What is a family office?
Family offices are investment advisory firms that serve one or multiple high net worth families. They range from boutique family offices to large scale family offices with legal, accounting and investment teams.
Why set up a family office in Luxembourg?
Luxembourg is the premier wealth management centre in the Eurozone and the second largest investment fund centre in the world with currently more than EUR 4,7 trillion of assets under management. Luxembourg is one of the most established and trusted jurisdictions for wealth management in Europe. In 2012 Luxembourg passed a law regulating family office activities (the “Family Office Law”).
Luxembourg is also a politically and financially stable EU country with a AAA-rating and is also a globally recognized financial centre. The country is a founding member of the EU, OECD, FATF and the Eurozone, offering strong political support for the financial services industry, investor-friendly legislation and an attractive legal and tax framework. Its responsive and pragmatic regulatory and tax authorities have made the country a leading financial centre.
Setting up a family office in a jurisdiction such as Luxembourg can have multiple advantages:
1. Luxembourg offers a well-established attractive legal framework and a tax system that is fully compliant with EU and OECD standards.
2. Holding an investment through a Luxembourg holding company, provides high networth individuals (“HNWI) and their families with the option to exit a participation, by selling either the shares or the underlying asset. Luxembourg provides a well-established route for exiting investments in a favorable manner.
3. Luxembourg has entered into bilateral investment protection treaties (BITs) that can provide HNWI with an additional tool to protect the underlying assets.
4. Luxembourg is a multilingual country. The articles of incorporation and corporate documents are typically prepared in either English, French or German. This can be of use when the investment is in neighbouring jurisdictions, such as Germany, France, Switzerland, Belgium or Austria.
Which solutions can family offices use in Luxembourg?
Luxembourg offers a toolbox of wealth management and investment solutions intended for the management of financial assets and enables family offices to structure their clients’ assets in a flexible, simple and tax-neutral way. Family offices can choose between easily set-up holding companies, non-supervised funds to funds supervised by the CSSF, as well as a range of other sophisticated financial solutions.
Single Family Office or Multifamily Office?
The Family Office Law considers relevant Family Office activities as: “providing, on a professional level, patrimonial related advice or services to private individuals, families or patrimonial entities founded/owned or beneficial to private individuals or families”.
The use of the term “Family Office” is protected and regulated in Luxembourg, but Family Offices that only serve one single family or one single persons, are excluded from such regulation under the Family Office Law. Activities of board members of commercial companies or foundations, trustees, fiduciaries, or judicially appointed mandates are also not considered Family Office activities.
Such services to multiple HNWI or their families as a Family Office, can only be offered by an exhaustive list of professionals that are established and regulated in Luxembourg. These include:
- credit establishments;
- investment advisers;
- asset managers;
- specialised professionals of the financial sector (“PFS”, such as a Family Office PFS);
- domiciliation agents;
- independent auditors; and
- chartered accountants.
What is the Family Office PFS?
With the introduction of the Family Office Law, a new specialized PFS was introduced, the Family Office PFS. Apart from being subject to prior authorization and ongoing supervision by the CSSF, as any other PFS, there are two specific conditions for authorization:
- the applicant shall be a corporate entity (and not a private individual); and
- have a share capital of at least EUR 50,000.
As any PFS, a Family Office PFS, has to implement and respect relevant rules and CSSF circulars. In particular with respect to:
- professional secrecy;
- organizational rules, as well as rules of conduct;
- transparency of fees and remuneration; and
- obligations under the Luxembourg law relating to the fight against money-laundering and the financing of terrorism.
What does the ongoing supervision include?
The prudential supervision of the CSSF extends to a Family Office PFS authorized under Luxembourg law, including the activities which they carry out by means of a branch, and Luxembourg branches of foreign entities.
Prudential supervision is exercised by the CSSF on a Family Office PFS by:
1. submitted periodically financial information to the CSSF enabling it to monitor continuously the activities of the relevant entities and the inherent risk, together with the monthly control of compliance with the minimum own funds legally required:
2. reviewing documents established yearly by the réviseur d’entreprises agréé, including the audit report and audited annual accounts, control report relating to the fight against money laundering and terrorist financing and, where applicable, the management letter, the internal audit reports relating to audits carried out during the year and the management’s report on the state of the internal audit; and
3. introductory visits and on-site inspections carried out by the CSSF.
What are the main steps for the incorporation of a Family Office PFS?
1. Written application and following a due examination of the application file by the CSSF. In this process the CSSF reviews inter alia, the corporate documents, the shareholding structure, the structure of the board and the management, as well as the human, technical and material organization of the PFS;
2. Incorporation of the company and transfer of the share capital; and
3. Formal authorisation is granted by the Minister of Finance, based on the application process undertaken by the CSSF.
What are the substance requirements for a Family Office PFS?
As any PFS, a Family Office PFS needs to evidence that its central administration is in Luxembourg. It needs to demonstrate that the executive day-to-day management and control staff is permanently resident in Luxembourg. It cannot simply have a registered office in Luxembourg, but the head office must be in Luxembourg.
How long does it take to set up a Family Office PFS in Luxembourg?
A Family Office PFS is a regulated company with the need for regulatory approvals by the CSSF. Typically, such an approval process can take several months, typically around 3-5 months, depending on the completeness of the application file and the time in which the application file was submitted.
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