What future for domiciliations in Luxembourg?

by Laurence Bervard

In an exclusive interview, the CEO of Alter Domus, Laurent Vanderweyen explains why Luxembourg is an ideal centre for foreign players to domicile their investment structures and why he is optimistic for the future.

Your company has attracted a lot of attention because of domiciliations…

Domiciliation is not the standard activity that we do, it is part of a broader value proposition that we offer to clients in addition to other services like accounting, reporting, tax compliance or other corporate services. A client cannot pay to have his address here and have no administrative activity with us. Domiciliation, as it is implemented in some European countries, cannot be compared to how it is carried out in Luxembourg. Here, there are no so-called letterbox type companies. Saying that we provide that type of activity is a misjudgment. If that was the case we wouldn't need 550 employees in Luxembourg.

Is domiciliation the main interest for your clients?

For the majority of companies, domiciliation is not the main driver of why they come to us and we don't provide domiciliation to all our clients. Domiciliation only represents 4-5% of our total revenue. Less than one third of the Luxembourg companies to which we provide services are domiciled with us. Domiciliation in Luxembourg doesn't make sense for all types of companies and really depends on the company strategy.

Is domiciliation linked to tax rulings?

No. Only a small portion of our clients is interested in tax rulings. This applies to the companies that need long-term tax predictability. This is to avoid the “good investment deal” today that becomes a “bad deal” tomorrow. However, it can't be said that companies are able to negotiate the amount of tax that they will be paying with the tax administration of a specific country. There is no negotiation.

Do you do tax rulings yourself or will you work with PwC in that matter?

No, we don't do tax rulings and we don't provide any legal advice on that matter. If a client is interested in rulings, he needs to engage a tax advisor.

How can you avoid fraudulent activity by companies domiciled at your address?

We have a very strict policy for client acceptance. We look at the underlying business and assess the nature of the company- structure to ensure that all legal requirements are fulfilled at all times and that our clients respect good corporate governance.

If your clients don't come to Luxembourg for the fiscal advantages or to be domiciled here, what do they come for then?

Clients that seek our services are interested in cross-border activities. They all deal with international investors and need us to accommodate the complexity of dealing with an international investor base looking in turn to invest in international assets using a Luxembourg platform. Because of its characteristics, Luxembourg has developed the necessary expertise for supporting such cross border investment strategies. Luxembourg is heavily dependent on international activity. This is why it now has so much expertise in cross-border relations and it provides a stable environment to do so.

Several clients have more than one holding in Luxembourg…

This platform is used to diversify the risk. Let's take the example of a real estate manager. If he has 250 properties, each property will have its own structure of investment and therefore its own holding. He might own a logistics center in Germany, a shopping mall in the UK, condos in Spain. That one client will have 250 intermediary holding companies. That however doesn't mean that all these holdings would necessarily be domiciled in Luxembourg. Many of our clients have holdings in different countries.

How can a company of 550 employees handle 1600 domiciliations?

Some of our clients have their own employees in Luxembourg. Through Alter Domus there are no services provided to entities with commercial operations but there is a significant amount of corporate administration and accounting activity at the level of the intermediary structures.

What is the activity that actually takes place though Alter Domus?

Alongside the accounting services already mentioned, employees are in charge of corporate secretarial work, including preparing board meetings for the companies. All of them take place in Luxembourg and this is where all important decisions are taken from. Our clients come here at least on a quarterly basis.

How will the automatic exchange of ruling announced by Pierre Gramegna impact your industry and domiciliation?

We don't see that this will have a negative impact on our industry. Luxembourg will continue to stay attractive for the funds and corporate services industry. Luxembourg is the number 2 in the world for funds and it has taken the country nearly 30 years to build up this expertise. Other countries have only started this expertise more recently and it will take them some time to catch up, if ever. Between 2008 and 2012, the Luxembourgish funds industry has increased by 14% each year, whereas domiciliations have increased by only 1%. As long as companies have an international strategy and target international investors, Luxembourg will be a platform of choice.

Do you see any risks for the future?

On the risk side, notwithstanding the essential role domiciliation plays, there is a risk that this is not fully enough understood and that inappropriate rules and regulations are introduced which would limit its use and ultimately adversely affect returns to end investors. There is therefore a need for the industry and policy makers to work closely together on a European basis to ensure that investors do not end up being the losers in this process.

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