Luxembourg’s maximum-strength policyholder protection

One of Luxembourg’s most important benefits as a domicile for life insurance products is its policyholder protection framework, one of the strongest in Europe, which is designed to offer clients peace of mind that their assets are safe no matter what happens to the insurance company, or the bank where the assets are held.

Luxembourg’s insurance policyholder protection regime is popularly known as the Triangle of Security. It requires all assets linked to life insurance policies to be held at an independent custodian bank approved by the industry regulator, the Commissariat aux Assurances, and remain legally ring-fenced from the assets of both the insurance company and of the bank itself.

The Commissariat monitors all insurance companies under its supervision to ensure they maintain legally-mandated solvency ratios. But even in the unlikely event of an insurer’s bankruptcy, the assets held at the depositary bank on behalf of clients or beneficiaries remain protected in separate accounts.

If an insurance company gets into financial difficulty, the Commissariat can freeze the accounts, ensuring that no transaction can be carried out by either the insurer or the bank without its authorisation.

Policyholders enjoy preferential rights to the assets of the separate accounts known as a Super Privilege, which places their claims above those of any other creditors of the insurer. In addition, whereas in most EU countries the Super Privilege is limited to the first €100,000 of an individual’s assets held at a particular bank, in Luxembourg there is no upper limit to the protection enjoyed by insurance policyholders.

In addition, policyholder assets are protected against seizure by creditors, which cannot exercise the policyholder’s rights to surrender, take a prepayment or pledge the policy, nor compel the client to do so. Creditors cannot seize the policy itself because it is the property of the insurance company. The only exception is where premiums paid into a policy appear clearly excessive with regard to the individual’s financial position and wealth.

Legislation due to be adopted in Luxembourg during 2018 aims to strengthen policyholder protection even further, by aligning the Super Privilege rights directly with the assets attributable to their policy, rather than the insurer’s portfolio as a whole.

Contact us to learn more about how Luxembourg life insurance policies offer the maximum protection for policyholders, wherever in Europe they may be.

IDD and MiFID 2

IDD, MiFID 2, PRIIPS… strange acronyms which probably don’t mean much to most people as well as a random and sometimes contradictory communication. But these regulations may well prove to be the investor’s guardian angel.

The new IDD, MiFID and PRIIPs regulations impose new rules on financial institutions (banks, asset managers, insurers but also distributors of financial products etc.) and aim to establish a stricter framework for services provided to investors. Here is an overview of the main provisions, common points and differences.

The aims are basically the same for these three regulations but their regimes, obligations and methods imposed are quite different.

1 – IDD, MiFID 2, PRIIPS: definitions

Firstly, what is the IDD, about which we so often hear in the insurance world?

The IDD, Insurance Distribution Directive, is a European directive published on 2 February 2016 in the Official Journal of the European Union (directive 2016/97). The directive constitutes a new stage in the standardisation of legislation for the European insurance market.

It is intended both for consumers and insurance professionals:

life insurance/assurance companies, obviously, but also
insurance intermediaries and
other insurance distributors

The directive also aims to align the insurance regime with the regime applicable to banks and other financial establishments following the MiFID 2 directive. The IDD was initially supposed to apply from 23 February 2018, but its application was recently postponed.

The MiFID 2, or Markets in Financial Instruments Directive 2, was adopted on 15 May 2014 and aims to remove the loopholes revealed by the 2008 financial crisis. This directive and the so-called MiFIR regulation of 15 May 2014 form a whole applicable from 3 January 2018 onwards.

The aim of the MiFID 2/MiFIR regulations is to adapt legislation to technological change, to make the financial markets more resistant to the volatility in the global economy and to enhance the transparency and protection provided to investors, be they natural person clients or professional investors, albeit to differing degrees.

These regulations also strengthen the powers of the regulatory authorities and are applicable to financial institutions, be they:

credit institutions (banks)
asset managers
any other company offering investment services (investment, order execution, advice, wealth management etc.)

