Unit-linked life insurance as a wealth planning solution for Spanish investors

A “unit-linked” product is an insurance contract under which the policyholder bears the full investment risk of the underlying financial assets of the policy. Therefore, under “unit-linked” products, the performance of the investments is not guaranteed by the insurance company in the short-, medium- or long-term.

The “unit-linked” product allows policyholders to combine in an efficient manner, financial, succession and tax planning in a single contract which complies by default with the tax and legal framework of the jurisdiction in which the policyholder is resident in order to avoid any legal or tax requalification risk.In the case of Spain, “unit-linked” products are mainly regulated by Spanish Insurance Law 50/1980 and, from a tax perspective, by Spanish Tax regulations such as Spanish Personal Income, Wealth and Inheritance and Gift Tax laws.

What are the relevant components of a unit-linked insurance contract?

The main components of a Spanish unit-linked insurance contract are the following:

Policyholder(s): investor who subscribes, signs and pays the insurance premium. Could be an individual or a company.
Insured person(s): risk element covered under the insurance contract. Could be one or several persons.
Beneficiary(ies): person or entity that will receive the insurance indemnity upon the occurrence of the insured event.
Asset manager: professional entity duly licenced in its home jurisdiction to perform portfolio management activities. The asset manager may be entrusted by the insurer to manage the financial assets on a discretionary basis under the insurance contract based on the investment strategy chosen by the policyholder at inception.
Custodian bank: financial institution which provides custodial services in relation to the financial assets held under the policy(ies).

What are the main benefits of subscribing a unit-linked product with a Luxembourg insurer?

The main advantages of unit-linked insurance policies issued by Luxembourg insurers are the following:

Asset protection: The Luxembourg authorities, and more specifically the Luxembourg Insurance Regulator, the CAA (Commissariat aux Assurances), have designed a unique scheme under which the assets of the policyholders are segregated off-balance sheet from the insurer’s and custodian bank’s balance sheet. As a result, in case of insolvency or bankruptcy of the insurer or the custodian bank, the assets of the policyholder remain fully protected from any ordinary creditors’ claims.
Confidentiality: Luxembourg insurers and its professionals are fully bound by strict professional secrecy rules which ensure full confidentiality for the policyholders and any possible beneficiaries.
Investment flexibility: Luxembourg investment rules allow for great flexibility as to the type of financial assets in which the premium contributed by the policyholder can be invested. It is not uncommon to observe how investment managers invest in alternative or hedge funds and private equity through Luxembourg life insurance policies in order to obtain higher yields.

What is the tax treatment of unit-linked products for Spanish investors?

For income tax purposes, Spanish resident policyholders are subject to Spanish Income Tax (i.e. Savings Income Tax at a marginal rate of 23%) on any gains realised in case of partial or total surrender of the policy. Only the gain element (if any) will be taxable, not the full surrender amount.

For Wealth Tax purposes, the Spanish resident policyholder has to pay Spanish Wealth Tax on the surrender value of his/her policy as of year-end. It is worth bearing in mind that the final tax liability could vary significantly depending on the region of Spain where the policyholder is resident. Indeed, some regions do apply significant tax exemptions and deductions for Wealth Tax purposes. For those investors willing to optimise Wealth Tax, it is important to mention that “unit-linked” insurance policies may offer different compliant solutions to reach this objective.

In relation to Inheritance and Gift tax, the Spanish panorama is rather complex as each Spanish region has a broad remit to exercise legislative powers in this field. That being said and broadly speaking, unit-linked insurance policies will not be subject to particular Inheritance and Gift tax rates in comparison with other financial products or assets. However, the flexibility of insurance policies as a succession planning tool allows, if correctly implemented, to plan or postpone the tax liability in full compliance with Spanish tax regulations.

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

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

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

Latin America’s sleeping giant

When it comes to Latin America, Brazil is the giant of the region. Its prominence is the result of a combination of factors such as continental dimensions, diversified natural resources, a huge consumer market and the list goes on. In the 2000’s, the economy profited from global growth and high demand for its commodities. Such prosperity came under threat in 2008 due to the global financial crisis, although the country was able to partially contain its effects. Unfortunately, Brazil did not take this commodities boom as an opportunity to tackle important issues that have been challenging sustainable economic growth for decades. Instead, it kept the same mediocre policies. It did not push forward with the necessary fiscal and political reforms, nor did it make essential investments in infrastructure.

