the migration has taken place. Subject to the BEPS measures, the aforementioned procedure will make way for what is known as a `mutual agreement procedure' between the two competent tax authorities. The idea is that such a `case by case' approach will counter abusive situations more effectively. A big downside of this approach is that mutual agreement procedures generally take a long time. Furthermore, as no tax treaty benefits can be enjoyed while such a procedure is pending, the impact can be substantial.
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Proactive position of the EU The European Commission is taking a proactive stance to increasing transparency and countering tax avoidance. Many initiatives have been proposed and some have already been adopted, thus the EU is ahead of the game in some areas.
Climate change The global fiscal `climate' is undergoing a drastic change. Your primary concern will be to secure the continuity of your international (family-owned) business and preserve private wealth. The impeccable reputation and privacy of the ultimate beneficial owner must be maintained. It is important to guarantee the optimum balance between these goals whilst maintaining tax efficiency. With this in mind, this rapidly changing reality more than ever demands a proactive stance in order to manage both commercial and tax risks.
Introduction of the multilateral instrument (MLI)
Modifications to existing tax treaties If your international (family-owned) business enjoys tax benefits based on a bilateral tax treaty, you should be aware that various measures are being developed in the context of the BEPS project, some of which have been incorporated into the existing tax treaties between countries. The aim is to implement measures brought forth by the BEPS project such as preventing tax treaty abuse and - more generally - tackling international tax avoidance (see `The roll-out of the BEPS project' section on p. 8). Jurisdictions may incorporate some of the proposed BEPS measures in their domestic legislation. Importantly, some of the key BEPS measures are to be incorporated in new and existing tax treaties. With a focus on the latter, since over 2000 tax treaties have been concluded around the world, the OECD wanted to facilitate, streamline and accelerate the process of modifying them. To this end, a mutilated treaty has been developed and introduced, called the `multilateral instrument (MLI)', pursuant to which new provisions and amendments of existing bilateral tax treaties can be incorporated relatively easily, without having to go back and renegotiate each tax treaty separately.
The consequences of the MLI for you or your international (family-owned) business In practice, the MLI will act as an addendum to existing treaties and may affect your or your international (familyowned) business' eligibility for the benefits granted under a tax treaty. As such, the MLI may have far-reaching consequences. However, before any tax treaties are amended pursuant to the MLI process multiple steps have to be taken. The MLI (and the choices made by the respective governments within that context) first need to be subjected to the national parliamentary ratification processes. Moreover, the MLI will not come into effect until five jurisdictions have ratified the treaty. Subsequently, the respective tax treaties concluded by a jurisdiction will not all be automatically modified; they will only be modified once both treaty partners in question have ratified the MLI. Although difficult to predict, we do not expect modified bilateral treaties to come into force before 1 January 2019. It is therefore recommended to review your situation or that of your international (familyowned) business under the relevant tax treaties in the course of 2018.
Please see our website for a complete overview of the choices and reservations made by our home markets of The Netherlands, Belgium, Luxembourg and Switzerland.
Harmonisation of international inheritance law
The EU has made it easier to settle international estates An estate can be problematic to settle, and international estates even more so. An international estate is one involving two or more countries, for example if the testator did not live in the country of his citizenship, or left assets in more than one country. This may give rise to questions of which law of which country determines (i) who the heirs are, (ii) whether or not the will respects the statutory shares of children or others, (iii) whether the executor can settle the estate and (iv) what requirements apply to the distribution of the estate among the heirs. It becomes even more complicated if different countries answer these questions differently. Fortunately the European Union (EU) is riding to the rescue with the European Succession Regulation, which imposes uniform rules.
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EU countries now on the same page The European Succession Regulation came into force on 17 August 2015 and covers estates which are devolved on or after this date. The Regulation applies in all EU countries except for the United Kingdom, Ireland and Denmark. The Regulation creates new international inheritance law. This means that from this date, European countries use the same rules to determine which inheritance law of which country applies to an estate, so that European countries are on the same page. Citizens writing a will can now elect for the law of their country of nationality to apply to their entire estate. In the event of no specific choice being made, the Regulation states that the law of the testator's country of habitual residence at the time of death will apply.
Any law that is (legitimately) designated under the European Succession Regulation will be applied, irrespective of whether or not that country is a member state. If, for example, a Canadian national living in the Netherlands elects for Canadian law to apply, this choice will be respected.
No change to (internal) inheritance laws in individual countries The Regulation has not made any changes to the (internal) inheritance laws in individual countries. For instance, a child's minimum statutory claim, the statutory share, under Dutch law differs from that in many foreign countries, such as Belgium and France.
European Certificate of Succession The Regulation also creates a European Certificate of Succession, a single European declaration that enables people to prove in other EU countries that they are heirs and executors.
As with inheritance law, different countries have a different approach to this. The EU has adopted a Regulation to standardise the rules relating to matrimonial property law for married couples and registered partnerships, which will come into force on 29 January 2019.
Find out how this will affect you As now, it will soon be possible to choose the matrimonial property law of a particular country in your prenuptial agreement, with the proviso that this choice is not unrestricted. In the absence of a choice of law, the law of the couple's first country of habitual residence will apply. Failing this, the law of the state of their common nationality will apply (and in the absence of any of these, the law of the state to which the couple has the closest ties will apply).
Harmonisation of international matrimonial property law
International matrimonial property law? Regulation is on the way If you are married, the size and composition of your estate depends on your matrimonial property regime. In cross-border situations, therefore, the first question is always which matrimonial property law of which country is applicable.
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Home market: The Netherlands
For decades, international businesses have chosen the Netherlands as the base for their operations, whether as European headquarters, a shared service centre, a customer care centre, a distribution and logistics centre or an R&D facility. The pro-business environment and supporting policies implemented by the Dutch government have greatly increased the international popularity of the Netherlands as an investment location. The Netherlands offers a stable economy, a reliable and equitable tax regime, and a sophisticated and internationally oriented infrastructure. The Dutch economy is innovation-driven and highly productive. It is known for its stable industrial relations, its productive and highly-skilled workforce, its excellent information technology connectivity, and its vital role as a European transportation hub. This section looks at various issues and developments in our home market of The Netherlands that might affect you.
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International family law and estate planning
Make sure you are well informed about what Dutch law means for you As a citizen of the world with assets in different countries, or an international enterprise with a footing in the Netherlands, or if you are a Dutch citizen, you may end up having to deal with Dutch law.
Dutch law may apply because of your situation, or you may be able to opt for Dutch law to apply to your affairs. If you want to make a family-law arrangement, such as drawing up a prenuptial or postnuptial agreement, or writing a will, it is very important for you to make the right choice of legal system depending, of course, both on your intentions and the specific options offered by a particular legal system. We call this `international estate planning'.