2 – IDD, MiFID 2, PRIIPS: shared objectives

The objectives of the IDD and of MiFID 2 are, then, basically the same and can be summarised as follows:

Enhancing the protection of investors via specific obligations (personalisation of advice, mandatory professional training, and prevention and management of conflicts of interest)
Providing a stricter framework for the added value and the quality of the services provided to investors (detailed analysis of requirements, of the profile and of the strategy and mandatory evidencing of the fit between the advice and the requirements)
Enhancing transparency for investors in respect of remuneration, monitoring and governance obligations and pre-contractual obligations)

The IDD also provides for bringing the obligations of players from the world of insurance more closely into line with the obligations in place in the financial sector, in particular the general obligation incumbent on all financial and insurance players to carry out their business honestly, fairly, professionally and in the best interests of their clients.

3 – IDD, MiFID 2, PRIIPS: specific but similar obligations

Both the methods adopted and certain objectives are specific to each directive. The IDD is founded on four distinct objectives specific to the insurance distribution market:

Governance of the product will be made stricter via the definition of the target market, a regular review of the appropriateness of the product in view of the target market and the reinforcement of the monitoring of distributors
Reinforced requirements in terms of skills and experience for all persons involved in the distribution of insurance, whether they be the personnel of insurance companies but also intermediaries and their distribution personnel, via the obligation to provide proof of receiving 15 hours of training per year but also to prove that they are “fit” and “proper”
Reinforcement of the duty of advice of all insurance distributors, whether they be upstream or downstream in the distribution chain, via the obligation to carry out an adequacy test between the client’s requirements and the offerings proposed and also to carry out this test periodically
Transparency obligations in respect of costs, fees and commission received and reinforced monitoring of conflicts of interests; also – in respect of investment products founded on insurance – the obligation to inform the client initially and annually about all the product’s costs and fees (including those related to distribution)

These new obligations will have a number of effects on all insurance distribution players and OneLife stands alongside its partners to guide them in their new obligations.

As for MiFID 2, banks and other financial institutions have also seen their obligations reinforced and a somewhat stricter framework provided for technological change.

Thus, following the taking into consideration of the limits of the legislation deriving from the first MiFID directive (emergence of opaque liquidity pools, fragmentation of liquidity, impairment of the quality of information, distortions in competition, etc.) it has been decided:

to refocus trading on organised, regulated markets
to extend transparency rules prior to and after execution of orders
to promote fair competition between players by aligning their organisational obligations
to provide a stricter framework for changes in practice and the increased use of IT solutions, including a stricter framework for algorithmic trading activities in order to guarantee the stability of the markets

These obligations are similar to the obligations originating from the IDD but are broader. Nevertheless, they include obligations in respect of:

Governance of products
Remuneration (N.B. the MiFID directive is stricter than the IDD in terms of justification of remuneration and if a payment is no longer considered due, it must, as a matter of course, be returned to the client)
Advice
Transparency

The MiFID 2 directive and the comments made and measures taken for its implementation are thus a source of precious information for the implementation of the obligations deriving from the IDD.

The obligations originating from the MiFID 2 directive are, then, similar but broader and stricter than those deriving from the IDD. Clients and partners are at the heart of the concerns of OneLife, which communicates regularly on the topic and, on the strength of its expertise, has made the implementation of the new regulatory framework a priority for 2018.

OneLife is committed to accompanying its partners and clients in the implementation of these new obligations.

Jean-Nicolas Grandhaye, Corporate Counsel, at OneLife

Iberia/Latam roadshows in Zürich, Geneva, Luxembourg: highlights – Part I

As you may already know, OneLife organised in March an IBERIA/LATAM roadshow in Zürich, Geneva and Luxembourg to showcase our solutions for these regions with great success! As described in our communication on March 16, 2018 and also shared on LinkedIn, OneLife was privileged to partner with some of the best lawyers from Mexico, Peru, Colombia, Portugal, Spain and Brazil.

For Iberia, the most reputed lawyers specialised in tax, legal and regulatory matters involving life assurance in their respective jurisdictions duly represented Spain and Portugal in the different panels.

Spain: Political & fiscal context

On the Spanish panel, Javier Seijo from EY started by introducing to the audience the political and fiscal context in Spain, focusing notably on the potential political measures which could if adopted modify the Spanish Wealth and Inheritance/Gift taxation landscape. Indeed, it was mentioned how some Spanish Autonomous regions had recently implemented different changes in their taxation and others were planning to do so in the near future.

