During a discussion at an event organized by KMC Finance last June, Sylvie Bertholet, Wealth Planner Manager at Allianz Life Luxembourg, highlighted a wealth management solution that remains largely unknown: unit-linked life insurance for legal entities under Luxembourg law. A relevant alternative to traditional banking tools, particularly for companies with long-term cash reserves to optimize.
While companies rarely include this type of contract in their investment portfolio, it nevertheless offers significant advantages in terms of flexibility, protection, and accounting simplicity.
Optimized tax and accounting treatment
The unit-linked life insurance contract constitutes a fixed asset valued at acquisition cost. It offers the advantage of consistent tax and accounting treatment: unrealized gains are not taxable, while losses may be recognized at each financial statement date and remain tax-deductible. In the event of surrender, any capital loss remains deductible for the policyholder, and the recognized proceeds are taxable at the aggregate rate, subject to available tax loss carryforwards.
From an accounting perspective, simplicity is also a key feature: the contract is recorded on the balance sheet as a single line item, making it easier to read and manage. The absence of friction between the accounting and tax dimensions represents a rare advantage.
Legal certainty and absence of reclassification
Another advantage of the Luxembourg mechanism: the protection offered by the “safety triangle,” unique to the Luxembourg financial center, ensures a strict separation between the policyholder’s assets, those of the insurance company, and those of the custodian bank. This structure offers a high level of security in the event of a default by one of the parties.
The policyholder holds neither legal nor economic ownership of the underlying assets, which remain within the insurance company’s scope. Therefore, the policyholder should not be subject to taxation on the profits derived from these assets.
For wealth tax purposes, the surrender value is generally valued at two-thirds of the premiums or capital paid in, or at the surrender value if it can be demonstrated, which presents a significant advantage in terms of long-term profitability.
A well-defined regulatory framework: DAC 6 and ATAD 3
Sylvie Bertholet also highlights the appeal of the policy in a demanding regulatory environment. The policy should not trigger any reporting obligations under the March 25, 2020 law on cross-border arrangements (DAC 6), and the insurance company is generally outside the scope of the ATAD 3 directive.
From the policyholder’s perspective, the absence of any foreign element reinforces the argument that the policy is not subject to ATAD 3 either. The policy can therefore be part of a compliance strategy without unnecessary administrative burden.
A tool that is still little known, but perfectly suited to long-term cash management
This type of contract is intended for companies with stable cash flow seeking sustainable and profitable solutions. It is flexible enough to incorporate various management pools, investment vehicles, and custodian banks, including those located outside the EEA. The contract is supervised by the Insurance Commission, with a tripartite agreement and regular audits of the asset register.
Finally, it may include a death benefit, giving it a function similar to that of a “key person” policy in certain scenarios.
The Luxembourg unit-linked life insurance contract offers companies a tool that is simple, secure, and effective for structuring their long-term cash flow. It deserves special attention from executives, tax advisors, and accountants who assist these entities with their asset allocation decisions.