The new matrimonial property law may have serious implications Statutory matrimonial property law is changing with effect from 1 January 2018 and this may have serious implications for you and your partner, even if you are already married. If you marry on or after this date without drawing up a prenuptial agreement, the limited community of goods will apply to you. The following assets are excluded from the community of goods: (i) any assets that were not jointly owned prior to marriage and (ii) inheritances and gifts.
A feature of matrimonial property law in the Netherlands is that there is freedom of contract between parties and that prenuptial and postnuptial agreements may deviate from the community of goods. In principle, judges must respect these agreements when the marriage ends.
As a result of the new matrimonial property law, a number of important new considerations apply if you plan to marry from 2018 onwards. For example, any assets that were jointly owned prior to marriage will become part of the new limited community of goods, even if the property ratio is not 50/50. One example might be the situation if you jointly own your home prior to marriage in a ratio of 70/30 or 80/20 and plan to marry without a prenuptial agreement. In this case, the new community of goods would designate each of you as a 50% owner of the home. This may be a reason to draw up a prenuptial agreement after 1 January, even if you already have limited community of goods.
If you are a business owner who is married or plan to marry, you may face compensation claims after 1 January 2018, even if the business is your own private property. This means that you, the business owner, may have to make a payment to the community even though this has been neither agreed nor intended. It is important for you to get specific advice on this. In some situations, you may need to amend your prenuptial agreement, or indeed draw one up.
Dutch inheritance law offers particular opportunities Dutch inheritance law also offers particular opportunities for estate planning. For example, in the Netherlands you can use your will to make a far-reaching arrangement in favour of the surviving spouse under which the statutory share of a child is not exigible during the lifetime of the surviving spouse. Therefore, even if the child has a statutory share, you can use your will to protect your partner against the claims of any children.
Consider including a usufruct arrangement in your will Dutch law also offers the opportunity to make a usufruct arrangement in a will, which could have attractive tax implications for you. One of the features of Dutch usufruct is that, unlike in countries such as France and Belgium, a right of consumption and disposal can be assigned to the usufructuary. This right of consumption and disposal means that the usufructuary can act as if he were actually the owner. This enables wealth to be transferred to the next generation without diminishing the position of the surviving spouse, which is of particular interest for assets that can be expected to appreciate substantially in the future.
Consider certifying your shares or assets when you transfer them to the next generation If you want to transfer your assets to the next generation without ceding control at this time, you can use a `certification arrangement', which separates beneficial entitlement from control. You transfer the assets, for example the shares in your company, to a foundation which then issues certificates to you. You can subsequently pass on the certificates as a gift to the next generation, but the board of the foundation determines how the wealth is invested or how the voting rights associated with the shares are exercised. You have a lot of flexibility in designing the `rules' for certification and the appointment of (successor) board members. This certification may also
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be attractive for you for tax reasons (see the `Management and supervision of your international (family-owned) business and wealth' section on p. 14).
Management and supervision of your international (family-owned) business and wealth
Good corporate and family governance is crucial Good governance is crucial to the long-term success of your international (family-owned) business and to preserve your family wealth for future generations. But what is good corporate and family governance? This will be different for every business and every situation. Generally it means `the right person in the right place' and a good balance between management and supervision.
Statutory corporate governance obligations When your international (family-owned) business grows, you may find yourself having to comply with various legal obligations relating to the corporate governance of the company. For example, under Dutch law, companies that employ more than 50 people are obliged to set up a works council that meets to consult on the company's policy and the employees' HR interests. The management is required to meet works council at least twice a year to discuss the general course of the company's business. The management must inform the works council of any major decisions that are in the pipeline and how it intends to involve the works council in the process.
Your growing international (family-owned) business may also be subject to what is known as the structure regime under Dutch law. This regime applies if, during an uninterrupted period of three years, (i) the issued capital in your international (family-owned) business is at least EUR 16 million, (ii) your business set up a legally required works council and (iii) your business employs at least 100 people. If these criteria are met, a Supervisory Board with certain rights of approval and appointment must be set up.
Generally speaking, the application of the structure regime may restrict the powers of the shareholder, so some owners of international (family-owned) businesses consider it undesirable. Nevertheless, there are ways of avoiding the structure regime, such as using a foreign legal entity as a central holding company. A Curaao public limited company is an example.
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Control of your (family-owned) wealth is important Family governance i.e. the control of (family) wealth, is just as important as corporate governance. It can often be attractive for tax purposes to transfer wealth to your children at a young age, so that they can benefit from any future increase in its value, but you do not always intend them to have independent access to the wealth that is transferred to them. What you then need to do is to separate the ownership of the wealth from the control.
One tried and tested way of doing this is to certify the wealth; this is a common mechanism for shares in a (family-owned) business but can also be used for investment portfolios, for example. Under this mechanism, the wealth is transferred to a legal entity, usually a Dutch foundation administrative office (or `STAK'), which becomes the owner of the wealth. As a result, the management of the STAK exercises control over the wealth. The STAK issues certificates representing the economic interest in the contributed wealth. These certificates can then be given as a gift so the economic ownership can be transferred to the next generation without surrendering control.
Creating peace and stability Control of the various components of your (family-owned) wealth must be managed uniformly and consistently to create that peace and stability that will encourage it to flourish. An excellent way of achieving this is to set up a family office foundation, that manages the (family) wealth, fulfilling roles such as executor, administrator and authorised representative under a general power of attorney ('living will'). The family office foundation can also act as a director of legal entities that own family wealth, such as a STAK. The family office foundation constitutes the central platform for control and management of the (family) wealth, which can be useful if family members live in different places around the world, for example.
A further-reaching option is to place assets into a `segregated private wealth' (APV), such as a Curaao private fund foundation (SPF) or an Anglo-American trust. The APV becomes the owner of the wealth without issuing shares or certificates, thus creating a stand-alone entity. The board of directors of the SPF or the trustee of the trust is usually given discretionary authority to make payments from the APV to its beneficiaries, and may be overseen by a supervisory board or protector.
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What can we do for you? Taking into account your wishes, we can advise you on the regulations that apply to your international (familyowned) business and wealth. We start by analysing the current setup of your (management) organisation. We discuss with you whether it still meets you needs, both now and in the future. If this analysis suggests changes should be made, we can advise you how to design and implement them. For example, by defining control structures, outlining profiles for executive and nonexecutive board members and other arrangements for which there is a need.
The Dutch foundation as a substitute for the common law trust The common law trust is a frequently-used instrument in Anglo-Saxon countries for wealth preservation and privacy protection, private wealth planning and estate planning. You may have thought about (further) protecting your wealth and privacy, but found the trust as a legal concept not to be entirely suitable for your situation. The `trust' as a legal concept has lost some of its popularity in recent years, for example as a result of media reports (e.g. the Paradise Papers), because the trust itself is not a legal entity or because trusts and their trustees are usually established (far) overseas.