Benefits of using life assurance for wealth planning purposes

In the second part of the panel, Enrique Lopez de Ceballos from Eversheds, Carlos Ferrer from CuatreCasas and Fabricio González from Anaford spoke about the different benefits and advantages of estate and wealth planning through the use of unit-linked life assurance products in the Spanish market. Amongst other points, it was highlighted that life assurance could be used as a flexible succession-planning tool, that it preserves the confidentiality of the policyholder and the beneficiaries and that it enables the policyholder to protect his wealth in case of unforeseen circumstances (insolvency, divorce…).

On the fiscal side, the tax treatment of life assurance for Spanish resident policyholders was duly described in terms of Income Tax, Wealth Tax and Inheritance and Gift Tax. In this context, special reference was made to the recent rulings issued by the Spanish tax authorities on Wealth Tax applied to unit-linked life insurance products and which could open interesting planning opportunities.

Non-traditional use of unit-linked life assurance

In the third part of the panel, the speakers gave a brief overview of how unit-linked life assurance could be used in non-traditional ways. For instance, life assurance could be used as an instrument to vehicle remunerations to key managers or sportsmen or pensions to a given group of a firms’ employees.

Spain: Cross-border

On a final note, the speakers discussed the different planning opportunities for multi-jurisdictional and cross-border cases using life assurance and gave some examples of successful cases where they had acted as advisers.

Should you wish to obtain additional technical information on any of the above, we invite you to get in contact with Javier Seijo, Enrique Lopez de Ceballos, Carlos Ferrer or Fabricio González who will be happy to provide you with legal and tax assistance.

Portugal: Fiscal context

On the Portuguese panel, Joao Espanha from Espanha Associados and Filipe Romao from Uría Menéndez started by providing the audience with an overview of the fiscal context in Portugal, which for the moment remains rather attractive for HNWIs, compared to other European countries. Besides, the likelihood of new taxation measures approved by the Portuguese government and involving Wealth or Inheritance/Succession was deemed to be low in the short term as not present in the political agenda.

Benefits of using life assurance for wealth planning purposes

In the second part of the panel, Joao and Filipe commented on the different benefits of life assurance for Portuguese resident policyholders, for instance, flexible and efficient succession planning and protection of the financial assets from a financial and regulatory perspective (i.e. Luxembourg “Triangle of Security”). The fiscal treatment of life assurance unit-linked products was thoroughly discussed as well. Indeed, life assurance in Portugal benefits from an advantageous tax treatment (i.e. decreasing effective taxation when the policy is held over 5/8 years and no application of Portuguese Stamp Duty tax when the benefit of the policy is paid to the appointed beneficiaries).

Portugal: latest news & developments

The last section of the panel was dedicated to several “hot topics” such as (i) the recent regulatory changes which could affect the contribution in kind to life insurance products in the Portuguese market, (ii) the possibility to offer “self-management” to Portuguese resident policyholders and, last but not least, (iii) the tax treatment on redemptions from life assurance policies made by Portuguese resident policyholders. On all these topics, Joao and Filipe made clear that not all the local legal/tax practitioners had concurring views and that, possibly, the outcome could vary depending on the advisor, the policyholder as such and the insurance company offering the product.

Should you wish to obtain additional technical information on any of the above, we invite you to get in contact with Joao Espanha and Filipe Romao, who will be happy to provide you with legal and tax assistance.

Gonzalo Garcia-Perez, Wealth Planner Manager for Iberia and Latam markets, at OneLife

Success for OneLife’s first roadshow events!

OneLife’s team of experts partnered with 17 speakers of international acclaim to present the advantages offered by life assurance for Iberian and Latin American clients to over 150 attendees (bankers, asset managers, financial advisers …).

The first roadshow was held in Zurich on 13 March 2018 and the second in Geneva on 14 March 2018. Following an introduction by Wim Dieryck, Chief Commercial Officer OneLife, the day was split into different panels by market. The morning session dealt mainly with Latin America with Abril Rodriguez of EY, Eduardo Valenzuela of Chevez and Abel Francisco Mejía of Sanchez Devanny presenting the specificities for Mexico.