Furthermore, the country has been gripped since the beginning of 2015 by an endemic corruption scandal that took over international headlines and reached people at the highest levels of business and politics, including former Presidents Lula and Dilma. This spreading corruption scandal has been testing Brazil’s institutional and democratic limits. As a result, many have claimed that the country underwent its worst recession. Despite hints of a recovery underway, the quality of life is not improving for Brazilians. The jobless rate is high and violent crime is on the rise due to drug-related activities and widespread police corruption. Access to quality public services such as education and health care is still a tremendous challenge. Despite its potential and greatness, Brazil is a sleeping giant intoxicated by its socioeconomic challenges and corruption affairs.

Portugal as a safe harbour for Brazilians HNWIs

Amidst the political and economic uncertainty, a Brazilian diaspora has been spreading in the past years and one of the favourite destinations so far has been Portugal. Among the attractions are great quality of life, no language barrier, cultural proximity and low cost of living. In addition, Portugal is very much in vogue nowadays and even Madonna has been extolling the delights of living in the sunshine capital of Europe! Moreover, the government has stimulated inbound mobility by creating the Golden Visa programme and the Non-habitual resident regime that have particularly attracted Brazilian HNWIs.

Once they relocate to Portugal, Brazilian HNWIs have been assessing which is the best tool to structure their wealth usually under custody in Switzerland, Luxembourg, Panama and Caribbean countries. Frequently, the main objectives of this niche of clients revolve around investment flexibility, tax optimisation and cross-border inheritance planning. Hence, quite a lot of hype has surrounded life assurance as the most popular structure to achieve such goals.

Main advantages of foreign unit-linked life insurance to beneficiaries resident in Brazil

Life assurance is a structure fully recognised and compliant in Portugal, offering great investment flexibility and a very attractive tax regime to policyholders and beneficiaries resident in the Portuguese territory. Nonetheless, as Brazilian HNWIs usually leave family members in their home country once they relocate to Portugal, it is important to highlight the advantages that life assurance might offer from a cross-border succession angle. Frequently, this type of client needs a solution that consolidates investments and simplifies international succession procedures often connected to multiple jurisdictions, which could be quite expensive and time-consuming. Given their international status, they have to have a structure that is not only efficient and compliant for family members living in Portugal but also in Brazil.

From a legal perspective, the Brazilian Civil Code foresees that death benefits arising from a life insurance contract are not considered as part of the deceased’s estate. For this reason, Brazilian beneficiaries would be able to receive the referred proceeds shortly after the life assured’s death, without initiating an international inheritance procedure. The settlement period should not exceed one month from the date of receipt by the insurance company of all the documents necessary for payment.

From a tax perspective, such proceeds would not be subject to inheritance/gift tax as the triggering event for such is the transfer of property or right resulting from succession or donation but not life insurance indemnification. Moreover, the Brazilian Income Tax Code sets out that the stipulated capital of a life insurance policy paid to a Brazilian resident as beneficiary is exempt from income tax. The Brazilian tax authorities have already recognised that such exemption also covers life insurance policies contracted abroad, as long as the Brazilian insurance mandatory characteristics regarding the regulatory aspects are duly observed. Hence, if properly designed, proceeds paid to Brazilian beneficiaries as a result of the death of a life insured in Portugal could be exempt both from income and inheritance/gift tax.

However, we must stress that a robust structure must be designed in order to avoid a tax requalification of the policy in Brazil as a typical foreign financial investment. To qualify as life insurance, the solution must guarantee an indemnification payment for future and unpredictable events and contain a reasonable death risk coverage. OneLife has experience in helping our Brazilian HNWI clients on their relocation journey to Portugal, providing them with a strong tailor-made solution that meets their personal needs and objectives. Do not hesitate to contact us in case you need help with yours.

Article by Taiza Ferreira, Senior Wealth Planner at OneLife

≠Success in ≠Relocation: great expectations of a HNW relocator

Did you know that HNWs under 35 are those most likely to expect Life Assurance to be available through an international wealth management proposition?

Life assurance is one of the core services European investors expect to be available through an international wealth management proposition.

Online banking tops the wish list for relocators wanting to manage their wealth from multiple locations tax advice is also important to internationally mobile HNWs who may find themselves subject to confusing and often conflicting tax requirements in different locations. Wealth managers must offer advice which reconciles jurisdictional differences and their clients’ tax priorities.

Click through to find out more: here.

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

≠Success in ≠Relocation: the road to relocation reality

The road to relocation reality can be a long and bumpy ride but future relocators often feel prepared ahead of their cross-border adventures.

Their expectations are evenly matched to the actual experience of their predecessors whom have already experienced the relocation journey.

Forty-nine percent of future relocators expect that they would learn about different cultures and in fact, 45% of relocators confirm that their move has indeed opened their eyes to a new realm of cultural experiences!