Attractive alternative The trust as such does not exist in the Dutch legal system. However, the Dutch foundation, which has many similarities to trusts but without the drawbacks discussed above, could offer an attractive alternative.
In this Dutch equivalent to the trust, assets are gifted to a foundation. The gift is therefore `conditional', which means that the donor imposes certain contractual obligations on and gives instructions to the beneficiary foundation. The condition requires the foundation to use the gifted assets only within the framework of the goals that are described in the conditions (for example to provide care for family members in need).
Tax transparent whilst protecting privacy and wealth The foundation is generally treated as `transparent' for most Dutch tax purposes. This means that the gift to
the foundation is not subject to Dutch taxation and that the gifted assets are still attributed to the donor. The Dutch tax implications of payments by the foundation are therefore no different than if the donor him/herself had made those payments: the effect is that the foundation is generally tax neutral in the Netherlands, whilst privacy and wealth continue to be protected.
Mandatory implementation of the UBO register in the Netherlands The Netherlands published, via Internet consultation, a draft bill on the implementation of the UBO register on 31 March 2017. Under the bill, a substantial part of the information included in the UBO register will be publicly accessible and the institution that will manage the UBO register is the Dutch Chamber of Commerce.
Based on the draft bill, the UBO register will include the UBOs of (i) enterprises established in the Netherlands and (ii) legal entities that have their registered office in the Netherlands under their articles of association. Examples are the UBOs of a BV (private company), NV (public limited company) or foundation. The Netherlands will not set up a register for trusts. Similarly, foreign legal entities with their headquarters or a branch office in the Netherlands will not need to register their UBOs for now. It has yet to be determined whether mutual funds will also need to register their UBOs.
The Ministry of Finance stated on 18 September 2017 that all the responses to the consultation are currently being carefully studied and processed. The UBO bill is expected to be sent to the House of Representatives in early 2018, as a result of which the Dutch UBO register could be operational by summer 2018.
Portfolio investments and liquidities
Increasing tax burden on portfolio investments and liquidities The Netherlands has taxed savings and investments since 2001, on the presumption of a fixed return. The effective tax burden on savings in particular, but also on portfolio investments and liquidities, has continuously increased
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as a result of falling market yields. Privately-held portfolio investments and liquidities are now taxed progressively in box 3 (savings and investments) for personal income tax purposes, irrespective of the actual income and the cash flow arising from the assets (i.e. imputed return). A coalition agreement was published on 10 October 2017 which includes tax plans to replace the tax regime based on an imputed return (`vermogensrendementsheffing') with one based on actual returns.
Corporate investment The use of a tax-exempted investment company (`VBI') that is exempt from corporate income tax or the relocation of an investment company to a low-tax jurisdiction leads to a direct income tax bill at the box 2 (substantial interest) rate of 25% of the growth in the value of the company (followed by annual taxation on a fixed return). Creating a VBI will therefore be unattractive for a company that has not previously been assessed on its growth in value, since this will lead to 25% box 2 tax. However, it might be appealing to creating a VBI using box 3 assets because they will not be assessed for income tax, although this very much depends on the expected return. Using a taxed BV (limited liability company) as an investment vehicle may also be attractive.
Abolition of the voluntary disclosure regime
Foreign assets not included in your income tax return Take advantage of the voluntary disclosure regime as quickly as possible if you have not included foreign assets in your income tax return, because the regime is to be abolished on 1 January 2018. The government believes that the voluntary disclosure regime is obsolete because of social attitudes and the increased chances of being caught. At present, taxpayers that submit corrections to an incorrect or incomplete tax return within two years will not have to pay a negligence penalty.
300% penalty for failure to declare box 3 assets With effect from 1 January 2018, the regular penalty regime will apply to voluntary disclosure within two years. This means that a tax inspector can impose a penalty of up to 300% on undeclared income from box 3 assets. Under present policy, the negligence penalty in box 3 for voluntary disclosure and submission of corrections more
than two years after submitting an incorrect or incomplete tax return is currently 120% of the tax owed. Although the specific policy to be applied from 1 January 2018 is as yet unknown, submission of a correct or complete tax return will still lead to a reduced penalty if a fine is imposed.
How to make a voluntary disclosure Voluntary disclosure is only possible if you do not know or could not reasonably know that the inspector has received or will receive the information. As soon as the Dutch tax authorities receive information about foreign assets that you have failed to declare, voluntary disclosure ceases to be possible. Voluntary disclosure based on the current regime will remain possible under transitional law for tax returns that were or should have been submitted before 1 January 2018. The current voluntary disclosure regime will also continue to apply to enquiries, information or instructions that were or should have been issued before 1 January 2018.
Criminal prosecution possible again Just for the record, we note that the abolition of the voluntary disclosure regime again makes criminal prosecutions possible under certain conditions, depending on factors such as the amount of tax owed, whether it is a repeat offence, and the number of years for which no tax has been paid.
Changes to dividend withholding tax
As of 2018 Dutch dividend withholding tax may be due on distributions to foreign holding companies Under the proposed legislation, your Dutch company may be obliged to withhold Dutch dividend withholding tax on distributions to the foreign holding company/shareholder with effect from 1 January 2018. If the foreign holding company has a limited local presence (`substance') and, for example, only holds the shares in the Dutch company, the current withholding exemption on dividend distributions by a Dutch company to a company based in the EU could cease to apply, with the result that up to 15% Dutch dividend withholding tax would have to be withheld. In many situations the Netherlands will still have only limited taxation rights owing to a tax treaty between the Netherlands and the other country. In light of international developments, however, this `treaty protection' may lapse in the longer term as a result of
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Family Owned Business & Private Wealth 17
the implementation of the `Multilateral Instrument (MLI)' and, in particular, the `Principal Purpose Test (PPT)' in the tax treaties that the Netherlands has signed (see the `Introduction of the multilateral instrument (MLI)' section on p. 10).
New Dutch cabinet coalition agreement On 10 October 2017, the new Dutch cabinet signed a coalition agreement in which the cabinet stated its intention to abolish Dutch dividend withholding tax except for situations of abuse. The question remains of how this intention will be implemented in practice in new legislation. Various parties in the House of Representatives have expressed criticism of the introduction of a bill to change the Dutch dividend withholding tax as per 2018 given the desire to abolish the Dutch dividend withholding tax, (probably) as of 2020.
Exchange of information about `rulings'
The Dutch tax authorities will exchange information about existing rulings In case your international (family-owned) business have made agreements with the Dutch tax authorities and these agreements have been documented in a socalled `tax ruling', please note the following. Agreements have been made between countries on the exchange of information about tax rulings. Like every other EU member state, the Netherlands will exchange information with EU member states and many other countries with which the Netherlands has concluded (tax) treaties. Existing tax rulings also fall within the scope of this project. The Dutch tax authorities have now approached the first taxpayers with a request to complete a `template' that has been designed specifically for this exchange. The tax authorities check the supplied information before sharing it with other countries.