Camilo Cortes of Dentons, Juan David Velasco of Posse Herrera & Ruis and Lucas Morena of Brigard & Urrutia then gave their overview for Colombia.
Robert Jarvis of Charles Monat Associates, Fernando Núñez of Hernandez & Cía and Roberto Cores of EY spoke about solutions for Peru.
Spain and Portugual were next up following the break, with a number of specialists for the Iberian region: Javier Seijo (EY), Enrique López de Ceballos (Eversheds Sutherland Nicea), Carlos Ferrer (Cuatrecasas), Fabricio González (Anaford), Filipe Romão (Uría Menendez), Joao Espanha (Espanha Associados), Sara Zad (Carnegie) and Marta Duarte (Cuatrecasas).

A panel dedicated to Brazil concluded the day with the expert insights of Priscila Stela Mariano da Silva (Pinheiro Neto) and Filipe Romão (Uría Menendez) who gave practical examples of how life assurance works cross-border such as a family moving from Brazil to Portugal and then returning to live in Brazil again.

The third roadshow was held in Luxembourg on 15 March 2018 and provided insight into solutions for Spain and Portugal. Carlos Ferrer of Cuatrecasas and Joao Espanha of Espanha Associados were once again present to explain with real examples the situation for wealth management in these two countries and the advantages of a Luxembourg life assurance policy for clients living in Spain and Portugal.

For Marc Stevens, Chief Executive Officer OneLife, also present: ““The following have changed over the years: families, the composition of these families, the different geographical places where the members of these families live and the nature of their wealth. These changes will continue in the future. This means that asset management and protection require a different approach and different techniques and that flexibility and internationalisation are becoming increasingly important. Managing this complexity can be achieved through a multi-disciplinary approach between bankers, lawyers, tax experts, family offices, brokers, insurers and others. Life assurance is a solution for these families to manage their wealth and to have it well protected.”

Want to find out more?

OneLife’s team of experts and its speakers invite you to attend our 4th and 5th roadshows (the last ones of this series): 10 April 2018 in Lisbon to find out all you need to know about life assurance solutions for Portuguese residents and 11 April 2018 in Madrid for Spanish clients!

For further information, follow us on LinkedIn!

International inheritance: rules and taxation

This topic, which is complex for many wealth managers, is more current today than ever. The challenges to be met – a unique family model for each of our clients (recomposed families, etc.) with an international dimension – are many.

One only has to look at recent news (such as the Jarre or Hallyday affairs) to realise how many problems these two components of a unique family model and an international dimension can cause. Not to mention the lengthy judicial proceedings initiated by the heirs to determine the law applicable to the inheritance.

Is life assurance an ideal solution for passing on an estate?

The advantage of an investment within a life assurance product from a Luxembourg insurance company is that it enables your assets to be managed and passed on totally serenely and in a highly flexible way.

Why Luxembourg?

For its international expertise and a “tailor-made” solution allying clients’ personal and financial situation.

Also for its fiscal neutrality, in particular in respect of inheritance tax.

Our experts will accompany you to enable you to draw up your inheritance solution.

Inheritance rules and practical application: how does this work?

Let us take the example of a French couple married under the regime of wholly shared assets and close to retirement with an integral attribution clause and a capital of €2 million in assets.

They wish to plan their inheritance for their three children – Jean, who lives in Sweden, Paul, who lives in Portugal, and Jeanne, who lives in Belgium.

As a Luxembourg life insurance company, the couple will be advised to take out a joint life assurance policy governed by French law to be redeemed upon the death of the second party.

After the death of the first insurance policyholder in France, the surviving spouse, who in the meantime has moved to the south of France, will regain control over the life insurance policy until their death and when the policy is redeemed each of the children will then receive equal shares of the insurance proceeds.

What tax will their children pay?

As the premiums were paid before the couple turned 70, when they die all the beneficiaries will be subject to a sui generis tax (article 990 I of the General Tax Code, GTC). They will benefit from a tax allowance that may be as high as €152,200 per beneficiary.

It should also be noted that for deaths occurring after 31 July 2011, the 20% levy will be due if:

At the time of death the beneficiary is resident for tax purposes in France within the meaning of article 4B of the GTC and that this was true for at least six of the ten years preceding death.
Or if the policyholder, at the time of their death, is resident for tax purposes in France within the meaning of the same article 4B, which is true in our case.