The harmony between the expectations and reality of HNWIs who have moved illustrates that the relocation journey can be particularly rewarding for personal development and overall quality of life.

To read more about how HNWs are faring on their relocation journey (or how they think they will fare!), click here to get the relocation e-book.

Independentism in Europe and protection of savers; the interesting answers of life insurance under freedom of services (FOS)

Scotland and Northern Ireland (United Kingdom), Catalonia and the Basque Country (Spain), Padania and South Tyrol (Italy), Flanders (Belgium), Faeroe Islands (Denmark) (1), Corsica (France) are experiencing independence movements of varying degrees of intensity.

While Scotland has implemented a popular consultation process in a constitutional framework and with the consent of the historic member state, other movements such as those in Catalonia concentrate on initiatives of a political nature outside a constitutional framework, against national and European positions with exacerbated legal uncertainty and financial instability.

The historical context, the legal framework and the state of progress of each of its movements are very different; it is virtually impossible to predict what scenarios might apply to these politically-fictional situations. At this stage, it seems unlikely that the current independence movements can be viable outside a constitutional process endorsed by the European Union and above all a negotiated solution with the historic member state, which would involve accession to the European Union in the wake of independence.

It is nevertheless interesting to see what would be the applicable standards and what mechanisms could be enforced to reduce the instability and legal uncertainty generated by these independence phenomena.

It can be noted that while supposedly the European Union does not have a role to play in these independentism processes, all aggregate European rules will remain applicable even after the possible secession(s); moreover, some existing principles and mechanisms under the applicable European rules can help to protect savers caught up in the uncertainty of secession. This is illustrated by existing rules of life insurance under the freedom to provide services of which Luxembourg has become the undisputed specialist in the European Union.

European rules expected to continue to apply despite the possible exits

(a) Given its neutrality principle (2), if these independences were to thrive at the heart of the European Union, it is not however intended to intervene and has to:

(i) maintain complete neutrality on matters concerning the internal political relations of each Member State,

(ii) ensure respect for the Rule of Law – the cardinal value of the Union and therefore not to endorse or give no effect to initiatives contrary to the constitutional order of any Member State.

(b) Another paradox is that the effective independence of a territory would not entail the automatic accession of the new State to the European Union (all Member States must unanimously vote to integrate the new state entity into the Union). However, some European Members States (and therefore the possible secessionist regions) have almost 85% of their regulations of European origin.

Consequently, even though they have become independent, these new entities would undoubtedly continue to apply this legislation by choice or by necessity, whereas there is no guarantee that they will be part of the European Union (or the European Economic Area), especially for those who would choose secession. Joining the European Free Trade Association EFTA whose members also apply European legislation (for the four main freedoms) could be an option – again, with no guarantee.

The protective mechanisms for savers resulting from the contracts taken out under the freedom to provide services

It is interesting to note that European law contains relevant principles and mechanisms addressing the financial destabilisation and the legal uncertainty triggered by these independences, particularly with regard to the protection of investors-savers.

This is particularly true for savers who have opted for life insurance under the freedom to provide services, of which Luxembourg has become the undisputed specialist in the European Union.

While these mechanisms have been created with other objectives than addressing the instability associated with the effects of independence, they remain relevant in the configuration of independence-related instability and legal uncertainty that will undoubtedly affect not only the secessionist region but also the Historic State(s) and may be even a wider surrounding geographical area.

The risks faced by investor-savers residing in the secessionist regions are essentially twofold:

(i) the risk of financial destabilisation of banking institutions located in the independent region or in the Historic State(s) resulting in restrictive measures – more or less perennial – of access to their savings; called “corralito” in reference to the severe restrictive measures of access to liquidity enacted by the Argentine authorities in 2002, a similar set of measures was applied in Greece in 2015. This risk is accompanied by a risk of a forced conversion into a devalued currency of assets whose value would undoubtedly be greatly reduced.

In this respect, the protective answers provided by life insurance under the freedom of services are remarkable:

One of the basic assets of life insurance contracts in this respect is that these life insurance investments are less likely to be subject to restrictive access measures if compared to deposits on current or securities accounts of banking institutions.

Moreover, in the case of contracts under the freedom to provide services, these assets are not located in the country taking such measures and have become the property of insurers established outside the independent region or the historic member state. A double screen that reduces the exposure of contracts to such restrictive measures.

Additionally, the payment of partial surrenders of life insurance contracts can be envisaged on policyholder’s deposit accounts located in the European Union but outside the geographical area impacted by the secession (and preferably with banks that are not conducting business or are not licensed in the secessionist region).