Earnings stripping rule
Possible future limitation of interest deduction on third party and group company loans If your Dutch company has debts to third parties and/or group companies, the interest deduction may be limited in the future. Under the European Anti Tax Avoidance Directive (ATAD) (see the `The roll-out of the BEPS
project' section on p. 8), EU member states will in the future be obliged to limit interest deduction by taxpayers by introducing `earnings stripping rule'. The Netherlands will have to introduce this interest deduction limitation rule on 1 January 2019, and it will be coupled with the abolition of one or more existing interest deduction limitation rules. Although the ATAD provides for the possibility of a transitional arrangement for loans that commenced prior to 17 June 2016, it seems that Dutch legislators will not introduce any transitional arrangements and that the earnings stripping rule will therefore also apply to existing loans.
Generic interest deduction limitation The earnings stripping rule is a generic interest deduction limitation rule applicable both to the interest owed to third parties and to the interest owed to group companies. The primary rule is that a maximum of 30% of the corrected taxable profit (the `fiscal EBITDA') may be deducted from the taxable profits. There is also an exemption of 1,000,000 of interest costs per annum per taxpayer. This means that an amount of 1,000,000 of interest costs may be deducted from taxable profits in any case.
Income from an entity in a low-tax country may be taxable in the Netherlands in future If your Dutch company has an interest of more than 50% in a low-taxed foreign entity, the income generated by this low-taxed entity may be subject to Dutch corporate income tax in future. Under the European Anti Tax Avoidance Directive (ATAD) (see the `The roll-out of the BEPS project' section on p. 8), EU member states will in the future be obliged to take measures in respect of certain `Controlled Foreign Companies' (CFCs). The CFC rules must be introduced in the Netherlands with effect from 1 January 2019. The rules apply to controlled foreign companies whose profits are not taxed in a way that would be reasonable according to Dutch standards. Taxation is deemed to be unreasonable if less than 12.5% tax is levied on the profits calculated according to Dutch standards.
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Home market: Belgium
Belgium has a number of major advantages for investors: its ideal geographic location in Europe, its education system, its language skills, the diversity and quality of Belgian employees and its capacity to innovate. Belgium has implemented major (social) economic and tax reforms in recent years aimed at further improving the investment climate. Another tax reform is now on the table which foresees a reduction of the corporate income tax rate to make Belgium attractive to (foreign) investors. Competitiveness, justice, innovation and support for small and medium-sized enterprises are key concepts of the proposed reform. This section looks at various issues and developments in our home market of Belgium that might affect you.
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Family Owned Business & Private Wealth 19
Belgian transparency tax (`Cayman tax')
Broader scope for the Cayman tax from 2018
In principle, the Belgian Cayman tax is a transparency tax in Belgian income taxation for private individuals and foundations. Individuals resident in Belgium and foundations established there that have set up foreign legal structures are taxed on the income from the structure as if the structure did not exist. The structures that are targeted are all sorts of trusts, and companies and foundations established outside the European Economic Area (EEA) that are subject to zero or low taxation, as well as particular low-tax companies and foundations based within the EEA. With effect from 2018, the transparency tax will also be applied to income from one or more structures held by another structure. The transparency tax will therefore also be applied to income from (small) subsidiary structure.
Distributions from trusts will also be taxed from 17 September 2017 The Cayman tax also provides for taxation of distributions from particular legal structures to Belgian-resident private individuals and to foundations established in Belgium. Before 17 September 2017, only distributions from zero-taxed and low-taxed companies and foundations were taxed. From that date, distributions from trusts will also be taxed as dividend distributions. In principle all distributed income will be taxed, preferably at the time of distribution.
Some investment insurance policies will also fall under the Cayman tax from 2018 Another new provision is that some investment insurance policies will also be designated as transparent legal structures from 2018.
Reporting the arrangement in the annual tax return A Belgian-resident private individual who sets up a legal structures must report it in their annual personal income tax return. This reporting obligation also applies to foundations established in Belgium, which must report it in the income tax return for legal entities. Beneficiaries who are not the founders have a reporting obligation in the year in which a distribution is received.
Taxation of capital reductions
Introduction of taxation on capital reductions by companies owned by Belgian residents A tax is expected to be introduced with effect from 1 January 2018 on certain capital reductions in companies whose shares are owned by tax residents of Belgium (Belgian `tax shift'). The proposal is that if a company with reserves decides to reduce capital, this capital reduction must be allocated proportionately to both the capital and the taxed reserves.
Example Imagine that a company has fully paid-up capital of 100 and taxed reserves of 100. At some point the shareholder decides to reduce the fully paid-up capital from 100 to 10. According to the proposal, this then means that for tax purposes, 45 of the capital reduction must be allocated to the fully paid-up capital and 45 to the taxed reserves. After the capital reduction, for tax purposes the company then still has fully-paid up capital of 55 and taxed reserves of 55. The capital reduction is therefore designated, for tax purposes, as a dividend distribution in the same ratio as the ratio of taxed reserves to capital. The dividend distributed for tax purposes is taxed at a rate of 30%. In the example the capital reduction leads to tax due of 13.5 (30% of 45). If the company whose capital is reduced is a Belgian company, the tax must be withheld at source at the time of distribution. The shareholder receives a net amount of 76.5 (45 capital + 31.5 net dividend). If the capital of a company established outside Belgium is reduced, the shareholder must include the taxable portion of the distribution of 45 in his personal income tax return. He will pay the tax of 13.5 (30% of 45) via the assessment, leaving him with a net balance of 76.5.
Special tax on custody accounts
Introduction of special tax on custody accounts for Belgian residents with at least 500,000 worth of securities The Belgian government is expected to introduce a special tax on custody accounts held by Belgian tax residents with effect from 1 January 2018. If a Belgian tax resident holds securities in bank accounts with a value of at least 500,000, this change in the law means the
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resident must pay tax at a rate of 0.15%. The tax will be levied on the full amount of the accounts, not just the value over 500,000, taken as the average value of all accounts over the year. It makes no difference whether the account is held at a Belgian bank or a foreign bank. Married couples can pool their individual allowances of 500,000 so that this tax kicks in if the value of their combined custody accounts reaches at least 1,000,000. Belgian banks will undertake the calculation and payment of the securities tax on their account holders' behalf. How this securities tax will be levied on custody accounts held at banks based outside Belgium is as yet unclear.
