Luxembourg Foundation

Luxembourg foundations’ main purpose must be charitable though they are used for tax planning as a secondary purpose and commercial activity is not precluded. For foundations which do not require a charitable purpose the Maltese private foundation is preferable. Luxembourg foundations require a very high level of capitalisation since the initial settlement must be approximately 250,000 EUR (by comparison with Malta where the amount is 1,200 EUR or Panama where the amount is 10,000 USD). In most cases the above consideration combined with their high formation and operating costs mean that there is little to recommend Luxembourg foundations in an international context. For more information about foundations generally please see our main article in the products section. For information about Maltese private foundations please see our main article.

Luxembourg foundations pay tax in respect of income derived from commercial activity. The taxation system is outlined in our main article on Luxembourg private companies but essentially Luxembourg foundations pay around 30% tax on any commercial income they may derive. Foundations do not pay VAT, wealth taxes or other taxes insofar as they are not receiving income.

Luxembourg foundations are established by notarial deed. This deed must state the charitable purpose for which it was established, the address of the foundation in Luxembourg (service providers will provide a local address), the names of the first directors (of which there must be three) and the provision relevant to winding up.  Luxembourg foundations do not enjoy the protection of limited liability which means that their liability is unlimited as in the liability of their officers in many cases. Finally, there is a high level of regulatory interference in the operation of Luxembourg foundations meaning that significant changes may require lengthy application and approval processes.

The founder establishes the foundation by making the contribution of around 250,000 EUR (which can be in case of assets). Once established the level of involvement of the founder will vary from foundation to foundation in accordance with the terms of the constituent document. In any case the founder of a foundation is permitted the possibility of a greater level of involvement than the settlor of a trust. For a discussion on this point please see our main article on foundations in the products section.

Unlike in other countries beneficiaries do not have enforceable rights against foundations meaning that there is little or no protection and no right to information for beneficiaries unless they are also involved in the foundation in some other respect (such as founder, director or member of the supervisory council).

Supervisory Council
Luxembourg foundations may chose to appoint a supervisory council. In this case the scope of their powers and operation will be outlined in the terms of the foundation’s constituent documents.

Audited accounts must be prepared and filed annually, the cost of these accounts and audit is fairly high.