In addition, the more specific assets of the Luxembourg life insurance are:

benefiting from the stability and reliability of insurers based in Luxembourg
designating a custodian bank located in a country distinct from that of the policyholder’s residence (or the country of origin or surrounding geographical area that could be destabilised) offering guarantees of stability and robustness
benefitting from the segregation/cantonment of assets that are recorded off-balance sheet of the bank
benefitting from protection of assets which cannot in principle be subject of seizures, forced pledges…

(ii) The serious legal uncertainty arising from a secession insofar as the newly applicable normative framework should either be constructed from scratch or more likely derived from a hybrid creation based on European rules and new measures put in place by the new independent entity.

Here as well the life insurance under the freedom of services offers reliable solutions:

In the case of life insurance contracts taken out under the freedom to provide services, this insecurity could be countered by the option open by European law of choosing as applicable law the law of the policyholder’s nationality; originally created to protect migrant European workers, exercising this option (at inception or in case of secession) would undoubtedly allow the nationals of the Member State remaining resident in the new independent entity to have applied a set of familiar standards (the option exercise during the life of the contract should be possible as long as third party’s rights are not challenged which should not be the case with a return to the originally applicable law or similar).

In addition, the life insurer acting under the freedom to provide services remains subject to the supervision of its local regulator and to the rules governing the eligibility of assets according to the insurer’s law. This also removes a significant part of the legal uncertainty created by independence.

It is of course possible for the independent entity to invoke the protection of its public policy (ordre public) in order to take more restrictive measures (asset freezes, seizures, etc.) that may affect the assets, contracts or accounts of savers: but because there would be no international recognition, such a public policy is unlikely to materialise; moreover it would undoubtedly result in litigation especially if measures are in the long term and contrary to the savers’ interest protection.

As noted in the introduction, the secession movements are very unlikely to succeed if they are not taking place in a constitutional process backed by the local state authorities and the European Union; however, when subscribing a life insurance policy, it’s worth thinking about the benefits that the existing European regulation and mechanisms can bring to the policyholder as a saver in terms of financial stability and legal security; the life insurance contract subscribed under freedom of services – of which Luxembourg is the undisputed leader – can address most of the risks triggered by separatist activism and more generally by local financial turmoil, political instability and related legal uncertainty.

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

(1) The Danish Faroe Islands are not part of the European Union

(2.) Article 4 para. 2 European Union Treaty: The Union respects the equality of the Member States before the Treaties and their national identity, inherent in their fundamental political and constitutional structures, including local and regional self-government. It respects the essential functions of the State, in particular those whose purpose is to ensure its territorial integrity, to maintain public order and to safeguard national security. In particular, national security remains the sole responsibility of each Member State.

≠Success in ≠Relocation: out with the old and in with the new

The modern wealth manager must provide more than just a strong relationship with their clients. To retain their relocator clients, wealth advisers will need to have the right knowledge to satisfy their client’s international requirements and objectives.

Notably, we discovered that high-net-worth individuals under 35 are the most likely to change their wealth manager following a move abroad.

Disloyal? Unattached?

Not necessarily – many of these millennial magnates simply feel their home-based primary adviser would not be able to fully grasp the complex nature of their international aims. Interestingly, 65% of relocator Baby Boomers are not likely to change their wealth manager. They worry initiating a new relationship abroad will never match the relationship they currently have.

Find out more in our recent thought leadership report: “≠Success in ≠Relocation: The Relocation Journey.”

Marc Stevens and Wim Dieryck, respectively CEO and CCO of OneLife, discussed the question of the future of distribution for life assurance at a conference organised by Wolters Kluwer.

OneLife was sponsor of the 5th edition of the BIC (Belgian Insurance Conference) organised by Wolters Kluwer at the Aula Magna in Louvain-la-Neuve, Belgium, on 21 November with almost 500 participants.

Marc Stevens and Wim Dieryck, respectively Chief Executive Officer and Chief Commercial Officer of OneLife, also presented on the subject of « Digitalisation and personal advice, the future of distribution for life assurance ».

The speakers’ biographies, the full programme as well as the photos of the event are available on https://belgianden -insurance-conference.wolterskluwer.be

≠Success in ≠Relocation: the playbook of international wealth

European HNWs know what they want – especially when it comes to their wealth management. Trust, security and stability are indispensable. And these attributes become even more important for HNWs living in new countries with different tax laws.

To understand their preferences further, we asked relocators and non-relocator European HNWs which capabilities they believe are or would be necessary as part of a wealth management proposition. Quality of service came out on top for both these groups as the most important factor when working with a wealth firm.