Gifts of securities and cash investments
Flemish gift tax due on gifts of securities and cash investments subject to usufruct If you are a resident of the province of Flanders and plan to make a gift before a Dutch notary of securities and cash investments subject to usufruct, watch out. Since 1 June 2016, such gifts have been subject to Flemish gift tax. Since 1 June 2017 you have also been subject to Flemish gift tax if you make a gift of shares in a limited partnership (`maatschap') that owns securities or cash investments. If it turns out, on the death of the donor, that no Flemish gift tax has been paid on these gifts subject to usufruct, the beneficiary must still pay Flemish inheritance tax on this, according to the Flemish tax authorities. For this inheritance tax to apply, it is important that you as the donor are a resident of the province of Flanders at the time of death. The new regime for gifts subject to usufruct applies even if the donor survives for a period of three years after making the gift. Generally, gifts made by residents of the province of Flanders before a Dutch notary were and are exempted from gift tax and Flemish inheritance tax if the donor, who continues to live in Flanders, survives for three years after the gift is made. However, this three-year period no longer applies to gifts subject to usufruct without payment of Flemish gift tax. Alternative forms of gifts can still be made without Flemish gift and inheritance tax being levied under certain conditions.
Prenuptial agreements drawn up under Dutch law
Flemish inheritance tax due on wealth growth Legislation is expected to be introduced with effect from 1 January 2018 which will have implications for Flemish residents who have included a settlement clause or `as-if clause' with acknowledgement of debt in their prenuptial agreement drawn up under Dutch law. This legislation means that the wealth growth resulting from a settlement clause or `as-if clause' will now be subject to Flemish inheritance tax. The final settlement clause or `as-if clause' is an agreement that spouses include in their prenuptial agreement under which the wealthier spouse undertakes to make a payment to the other spouse on dissolution of the marriage through death, such as to pay half of the growth in wealth built up during the marriage. This undertaking creates a debt in the estate of the first spouse to pass away so that less inheritance tax is due. The Flemish government has passed a bill under which it is expected it will cease to be possible to deduct these debts from the value of the estate for inheritance tax purposes with effect from 1 January 2018. It is therefore advisable to have an expert look at your prenuptial agreement in time.
Succession during your lifetime
New Belgian inheritance law permits succession agreements Belgian inheritance law is changing with effect from 1 September 2018. The benefit is that you as a Belgian resident will now be able to draw up a succession agreement with your future heirs prior to your death, governing the distribution of your estate. This enables you to make binding agreements with your children about your estate which your children cannot change after your death. The idea of this sort of agreement is to prevent disagreements between your children after your death. If you, as a Belgian resident, have a will that is drawn up under foreign inheritance law, consider re-evaluating your choice of jurisdiction because a new will in which you opt for the new Belgian inheritance law to apply can have benefits if you would like to arrange your succession during your lifetime. The same applies if you have an old will drawn up under Belgian law.
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Family Owned Business & Private Wealth 21
Remigration to the Netherlands and gifts to your child(ren)
You can make tax-free gifts to your children up to 6 months before remigration to the Netherlands If you have lived in Belgium for more than 10 years, there are certain conditions under which you can make a `paper gift' up to 6 months prior to your remigration from Belgium to the Netherlands and this gift can be exempted from Belgian and Dutch gift and inheritance tax. One important criterion is that you, the donor, should not die prior to remigration. A paper gift means that you give your wealth to your child(ren) on paper only, before a Dutch notary, but do not actually transfer the amount of the gift. You are free to enjoy the amount of the gift as long as you live and you can spend it without restrictions. Your child(ren) as the beneficiary or beneficiaries only receive a claim on you as the donor which is not payable before your death. The downside is that you must be prepared to pay interest for life on the debt to the beneficiaries.
Mandatory implementation of the UBO register in Belgium On 20 July 2017 the Belgian parliament adopted a framework law on the implementation of the UBO register. The preliminary documents to the framework law state that full access to the Belgian UBO register will not be granted to everyone. Access is expected only to be granted if information is requested in the context of preventing money laundering and tackling the financing of terrorism. The specific conditions for access to the UBO register are not yet clear in every respect and will have to be defined in more detail in the royal decree.
Personal information will be recorded in the Belgian UBO register if a person directly holds more than 25% of the shares, capital or voting rights of a company established in Belgium, or controls a holding company that in turn holds more than 25% of the shares or capital of a company established in Belgium, or if a person has control in any other way over a company established in Belgium.
The name, date of birth, nationality and address of the UBO will always be recorded in the UBO register, as well as the nature and extent of the beneficial interest
held. A similar rule will apply to the UBOs of foundations, (international) non-profit associations, trusts and fiduciaries. The obligation to report this information to the UBO register is imposed on the directors of the entity. The implementation of the UBO register in Belgium should be set out in more detail in one or more royal decrees.
Exchange of rulings and advance pricing arrangements
Exchange of existing cross-border rulings and transfer pricing arrangements Belgium implemented the European directive on the automatic exchange of information into national law by means of the Act of 31 July 2017. As a result of this, Belgium shall automatically supply information about existing cross-border rulings and advance pricing arrangements to other member states. Cross-border arrangements that you or your company have made with the tax administration will therefore become transparent.
Automatic exchange of `old' rulings and advance pricing arrangements from before 1 April 2016 Belgian legislators chose not to exclude automatic exchange of cross-border rulings and advance pricing arrangements that were submitted or made, amended or renewed before 1 April 2016. The following therefore applies to these `old' rulings and advance pricing arrangements:
-if the cross-border rulings and advance pricing arrangements were issued, amended or renewed between 1 January 2012 and 31 December 2013, they will be exchanged providing that they were still valid on 1 January 2014.
-if the cross-border rulings and advance pricing arrangements were issued, amended or renewed between 1 January 2014 and 31 December 2016, they will be exchanged irrespective of their validity.
Rulings that were made in 2017 must be exchanged no later than 31 December 2017 The cross-border rulings and advance pricing arrangements that were issued, amended or renewed before 2017 should now already have been exchanged. Those that were issued, amended or renewed from 2017 must be exchanged no later than 31 December 2017.
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Interest deduction limitation
Implementation of the interest deduction limitation in Belgium
As a member state of the European Union, Belgium is obliged to implement the rules on interest deduction as included in the European Anti Tax Avoidance Directive (ATAD) (see the `The roll-out of the BEPS project' section on p. 8). This means that your company will only be able to deduct a maximum of 30% of the corrected taxable profit (the `fiscal EBITDA') from its taxable profit. The Belgian government has announced that Belgium will use the option to grant Belgian companies the right to deduct interest up to an amount of 3,000,000 per annum. For Belgian companies that are part of a group, both the EBITDA and the 3,000,000 limit will have to be considered at consolidated level. Interest that cannot be deducted from the profit for the financial year under these new rules can be carried forward in full to subsequent financial years. The new deduction limitation will only apply to loans made after 17 June 2016. The current 5:1 thin-capitalisation provision will continue to apply to loans made before this date as a transitional arrangement, and will in any case continue to apply in perpetuity (even to loans made after 17 June 2016) if the interest is paid to a beneficiary established in a tax haven. Standalone companies and financial companies as defined in the ATAD will be excluded from the measure. The new interest deduction limitation rule is expected to apply as of 2020.