For Jean, who lives in Sweden and is 30 years old

According to Swedish regulations no inheritance tax applies, Jean simply has to pay the tax due in France.

For Paul who lives in Portugal and is 25 years old

According to Portuguese law, no taxation will be applied to Paul who will have to pay only the French tax.

For Jeanne who lives in Belgium and is 20 years old

According to Belgian legislation, insurance policies may or may not be liable for inheritance tax; it all depends on the construction of the policy.

For Jeanne, inheritance tax will apply, the rate of which varies depending on the region in which she lives (article 8 of the Inheritance Code).

Apart from the degree of kinship, the value of the estate and the residence for tax purposes of the deceased will also play a role.

Onelife can provide you with tailor-made solutions adapted to your personal situation and your requirements to enable you to plan for the passing on of your estate or simply manage your assets.

Article by Nora Belarbi, Legal Advisor at OneLife

New transposition date

The Commission has confirmed the delay in transposition to 1 July 2018.

However, the application date remains unchanged: 1 October 2018.

Given that the European Parliament and the Council are not expected to adopt the Amending Directive before March 2018, the delay will apply retroactively from 23 February 2018.

To know more, get a grasp of this directive, and see how OneLife has been preparing for the changes in collaboration with its partners, watch this video!

Judgement relating to the concept of fiscal residence in Spain for individuals

On 28 November 2017, the Spanish Supreme Court passed a judgement relating to the concept of fiscal residence in Spain for individuals.

In this judgement, the Supreme Court reiterates that true residence outside of Spain that is recognised by the Spanish Tax Agency and exceeds 183 days during the calendar year, which corresponds with the tax year, is an objective fact that should prevail over elements that are subjective in nature and whose interpretation is left to the Tax Agency to decide. In fact, the Supreme Court also confirms that a subjective element such as that of future intention to reside in another jurisdiction is difficult to demonstrate in practice in advance, especially in the current context where there is a high level of geographical mobility of people.

This information is relevant for clients with an international profile and high geographical mobility whose fiscal residence (or non-residence) in Spain is difficult to determine according to the current criteria set by the Tax Agency in practice. In fact, in our opinion, this new judgement clarifies that the time criterion of residence based on physical presence in Spain (i.e. an objective criterion determined by the “183 day” rule) should prevail over other elements that are subjective and intentional in nature, upon which the Tax Agency may act with a certain degree of discretion.

Therefore, in conclusion, we believe this constitutes a jurisprudential position that enhances legal certainty for those clients that might have this problem.

Finally, we would like to remind you that we offer this type of client, with high geographical mobility and significant net worth, tailored solutions that can be “portable” and also avoid the “Exit Tax” (“Impuesto de salida”), where applicable, in multiple jurisdictions – including Spain.

We of course remain entirely at your disposal to clarify any doubts you may have regarding the possible implications of this judgement by the Supreme Court or any other element relating to estate planning through “unit-linked” insurance policies for your clients resident in Spain or abroad with the intention of relocating to Spain.

Author: José Manuel Tara, Regional Director Iberia & Latam, at OneLife

Should you need additional information in relation to unit-linked products for Spanish resident investors, do not hesitate to contact our Sales representatives:

Luis De La Infiesta, Regional Sales Director Iberia & Latam, at OneLife at OneLife

Gonzalo Garcia-Perez, Wealth Planner Manager for Iberia and Latam markets, at OneLife

OneLife, non-traditional assets’ expertise in life insurance

The current demand of our partners for non-traditional investments has enabled them to revitalise their portfolio, with growing interest in internal dedicated funds (IDF) or Specialised Insurance Funds (SIF).

The Luxembourg insurance regulator [Commissariat Aux Assurances] allows a very competitive and flexible range of options in terms of the types of underlying investments within a contract, while providing a protective framework for policyholders.

Putting financial market developments in perspective, together with the significant demand for regulated or unregulated non-traditional investments, require new keys skills for OneLife, which has chosen to surround itself with top-level experts.