Interestingly, the wealthy wanderers of the world also tend to seek out digital offerings much more than their peers who decide to continue living in their country of origin. In contrast, non-relocators seek to work with firms who provide high quality investment performance monitoring services.

Delve into the data even further by clicking: here.

OneLife’s year-end Digital Fireworks!

In 2016, OneLife embarked on a digital transformation journey making it one of the early movers in an area where man and machine are increasingly interacting to improve customer experience. Since then, a number of initiatives have been delivered as per the roadmap, with still more to follow in the coming months and others in the proof of concept stage due for early 2018.

Launching its Digital Days in June 2017 to fully engage employees in the transformation process, the Digital Days Breakfast on 30^th November is the opportunity to highlight the year’s achievements and set out the initiatives to come. Employees across departments at OneLife are involved in implementing digital innovation to improve the experience of partners and clients and in so doing learn the techniques which will allow them to compete in tomorrow’s world.

Training and development at OneLife has also gone digital with the introduction in September of the Lynda.com learning platform from LinkedIn. This tool, offering over 10,000 e-courses, actively encourages employees to learn on a regular basis across all disciplines with certification awarded to acknowledge completion.

Once upon a Digital year – what’s been done?

Data aggregation

OneLife worked closely with Harvest, the leader in France in data aggregation, to offer their mutual independent financial advisors in France this new service, the advantage of which is to provide an overall view of portfolio positions for each of their clients. This initiative is part of a comprehensive digital approach to which other data aggregation initiatives will be added. OneLife is now able to fully support the Penelop format so allowing us to extend our partnership with other market aggregators over the coming weeks. In addition, OneLife recently put a B2B service in place enabling our partners to log on in real time to our platform to view all the information available on their respective portfolio.

The project was delivered in record time thanks to the particularly fruitful collaboration between OneLife and Harvest enabling the new flows to be taken on to further extend the integration of the Luxembourg contracts in O2S. Making the flows available is part of a legal and technical mechanism which guarantees integrity and confidentiality of the personal data (data masking, secure file transfer protocol, cryptographic communication, authentication key, etc.)

Automation of standard processes

Identifying the stages in a well-mapped process which can be done just as well by automated means – and even enhanced in terms of time, accuracy and reporting – is a key area of the firm’s focus. The automation of parts of the OneLife service workspace is just one example. Generating automatic emails to confirm transactions, request missing documentation and manage life policies effectively leaves the company’s Customer Services team with more time on their hands to deal with more complex live customer queries – and so better manage the relationships with their valued partners and clients.

Once upon a Digital year – what’s just around the corner?

A number of other digital initiatives are due for release in the coming weeks.

For the 2017 year-end portfolio statements, the firm is putting in place Dematerialisation, a process which allows the policyholder and his intermediary to view statements directly on the firm’s secure portal, youroffice yourassets instead of in paper form by post. The pdf may be downloaded and stored as appropriate for future reference. The dematerialised statement has the same legal value as the paper form. Efficiency, security and speed are all watchwords of this new paperless process.

Accelerating the client on-boarding process through the automation of KYC and AML checks has been through the test-drive stage at OneLife and is about to be launched. RegTech, or Regulation Technolgy as it is widely known, provides the Compliance team with a powerful technology tool to run the checks and then revert with a recommendation. The team can then intervene to run further checks and/or on-board the clients so significantly speeding up the process from the days when all stages were manual. OneLife partnered with KYCTech, a Luxembourg start-up company, to establish a Proof of Concept for the platform. The service will be implemented in February.

OneLife launched the OneLife OneApp for its partners in Belgium in 2016. It was then made available to the rest of its partner base in August 2017. The next step is to offer it to all OneLife clients from December. The App offers real-time access to portfolios on-line in a secure environment, as well as the ability to track operations and outstanding items. OneLife partners and clients can be sure that their portfolios move with them and are accessible 24/7!

As the final piece in the digitalisation of its on-boarding and service offering, OneLife will introduce an electronic signature capability in the first quarter 2018. The new service will allow partners and clients with access to youroffice, yourassets to sign digitally, eliminating the time-consuming process of physical signatures on switches and top-ups in a first phase and other operations in later stages.

Once upon a Digital year – what’s for next year?

OneLife is also innovating in the area of RPA (Robotic Process Automation). A number of Bots have been launched in 2017 and are already serving the business. A larger scale deployment is planned for 2018.

As a digital front-runner, OneLife is using its internal AGILE approach to identify and implement change across the organisation fast. From concept to delivery, the firm’s digital transformation is not just a promise but a reality. Watch this space for more!