Implementation of CFC rules in Belgium as from 2020 If your Belgian company has a direct or indirect interest of more than 50% in an entity in a low-tax foreign country or permanent establishment (`Controlled Foreign Companies' (CFCs)), the income generated by these CFCs may be subject to Belgian corporate taxation in the future. This will apply to undistributed profits of the CFC arising from an artificial arrangement that essentially aims to obtain tax benefits. An arrangement is deemed to be artificial if the major decisions on the assets and risks that generate the income of the CFC are taken in Belgium. In other words, Belgium is opting for a transactional approach. The Minister of Finance has announced that the CFC legislation will be introduced from 2020.
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Home market: Luxembourg
Ideally situated in the heart of Europe, over the decades Luxembourg has developed as a financial centre with proven appeal for private banking, investment funds, holding and financing activities and family offices. In addition to the three official languages (French, German and Luxembourgish), more and more English is being spoken. Luxembourg has a long tradition of asset management and is well known for its stable political climate, a background that has helped make Luxembourg the world's second largest platform for investment funds. This section looks at various issues and developments in our home market of Luxembourg that might affect you.
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Family Owned Business & Private Wealth 25
Emigration to Luxembourg
Step up if you emigrate to Luxembourg If you have a substantial interest in a company (or shares in your own private or public limited company) and are considering emigrating to Luxembourg (from any country), you can legally claim an increased acquisition price for your substantial interest (with effect from 2016). This is also called `step up'.
Under this scheme, the acquisition price of the substantial participation is set at the market value at the time of emigration. As a result, at the time of disposal (for example if you sell the interest) Luxembourg will not tax capital gains on your substantial interest that accumulated in the period prior to your emigration (deferred tax assets).
N.B. step up can be obtained in Luxembourg for shareholdings of over 10% of the issued capital of a company.
Gifts made by Luxembourg residents
No gift tax due on gifts to your children If you have emigrated to Luxembourg and are considering making a gift to your children, these gifts are exempt of Luxembourg gift tax regardless of where your children live. It is also advisable to check the implications of this gift for the country from which you emigrated.
Death of a Luxembourg resident
No inheritance tax if you leave your wealth to your children When a Luxembourg-resident taxpayer dies, there is no inheritance tax to pay in Luxembourg on bequests to direct descendants providing that the statutory distribution to each descendant under Luxembourg law has been respected. It does not matter where the direct descendants live.
This means that if you have emigrated to Luxembourg and are considering leaving your wealth to your children on your death, they will not have to pay any inheritance tax to Luxembourg. However, if one child receives more than the other, Luxembourg levies up to 5% inheritance
tax on the difference. Moreover, a surviving spouse is also exempt from inheritance tax under certain conditions.
Asset management via investment funds
Luxembourg offers a range of options for managing your wealth Luxembourg offers a range of options for setting up and investing via directly or indirectly regulated investment funds. Common fund structures are based on the `SIF' (Specialised Investment Fund) regime or the `RAIF' (Reserved Alternative Investment Fund) regime. An SIF is regulated and subject to the supervision of the financial markets supervision body (CSSF), so that investors are protected. An SIF can be set up as a fiscally transparent entity or as an `ordinary' company with complete exemption from tax on profits, assets and dividends. Instead there is a `subscription tax' of 0.01% of the net worth of the SIF. In contrast to an SIF, an RAIF is not regulated at fund level but at fund manager level (AIFM). This means an RAIF can use a fund manager that is not based in Luxembourg. The RAIF is subject to a similar tax regime to an SIF (except RAIFs that invest in risk and venture capital, to which different specific exemptions apply).
Mandatory implementation of the UBO register in Luxembourg Luxembourg has not yet published any bills on the implementation of the UBO register, nor is it known when the bill will come into force. On 30 March 2017, the Luxembourg Minister of Finance expressed support for the incorporation of the UBO register in national law, but there is as yet no specific schedule for implementation.
Earnings stripping rule
Your Luxembourg company may have to deal with interest deduction limitations in future Luxembourg does not currently have any specific interest deduction limitations for tax on profits (apart from an `arm's length' standard and a limit on interest deduction from exempted dividend income). If your Luxembourg
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company has outstanding loans with third parties and/ or group companies, the interest deduction may be limited in future. Under the European Anti Tax Avoidance Directive (ATAD) (see the `The roll-out of the BEPS project' section on p. 8), EU member states will in future be obliged to limit interest deduction by taxpayers by introducing the `earnings stripping rule'.
Generic interest deduction limitation This rule is a generic interest deduction limitation applicable both to the interest owed to third parties and to the interest owed to group companies. The primary rule is that a maximum of 30% of the corrected taxable profit (the `fiscal EBITDA') may be deducted from the taxable profits. There is also an exemption of 3,000,000 of interest costs per annum per taxpayer. This means that an amount of 3,000,000 of interest costs may be deducted from taxable profits in any case. Luxembourg has not yet announced precisely how this rule will be implemented.
agreements have been made between countries on the exchange of information about rulings. Like every other EU member state, Luxembourg will exchange information with EU member states and many other countries with which Luxembourg has (tax) treaties. The scope of this project also covers existing rulings (which may even go back as far rulings issued from 1 January 2010 onwards). In 2016, the Luxembourg tax authorities worked with tax consultancies to gather data about rulings issued in an international context (by means of a template specifically designed for the exchange). This data could be exchanged with effect from 2017 (please note that taxpayers will not be informed about the exchange process).
Income from an entity in a low-tax country may be taxable in Luxembourg in future If your Luxembourg company has an interest of more than 50% in an entity in a low-tax foreign country, the income generated by this low-taxed entity may be subject to Luxembourg taxation of profits in future. Under the European Anti Tax Avoidance Directive (ATAD) (see the `The roll-out of the BEPS project' section on p. 8), EU member states will in future be obliged to take measures in respect of certain `Controlled Foreign Companies' (CFCs). The CFC rules must be introduced in Luxembourg with effect from 1 January 2019. The rules apply to controlled entities whose profits are not taxed in a way that would be reasonable according to Luxembourg standards. Luxembourg has not yet announced precisely how this rule will be implemented.
Exchange of rulings
The Luxembourg tax authorities exchange information about existing rulings If you as the owner of an international (family-owned) business have received confirmation from the Luxembourg tax authorities on your tax position (a ruling), this section is of relevance to you. Internationally,
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Home market: Switzerland
Switzerland is ranked in various annual publications as one of the top countries in the world when it comes to its competitiveness, quality of life and image abroad. Switzerland is an internationally oriented (business) location, not least due to its central geographic location, excellent and extensive infrastructure, unparalleled economic and political stability and neutrality, and exceptional quality of life. The Swiss population is multilingual and has an excellent comprehension of English. A great advantage of Switzerland is that it is part of the Schengen area, so only one visa is required for all the EU member states that form part of the Schengen agreement and Switzerland. In addition to Switzerland's appeal for business and lifestyle, the country is also generally known for its attractive tax system. This section looks at various issues and developments in our home market of Switzerland that might affect you.
