The Private Foundation and the Step-up principle

The Private Foundation is a new wealth management vehicle inspired by comparable vehicles existing in other countries...

... but it differentiates itself from the other countries offering such a foundation by providing a step-up solution.By the introduction of the “set-up principles”, Luxembourg removes a barrier for individual deciding to relocate their tax residence to Luxembourg.

Upon becoming a Luxembourg resident taxpayer (i.e. when deciding to move to Luxembourg) the Founder can transfer the securities relating to a substantial holding to the Foundation. The purchase price of the securities is revalued to the fair market value and these securities can be sold afterwards providing the holder with an opportunity to limit capital gains’ taxation.

Under the proposed new law on Foundations, this principle would also apply to assets brought into the Foundation. The tax implications are far-reaching, as this could potentially lead to an exemption on taxation of capital gains upon future onward sale. As this principle applies to all types of companies including limited partnerships and now potentially also to Foundations, Luxembourg establishes itself as a host country of choice for transfer of residency for entrepreneurs.

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>> Wealth Structuring Advice

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