Assurance-vie in Luxembourg : how it works, costs and interests

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Opening an “assurance-vie” policy in Luxembourg has many advantages: capital protection, flexibility, contract in various currencies, wealth tax exemption (ISF) for the imparities, bespoke funds, market values… The Luxembourg contracts are the Rolls Royce of the “assurance-vie”, but they convey an elitist image. Yet it is possible to subscribe in good conditions to one, no matter where you are, and especially without being a millionaire!

Is it legal to open an “assurance-vie” in Luxembourg?

It is perfectly possible to open an “assurance-vie” policy in Luxembourg , whatever your country of residence.

When talking about the « opening of an “assurance-vie in Luxembourg », it is in fact mostly to subscribe to an assurance-vie policy under Luxembourg law. In fact, this type of contract is marketed in France in the same manner and by the same networks as the French law assurance-vie.

For a French tax resident, the only obligation is to notify the tax office of the opening of an assurance-vie in Luxembourg, at the time of the annual tax declaration, following the year of purchase.

What tax is applicable to the contract in Luxembourg?

Taxation applicable to a Luxembourg contract is that of the country of residence of the insured, it is said that the contract is fiscally neutral. If the subscriber moves from one country, the taxation changes automatically without having to terminate the contract.

In other words, a French tax resident will be applied to the Luxembourg assurance-vie policy the same tax rules as if he had agreed to a French contract:

◦ Choice of: flat rate of 7.5 %, or income tax
◦ Allowance of €4,600 (for a single person) or €9,200 (for a couple) after 8 years
◦ Social contributions

Similarly, in matters of inheritance and transmission , the Luxembourg assurance-vie contract offers the same benefits as a French contract:
◦ Capital taken out of the estate’s assets
◦ An allowance of €152,500 on the taxable capital, and beyond that a rate of 20%
◦ The contract cannot be seized by creditors

Opening an “assurance-vie” policy in Luxembourg thus exhibits no difference in terms of taxation, compared to a French contract for a French tax resident. We find exactly the same tax advantages that have made the success of the “assurance-vie”.

What are the benefits of an assurance-vie in Luxembourg?

Choosing an assurance-vie in Luxembourg , it’s choosing safety

The first benefit of an assurance-vie policy in Luxembourg, and not least, is the security provided by the Luxembourg law:

First of all, Luxembourg insurance companies are required to segregate assets belonging to the company of those of their clients, by filing in a third-party bank, reserves of the amounts entrusted to them.

Secondly, customers of Luxembourg insurers are considered senior creditors ahead of all other creditors. In other words in case of failure, they will be served first on the amounts deposited in the third-party bank.

[blockquote_right]A system of salutary protection in times of crisis ! [/blockquote_right]By comparison, if you buy a French assurance-vie policy, you get the deposit guarantee fund established by the State. Theoretically, investors are protected up to €70 000 per establishment. However, after reading the 2010 Annual Report, we learn that this fund has €1,918 million as cash. Just to indemnify 27,400 people up to €70,000, the others will just have to hope a gesture from the State!

A bespoke assurance-vie that is really premium

An assurance-vie contract in Luxembourg offers more flexibility and can actually be qualified as a premium contract, often tarnished by marketing of French insurers.

Before €250,000, Luxembourg contracts are quite similar to their French counterparts. However, it offers as well as the unique security established by the great Duchy, the opportunity to invest directly into shares in your assurance-vie, and access to hundreds or thousands of UCITS funds.

From €250,000 of investment, it is possible to put in your contract listed and non-listed securities, special funds, dedicated funds, and to entrust the management to a professional. Your Luxembourg assurance-vie policy can therefore replace to some extent a securities account, and you can enjoy a truly personalised management. For an entrepreneur, the assurance-vie in Luxembourg allows for example to accommodate the company shares in the contract, which will therefore benefit from the assurance-vie unrivalled taxation.

Beyond €2,500,000 options offered by the “assurance-vie” in Luxembourg are limitless. For example you’ll be able to invest in the following: options, futures, derivatives, currencies, but also in commodities, bonds…

A Luxembourg contract in currencies, ideal for expats

An “assurance-vie” contract in Luxembourg can be opened in a currency other than the Euro, generally: dollar, pound sterling and Swiss francs.

This is a clear advantage for expatriates.

These can then directly transfer a portion of their assets or their wages directly in currencies on their assurance-vie policy in Luxembourg, without having to suffer the vagaries of the foreign exchange market.

The benefits in terms of wealth tax for impatriates and expatriates

If you are expatriates about to return to France, opening an assurance-vie in Luxembourg to invest a portion of your capital can escape the wealth tax (ISF – Impôt Sur la Fortune) for 5 years.

Thus, under Article 885 of the CGI, having been non-resident for at least 5 years enables to exclude from the wealth tax, assets outside of France until 31st December of the 5th year following the return to France. This can be a major economy.

If on the contrary you want to leave the country, you will remain subject to wealth tax on your assets in France. An assurance-vie contract in Luxembourg allows to escape taxation by taking the capital out of France.

Fees charged on assurance-vie contracts in Luxembourg

Most major banks and assurance-vie players have branches in Luxembourg and market Luxembourg contracts.

Applicable charges on assurance-vie contracts in Luxembourg are comparable to fees charged on French contracts sold by asset managers:
◦ between 0.5% and 3% entry fee depending on the amount invested,
◦ from 0.8% to 2% management fee based on the selected options

Entrance fees are usually negotiable and graded according to the invested amounts. In reality, it is possible to find:
◦ Entry fees of 1% for a €300K investment
◦ A management fee of 0.8% per annum
◦ One free switch & redirection per year, then 0.5% (max. €750).

Although often less expensive than policies sold in banks, an assurance-vie in Luxembourg remains more expensive than a 0% contract of the internet. This is due to the incommensurate quality of the Luxembourg contracts. Security and flexibility come at a price, we really are here in a premium contract.

Conclusion

The Luxembourg-based assurance-vie contracts are extremely interesting, and not only for the wealthy. The warranty on the capital is an unrivaled luxury in France. Investment opportunities are endless, although varying depending on the investment capacity. Opening an assurance-vie in Luxembourg, is choosing safety, but also flexibility. Expatriates, entrepreneurs , and investors looking for more varied investment solutions than in France, will find their happiness. In addition, a Luxembourg contract retains all the advantages of a conventional assurance-vie policy in terms of taxation and transmission, thanks to the beneficiary clause.

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