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Family Owned Business & Private Wealth 29
Emigration to Switzerland
Your income and wealth can be assessed on a lump-sum basis If you would like to emigrate to Switzerland, remember that in principle all your worldwide income and wealth is subject to income and wealth tax in Switzerland.
Under certain conditions you can take advantage of lump-sum taxation. Subject to the lump-sum taxation regime your income and wealth is assessed on a fixed (`lump-sum') basis. This means that taxation of your income and wealth is based on you and your family's living expenses rather than your actual income and wealth.
In practice, the level of lump-sum taxation is agreed with the competent Swiss cantonal tax authorities. As a general rule, the assessment basis for lump-sum taxation is equivalent to seven times the annual rent or rental value of your home that is inhabited by you in Switzerland as primary residence . In addition, every canton has its individual rules on the minimum taxable lump-sum amount for income and wealth tax purposes. Therefore, it is recommended to carefully assess the canton of primary residence before the actual relocation to Switzerland takes place.
Residents must pay health insurance and social security deductions Once immigrated to Switzerland, you are obliged to obtain private health insurance in Switzerland, which's evidence you must submit to the competent communal residents registration office when you register as resident in Switzerland in course of your registration as Swiss resident individual.
Additionally, you are subject to social security contribution payments until you reach the official retirement age irrespective of the fact whether you are working or not. If you have agreed with the competent cantonal tax authorities to be subject to lump-sum taxation, your premiums to the Swiss social security system will not exceed CHF 25,000 per person.
Resident in Switzerland
Identify the impact of the overhauled lump-sum taxation legislation at an early stage The law on lump-sum taxation was changed with effect from 1 January 2016. If you are already resident in Switzerland and taking advantage of lump-sum taxation, it is sensible to check whether the reformed lump-sum taxation legislation will impact your current lump-sum determination confirmed in a ruling. In particular, the changes to the law include a higher (minimum) deemed income amount that is taxable in Switzerland and tighter eligibility requirements for lump-sum taxation. Also the (minimum) deemed amount for the wealth have been amended.
Existing lump-sum rulings benefit from a five year grand fathering period as of beginning of 2016 as a transitional arrangement. In other words, anyone with a lump-sum taxation agreement made prior to 2016 will be subject to the legislative amendments with effect from 1 January 2021. Since the rule changes could have a significant impact on your future lump-sum tax situation, it is advisable to identify this impact at an early stage with your Swiss tax adviser and reach out to the competent cantonal tax authorities in a timely manner to renegotiate the new deemed income and deemed wealth before the expiry of the grand fathering period, being 1 January 2021.
Holiday home in Switzerland
Donate your holiday home to your child(ren) without substantial Swiss taxation If you plan to transfer your Swiss holiday home to your child(ren), you must consider potential tax and other regulatory implications in Switzerland. In principle you can donate a Swiss holiday home to your child(ren) without being subject to Swiss gift tax, real estate gains tax (Grundstueckgewinnsteuer) and real estate transfer tax (Handaenderungssteuer) on it if the gift is properly structured in advance. Such structuring vary from canton to canton where the real estate concerned is located depending on the local laws and the facts and circumstance of each specific case.
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No transfer limitations on acquisition or transfer of a holiday home within the family If you acquire or transfer a Swiss holiday home, you must bear in mind that Switzerland imposes restrictions on the acquisition or transfer (purchase, sale, gift, inheritance) of Swiss real estate by non-residents. The acquisition of Swiss real estate by persons that are not resident in Switzerland must, in general, be authorised by the competent cantonal authority, which will only grant permission for such a transaction if it complies with the relevant federal and cantonal laws, if any. One major condition, for example, is that the acquirer must be eligible to purchase such real estate. Further, in communities with a significant part of holiday homes, the property in the community in question must be designated as a holiday home. Moreover, the annual quota of transferred holiday homes in the canton in question must not yet have been reached provided that the transfer is subject to such restrictions. However, such transfer restrictions do in most cases not apply if you acquire or transfer a Swiss holiday home within the family.
Mandatory internal registration of UBOs of Swiss companies If you are the UBO of a Swiss company, the following information is of relevance to you. Switzerland is not part of the EU and therefore, in contrast to all EU member states, is not obliged to keep a (public) UBO register. The introduction of such a public available register is not intended at all in Switzerland.
However, Swiss companies are obliged to keep an internal UBO register for anti-money laundering purposes. Such internal UBO register is not publicly available. Only Swiss authorities can request access to the internal UBO register in connection with criminal proceedings or an information request form foreign tax authorities based on a double tax treaty with the requesting state if the respective legal requirements are met.
Exchange of rulings
Check your tax rulings and analyse the possibility of revoking such rulings by 31 December 2017 Switzerland's legislation on spontaneous exchange of information of advance tax rulings entered into force on 1 January 2017. The law provides for exchange of certain tax rulings with effect from 1 January 2018 if they were issued on or after 1 January 2010 and are still in force on 1 January 2018. Rulings on corporate income tax, annual capital tax and Swiss withholding tax are covered by the framework for spontaneous exchange. Rulings solely dealing with the taxation of a Swiss resident individual should, in principle, not be affected by the exchange.
Swiss cantonal tax authorities have started to contact taxpayers about rulings which they believe are subject to exchange. Taxpayers can still revoke these rulings until 31 December 2017, meaning that this information will not be exchanged by Switzerland with foreign tax authorities. It is advisable to check for any existing tax rulings and analyse the impact of a potential exchange and the possibility of revoking such rulings before 31 December 2017. Any ruling which is covered by the framework and is still in force on 1 January 2018 will be subject to spontaneous exchange.
Impact of voluntary self-disclosure and the automatic exchange of information rules
Contact your Swiss tax advisor about voluntary self-disclosure In Switzerland, one of the criteria for voluntary selfdisclosure is that the tax authorities are not yet aware of the tax evasion. Given that the automatic exchange of information (AEOI) will include bank account information from foreign bank accounts of Swiss residents, the question is at what point the tax authorities will become aware of such information and, consequently, no voluntary self-disclosure is possible anymore.
As published in a recent statement by the Swiss federal tax administration with respect to the impact of AEOI on voluntory self-disclosures, Swiss tax authorities should be deemed to be aware of non-disclosed information as of 30 September of the year following the introduction of AEOI with a specific country. In other words, voluntary
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Family Owned Business & Private Wealth 31
self-disclosure will cease to be possible after this date because the local tax authorities will be deemed to be fully aware of any missing information relating to a taxpayer.