According to Wim Dieryck, Chief Commercial Officer at OneLife:

“These experts are highly appreciated by our partners (asset managers, Family Offices, brokers, international private banks, etc.) who are able to receive specific and technical answers to all their questions. The ultimate goal is to best serve their clients’ needs”.

According to Anthony Lorrain, Director Unquoted & Traditional Assets at OneLife:

“It is essential to be surrounded by these new key skills from specific areas to represent the industries of private equity, real estate or securitisation. Each customer is different, so we aim to meet their needs in the best way possible by forming a team of specialists who support our sales representatives throughout the life cycle of the contract (wealth engineers specialising in taxation and local contract law, experts in smart investments, etc.)”. He went on to add: “For example, OneLife is a member of the LPEA (Luxembourg Private Equity Association) and wishes to show its commitment to other sectors of business that are complementary to the world of life insurance.”

OneLife is an innovator in life insurance and offers its clients sophisticated, tailor-made solutions. Against a backdrop of low – or even negative – interest rates, non-traditional assets are proving to be a strategic element that insurers must now be able to offer their customers within a controlled and secure framework for all parties.

Non-traditional assets are a real trend in wealth management. As a partner of wealth managers, we have decided to invest – voluntarily and strategically – in our abilities to provide qualitative support in these areas. The world of non-traditional assets is too specialised not to bring in expert services in the field.

What you should expect for 2018 regarding Flat Tax, IFI, CSG ?

After a rocky legislative process, Emmanuel Macron’s campaign promise comes with a series of reforms affecting the taxation of movable assets. This is an overview of the new tax landscape in France, including the life assurance regime:

Objectives and legislative path

Tabled on 27 September 2017 the Finance bill for 2018 presents the far-reaching reforms required by the new president Emmanuel Macron to:

boost the French economy,
direct savings towards the financing of the real economy
simplify and make the tax regime for moveable assets more readable

The bill was discussed at the National Assembly from 17 October to 21 November 2017, and finally adopted at first reading on 21 November 2017. The amended text was submitted to the Senate. As OneLife announced in its article on the subject dated 15 November 2017, the text was met withthe strong opposition of the Senate and was largely amended then submitted to a Joint Commission consisting of National Assembly and Senate members.

Faced with wide dissension within the Joint Committee, the text went back and forth between both chambers. It finally went to the National Assembly, which has the last word for this type of text and which adopted it on 21 December 2017 (subject to the approval of the Constitutional Council after right- and left-wing deputies and senators referred the matte).

The Constitutional Council finally rendered a decision approving the text, which was thus definitively adopted on 28 December 2017 and published in the Official Journal of 30 December 2017.

Main provisions

The law of 30 December 2017 on the Finance Law for 2018 includes three provisions of particular interest to savers:

An increase of the CSG rate by 1.7% resulting in an overall increase in social contributions from 15.5% to 17.2%
The introduction of a 30% flat tax (or PFU – Prélèvement Forfaitaire Unique – in France) on savings income (including social security contributions)
Replacement of the Solidarity Tax on Wealth (ISF) by the Tax on Real Estate Assets (IFI)

The PFU: a cure-all for the saver?

PFU is the French term for what is widely known in Great Britain and the United States as a “flat tax”. In France, the PFU is an innovative taxation method by which a uniform rate is applied to a broad category of different situations and sources of income.

The French system usually customises taxation to the individual situation and according to the type of income. This is, therefore, a significant change in the tax approach in Emmanuel Macron’s presidential programme.

The basic idea is to simplify the taxation of the capital of French residents by applying a single rate applicable to a full range of savings accounts, investments and income:

by applying a single rate to all financial income
to avoid the complicated application of the income tax for different categories of financial income (life assurance income, interest, dividends, capital gains…)

This apparent simplification actually makes the taxation of financial income more complex, especially as concerns life assurance.

a. Affected policies

The PFU applies to all financial investments held by French residents as at 1 January 2018 and, for life assurance, retroactively from 27 September 2017.

This includes fixed-income investment products, bond coupons and dividends which now see the 40% tax allowance removed unless one opts for dividend taxation by the progressive scale of the French Income Tax (IR).

