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Life insurance: a real opportunity for the cash management of Luxembourg legal entities

Cash management is a key factor in a company’s development strategy. In order to consider an optimal and long-term management, there are several alternatives available within the Luxembourg financial marketplace. However, life insurance, as a solution, is often overlooked, even though it offers significant advantages for legal entities. In this Expert interview, Christian Heinen, Country Manager Luxembourg, explains how life insurance can be used as an effective cash management tool.

What is your role at WEALINS?

I have been Country Manager Luxembourg at WEALINS for more than 15 years. Trained Tax Accountant, my job is to help partners find the best solution for their clients. For the past two years, I have been focusing on helping partners and their legal entities clients managing their cash flow, as this represents a real opportunity for the client.

I work to educate partners about the advantages of life insurance for their legal entities clients.

Christian Heinen, Country Manager Luxembourg

What are the specific characteristics of Luxembourg legal entities and what are their needs in terms of cash management?

When mentioning fully taxable legal entities, we are referring to a legal personality, such as a Soparfi established in Luxembourg, for example. What’s specific to those structures, is that they need to be able to ensure their financial durability. Not only are they looking for investment strategies enabling them to grow their cash, but they also have a need for protection, in order to guard against potential financial setbacks in the event of the loss of their director, for example.

In this context, choosing the right investments strategies is a key part of their development strategy. Surrounding themselves with a specialised asset manager while maintaining an optimal and secure legal and fiscal framework is also essential to enable effective long-term cash management.

Which solutions do Luxembourg legal entities usually opt for?

I note that Luxembourg legal entities are more inclined to opt for traditional banking products. However, these products do not offer the protection and tax advantages of life insurance.

It is clear that there is a lack of awareness of life insurance as a tool for meeting, among other things, the protection and cash management needs of Luxembourg legal entities.

explains Christian Heinen

Why is life insurance a suitable solution for this type of clients?

First of all, the subscription of a life insurance or capitalisation contract will enable the legal entity to benefit from the advantages of the Luxembourg life insurance. Indeed, the contract, as a savings tool, will allow cash to grow over the long term while the assets are secured within the contract, thanks to the mechanism of the Luxembourg “security triangle” that offers an unrivalled level of protection.

Secondly, the life insurance contract happens to be an indispensable complement to the “key man insurance”, as it allows to add a death coverage. In that respect, an insurance benefit is guaranteed in the event of the death of the insured director, and the company avoids financial losses that are often substantial.

With traditional cash management via a banking product, these two types of cover are non-existent.

Last but not least: cash management through a life insurance or capitalisation contract will offer a number of tax-related advantages for companies. Indeed, the capitalisation contract, just as the life insurance contract, will enable the calculation of the corporation tax (“Impôt sur le Revenu des Collectivités” – IRC) and of the municipal business tax (“Impôt Commercial Communal” – ICC). The subscription of a life insurance contract will offer, in addition, a death coverage as well as other benefits that have an impact on the tax base. These possibilities should be analysed in more detail by contacting WEALINS: our experts will help you to assess the potential savings that the client can achieve.

By subscribing to a life insurance contract, the legal entity gains access to advantages in terms of asset protection, potential death coverage and tax benefits.

emphasises Christian Heinen

Could you share an example of a legal entity that WEALINS has supported? 

We have supported a partner whose client was a Soparfi. The holding had a cash position of 10 million euros and wanted to invest it.

The first stage of our support was the analysis of the structure by our multidisciplinary team of experts. We carried out a complete review of the assets, the participations of the Soparfi, its Articles of Association and its commercial activity.

This exercise enabled our wealth planner team to perform a simulation: the aim was to assess what advantages in terms of savings, taxation and protection WEALINS could offer the client, depending on its objectives and situation.

Based on a 10-year investment, the result of the simulation was unequivocal: by simply subscribing to a life insurance contract with WEALINS, the legal entity was able to make a potential gain of half a million euros, which corresponds to 5% of the capital invested (compared to not subscribing a contract).

We also ensure regular follow-up with the partner in order to provide long-term support that meets the client’s future needs, particularly in terms of portability and estate planning.

By subscribing to a life insurance contract, the company not only realises a gain that will in turn be capitalised, but also saves tax and benefits from the advantages of life insurance in terms of capital protection.

concludes Christian Heinen

To know more about the support offered by WEALINS for your legal entities clients, Connect with our Experts.

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