Since Switzerland introduced AEOI with all EU member states with effect from 1 January 2017, a voluntary self-disclosure to the Swiss tax authorities of undeclared bank accounts located in EU member states will only be possible until 30 September 2018. Therefore, individuals that are tax-resident in Switzerland should carefully analyse whether there are any undisclosed accounts, other wealth or income that will be direclty or indirectly part of the AEOI and contact their Swiss tax adviser as soon as possible to prepare a voluntary self-disclosure.
Tax Proposal 17
Abolition of special tax regimes for Swiss companies Switzerland has agreed with the European Union that it will abolish its special tax regimes for companies, specifically, the holding company, mixed company, domicile company, principal structure and finance branch regimes.
The Swiss Corporate Tax Reform III (CTR III) proposal was made to offset the negative impact of the abolition of the special regimes for companies currently benefitting of one of those regimes. However, the CTR III proposal was rejected in a public referendum in February 2017. In response to this, the Swiss government published a new draft proposal for public consultation, the so-called Tax Proposal 17 (TP 17) in September 2017. TP 17 is expected to be debated in parliament in the second quarter of 2018 and to come into force at federal and canton level in 2020 or 2021.
TP17 proposes to abolish the special tax regimes and the introduction of new BEPS and OECD compliant instruments to limit the negative consequences of the abolishment of the tax regimes and leading to a slightly higher tax burden on Swiss companies that take advantage of them. Many cantons are planning to reduce their corporate income tax rates drastically to an internationally competitive level of around 12-18% to prevent a significant rise in the effective Swiss corporate
tax burden without the possibility of benefitting of a special tax regime.
Identify what this means for you TP17 also includes an OECD-compliant patent box at canton level and an additional cost deduction for research and development activities. It is advisable to identify what the Swiss Tax Proposal 17 will mean for your international (family-owned) company.
A final consideration relates to the increase in the partial income taxation of dividend distributions on a qualifying interest (minimum interest of 10%) for Swiss resident individuals. The proposal is to tax such distributions at the regular income tax rate on a fixed proportion of 70% of the dividend income at federal level. The same system should be applied by the cantons and on communal level. The percentage of the dividend income that is taxable must not be less than 70% also on cantonal and communal level.
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Family Owned Business & Private Wealth 33
Team Family Owned Business & Private Wealth
Do you own a family business? Are you an entrepreneur? Or maybe a high net worth individual? If so, you no doubt face complex tax and legal regulations, both at home and abroad. Not just related to your business, but also to your personal (family) wealth.
You may well be wondering if your tax and legal position in business and in personal affairs is up to date and optimal. Or perhaps you have questions on how to ensure a smooth transfer of your (family-owned) company to the next generation, without disrupting the continuity of the business. These are not just questions of the mind; personal values, family values and emotion - heart - play a part as well and must be involved in any considerations.
Our Family Owned Business & Private Wealth team would be delighted to offer you tailored, personal advice. We take a co-operative and forward-thinking approach, anticipating social dynamics, and help you to make the right choices. This also applies to our services for family offices, private bankers, (family) foundations, and (family) trusts.
What can you expect from us?
The nine examples that follow will give you an idea of what you can expect from us:
1.Tax and legal structuring of your family-owned business
2.Advice on the management and supervision of your family-owned business and wealth
3. Protection of your wealth and your privacy 4. Tax and legal structuring of your succession planning 5. Support for your emigration and/or repatriation 6. Tax and legal structuring of your valuable assets 7. Advice on prenuptial agreements and last wills 8.Establishing (family) foundations and charitable
organisations 9. Pension provision
What makes us unique?
We are unique because of the fully-integrated collaboration between tax advisers, civil law notaries and lawyers. Your questions are considered and addressed from various perspectives, and we are completely independent from accountants. You can also draw on specialist tax and legal knowledge of the rules in our four home markets (the Netherlands, Belgium, Luxembourg, and Switzerland) and you can draw on our global (business) network.
We have 100 years of experience in the industry and we are genuinely interested in our clients. This allows us to efficiently transform your complex tax and legal issues into pragmatic solutions. We aim to build long-term client relationships founded on mutual trust (trusted advisor).
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Do you need more information having read this update? Or would you like to find out the implications of specific legislation and rules for your situation? Then contact your Loyens & Loeff adviser. Or feel free to contact one of our advisers in the Family Owned Business & Private Wealth team for a non-obligatory consultation.
Jules de Beer Tax adviser / Senior associate T +31 10 224 61 55 E firstname.lastname@example.org
Cees Goosen Tax adviser / Senior associate T +31 20 578 52 27 E email@example.com
Dirk-Jan Maasland Senior deputy civil law notary / Senior associate T +31 20 578 57 43 E firstname.lastname@example.org
Marille Nuijens Senior deputy civil law notary / Senior associate T +31 20 578 56 82 E email@example.com
Pieter van Onzenoort Notary / Counsel T +31 10 224 62 52 Epieter.firstname.lastname@example.org
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Christa Parlevliet Assigned civil law notary / Senior associate T +31 10 224 62 14 E email@example.com
Nicolas Bertrand Lawyer / Partner T +32 2 773 23 46 E firstname.lastname@example.org
Saskia Lust Lawyer / Partner T +32 2 700 10 27 E email@example.com
Marcel Vrijenhoek Tax adviser / Senior associate T +352 466 230 295 E firstname.lastname@example.org
Georges Frick Lawyer / Associate T +41 43 434 67 12 E email@example.com
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Authors Barbara Albrecht, Jules de Beer, Almut Breuer, Linda Brosens, Georges Frick, Cees Goosen, Gerhard Grauss, Tim Hendriks, Maayke van Leeuwe, Saskia Lust, Dirk-Jan Maasland, Marille Nuijens, Rogier Ploeg, Rick van der Velden, Pleuni Visser, Marcel Vrijenhoek and Ruben van der Wilt.
Author and editor (in chief)
Jessica Litjens Professional Support Lawyer / Senior associate T +31 20 578 55 37 E firstname.lastname@example.org
Copy deadline The copy deadline for this edition was 17 November 2017, which means that any later developments are not covered.
Disclaimer Although great care has been taken when compiling this publication, Loyens & Loeff N.V. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and cannot be construed as advice.
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As a leading firm, Loyens & Loeff is the logical choice as a legal and tax partner if you do business in or from the Netherlands, Belgium, Luxembourg or Switzerland, our home markets. You can count on personal advice from any of our 900 advisers based in one of our offices in the Benelux and Switzerland or in key financial centres around the world. Thanks to our full-service practice, specific sector experience and thorough understanding of the market, our advisers comprehend exactly what you need. Amsterdam, Arnhem, Brussels, Hong Kong, London, Luxembourg, New York, Paris, Rotterdam, Singapore, Tokyo, Zurich