However, the PFU does not affect:

Regulated savings accounts (Livret A, Livret de Développement Durable et Solidaire) as well as savings products exempt from income tax (company savings scheme, retirement savings scheme…)
Investments heavily weighted towards equities such as the equity savings plan (PEA). An exception consistent with one of the government’s goals of promoting investment in the real economy
Property income, which is nevertheless affected by the proposed wealth tax reform as a real estate tax

Thus, neither life assurance nor bank savings accounts (including the Home Savings Scheme [Plan Epargne Logement] and the Home Savings Account [Compte Epargne Logement], but only those opened as from 1 January 2018) are exempt from the PFU.

b. PFU or the fixed-fee scale of the IR?

The PFU rate is set at 30%, i.e.:

2% of social contributions and
8% of income tax

In principle, therefore, savings income will be taxed at the rate of 30%, but the investor may want to consider the option of having the progressive scale of the French income tax applied instead!

The option must then be chosen in writing, and the choice is irrevocable and general, i.e. it covers all the income from movable assets of the investor for one year.

As from 1 January 2018, the Prélèvement Forfaitaire Obligatoire (a fixed levy at source equivalent to the rates the PFU, i.e. 17.2% of social contributions and 12.8% of income tax) isdebited from all income from movable assets received by investors. This deduction does not entail full discharge.

If the option to apply the IR scale is not available, the PFO will entail full discharge. In other words, PFO = PFU.
If the investor chooses to apply the IR scale, the PFO will be credited to the amount of IR to be paid, with the investor being entitled to a refund in the event there is a surplus.

Low-income individuals in France may want to opt for the application of the IR scale.

PFU and life assurance

Is the PFU more advantageous than the old applicable taxation anyway?

The government’s initial intention was to limit the application of the PFU to policies taken out on or after 27 September 2017, and to policies taken out before that date but with premiums over €150,000 and €300,000 for a couple, and only for the premiums paid as at 27 September 2017.

Analysts logically deduced that the new regime would be less advantageous than the old one for policies over 8 years old. An amendment has corrected this issue:

The PFU (30%) applies to all products attached to premiums paid as from 27 September 2017 for policies under 8 years;
For policies of more than 8 years,
- the rate of 24.7% remains applicable if the amount of the premiums paid on the policyholder’s life assurance policies do not exceed €150,000.
- If the amount of the premiums paid on the policyholder’s life assurance policies exceeds €150,000,
  - the rate of the PFU is applicable for the products corresponding to the portion of premiums paid after 27 September 2017,
  - The rate of 24.7% is applicable for products corresponding to the portion of premiums paid before 27 September 2017

This share is determined according to the following calculation: Sum of products * ((150,000 – premiums paid before 27 September 2017) / (premium paid as from 27 September 2017)).

This proportional calculation has not, unfortunately, been drafted in the simplest terms for investors. Similarly, while the original bill provided that the threshold to be used was €150,000 for a single person and €300,000 for a couple, the threshold of €300,000 finally disappeared from the law as it was passed.

The €150,000 threshold must, therefore, be taken into account at an individual level only.

However, and fortunately, the allowances of €4,800 and €9,200 for a couple have been preserved for policies held for more than 8 years. Similarly, the option for IR taxation at the progressive rate has been maintained.

The situation has, therefore, become infinitely more complex and less clear for investors and insurers. This can be summarised as follows:

Click on the table to enlarge it

The IFI – a gift for the rich?

As from 1 January 2018, the Solidarity Tax on Wealth (ISF) has been transformed into a Tax on Real Estate Assets (IFI).

a. The principle

The ISF traditionally taxed assets of more than €1.3 million by a progressive rate linked to wealth. The principle of the IFI is the same as that of the ISF with the (major) difference that the IFI only taxes real estate assets. Simplification or hoax?

For French residents, the IFI applies to all real estate assets or rights, units or shares of real estate companies held in France and abroad by the persons making up the tax household.

For foreign residents with real estate assets in France, the taxable base for the IFI is as follows:

The value of real estate assets or rights in held in France by the tax household residing abroad (secondary residence for example)
Units or shares of real estate companies holding real estate in France
Units or shares of real estate companies holding real estate in France and abroad, for the respective share of the value of real estate located in France

b. Scope of application

In fact, if your assets are solely composed of real estate assets (principal residence, secondary residence, OPCIs, investment properties, rentals…) and the value of your assets exceeds the €1.3m threshold, the reform will change nothing in your case.

