The civil law company: A tax vehicle, too much ignored

Agenda

A.- Legals                                                                                                                 

(i) Definition - universal or specific civil law companies                                                                                

(ii) Liability                               

(iii) Formation - Private or legal entities                                                              

(iv) Management and reportings

B.- Fields of a practical utilization

C.- Direct taxation on revenues                               

(i) Generalities                                                                                              

(ii) As regards Luxembourg residents                                       

(iii) As regards residents who do not reside in Luxembourg    

(iv) Cases to be bewared of

D.- Duties on non-direct taxation 

(i) Conferrals on contribution 

(ii) Assignation and transfer of units   

(iii) Duties on transferals of real property                                                                                            

(iv) VAT rules

E.- Suggestions and practical example

A.- Legals     

(i) Definitions          

The civil law company (hereafter CL) is submitted to the rules of the civil law code. Since 1804, only a very few amendments have been brought to articles 1831 through 1873 of the same code. The CL enjoys quite some flexibility for not being subject to boaring formalities and for not being over-regulated, happily. The essentials read in article 1832 (as amended on December 28^th 1992) which article stands also as the basic definition for almost all of our existing companies, where of which the corporations under commercial law: Quote “ A company may be formed in between two or more persons who mutually agree to concentrate among themselves certain goods for the purpose of sharing the profits which may result there from, or in such events as are provided for by law according to the free decision of that person who confers goods in view of a specific activity.” Unquote

To make a distinction between universal CL’s to which the associates confer all their goods, and those which are specific CLs to which the associates confer only specific valuables in view of managing the same purpose bound to generate profit. Our today’s topic does only revert to these specific CL companies.

(ii) Liability

CL’s are private companies, where the personality of each associate is of the essence, this being opposed the joint stock corporations which are divided by shares or units, the latter being held by persons or entities which are not necessarily known and acquainted to each other. Consequently the associates of a CL are directly committed as a private person, and not as a result of a participation in an anonymous capital. Thus these associates remain the so to say owners of the goods which they did confer to the CL, in a way that the profit is directly allotted to them personally, hence also the losses.

The fiscal consequences thereof are essential.

(iii) Formation: Private or juridical persons

A Luxembourg CL does acquire by law the status of a legal personality. It may act in its own corporate name, in any events whatever, including actions in court. This rule is outlawed in certain other countries. Astonishingly a Luxembourg CL may be formed either by private persons but also by legal entities even if the latter ones were joint stock entities. The formation of a CL company by a mixed ownership of private persons acting together with legal entities is not set aside by law.

Our legal rules are such that the founders of a CL may be of Luxembourg or of foreign citizenship.