On the other hand, if you hold diversified assets, the IFI will force you to make scholarly calculations between assets within and without the scope. Below is a non-exhaustive list of assets and rights within the IFI scope:

value of principal residence (however, the 30% allowance has been kept)
value of secondary residence(s)
buildings under construction
undeveloped property (such as land and farmland)
buildings and fractions of buildings represented by shares of real estate condominium companies
The usufruct of real estate assets and rights for the total value of the real estate asset or right (except in case of succession, where both the usufructuary and the bare owner may be taxed up to their respective share)
Shares in companies holding real estate in France, for their value representing the properties held in France directly or indirectly by the company.

It is also possible, in case of doubt about the value of a property, to use the “Patrim” online service made available by the Ministry of Finance: [https://cfspart.impots.gouv.fr/LoginMDP]

Certain real estate assets and rights are not included in the definition of the IFI’s taxable wealth base, and partial or total deductions are available for:

buildings used for professional activity,
woods and forests set aside for exploitation or professional use,
rural properties leased for the long term or for professional use (farmland, buildings and farm equipment),
furnished housing rented under the loueur en meublé professionnel (professional landlord for furnished accommodation) tax regime.
the bare ownership of a property that is totally exempt

For foreign residents, the law has also removed the notion of société à prépondérance immobilière française (a predominantly French real estate company) to avoid artificial adaptations (and thus all real estate assets, regardless of how they are held, are included in the tax base of the IFI).

c. Deductions

The IFI is applied to the net taxable assets, i.e. assets net of existing debt as at 1 January of the tax year.

Regrettably, however, many ISF-specific deductions have been done away with (such as family loans and housing tax), and legislators have eliminated the possibility of reducing the tax base via debt.

At least the 30% allowance on the principal residence is still there.

The following expenses, among others, are deductible, provided that one produces the receipts:

expenses for the acquisition of real estate assets or rights,
improvement, construction or expansion expenses,
expenses for the acquisition of units or shares in proportion to the value of real estate assets and rights,
taxes due on the property concerned (such as property tax).

d. Conclusion

Overall, this tax reform is a step in the right direction as it simplifies, for the future, the applicable rules.

In the short term, however, the new rules add a layer of complexity to the taxation of movable assets by stacking the applicable norms, especially regarding the taxation of dividends and life assurance.

These adjustments render Luxembourg life assurance an even more attractive choice for French residents, and OneLife stands with its clients and partners to guide them through these changes.

Author: Jean-Nicolas Grandhaye

Spanish Citizens have the world’s second most powerful passport for Residing and Investing Abroad

According to the 2017 Global Passport Ranking recently issued by Arton Capital – a recognised global financial advisory and world ranking firm – Spain has the world’s second most powerful passport for Residing and Investing Abroad – just behind Singapore and ahead of the United Kingdom.

https://www.passportindex.org/byIndividualRank.php

Developed by international residence and citizenship advisory firm Arton Capital, the Passport Index is a free online interactive tool that sorts and ranks the world’s passports by their cross-border access; it shows how many countries a passport holder can visit either visa-free or by obtaining a visa on arrival.

Combining that visa criteria with two other relevant parameters:

-the United Nations Development Programme Human Development Index which measures the average achievement in human development, such as living a long and healthy life, being knowledgeable and having a decent standard of living

– Residency by investment is the process of obtaining a Permanent Residency card in another country by investing in the economy of that country. Permanent Residency status is then conferred at an accelerated rate compared to traditional applications
shows that Spain grants to its citizens the world’s second most powerful passport for acquiring a Permanent Residency by Investment status abroad which in turns can allow the access to best local education institutions or optimised local taxation status. It can also increase their global mobility by granting access to additional visa-free programs.

At OneLife, for over 25 years, we offer a personalised service with portable solutions designed to achieve our clients’ objectives, wherever they live in the world. With our private equity solutions, we can assist our clients who may invest and live abroad.

Article by Antonio Corpas, Head of Wealth Structuring and Private Equity at OneLife