VANDENBULKE new ways of thinking law in Luxembourg
LUxEMBOURG INVESTMENT VEHICLES A PRACTICAL GUIDE
SOPARFI / SICAR / SIF / SECURITISATION
VANDENBULKE RATING OF LUXEMBOURG INVESTMENT VEHICLES The following investment vehicles are rated according to their appropriateness for different types of investment transactions. This rating is based on several criteria including the legal and management constraints, the type of assets invested, the tax regime or the exit strategies.
Types of Investment objectives and transactions considered Real Estate: acquiring, directly or indirectly, and managing one or several real estate properties. Private Equity: Investment , directly or indirectly, in a limited number of companies with financial leverage and exit strategy. Portfolio Management: managing financial assets . Estate Planning: organising its assets for management and estate planning purposes. Other: any other relevant purposes for which the investment vehicle may be appropriate.
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Recommended Appropriate Convenient Inadequate
Real Estate Private Equity Portfolio Management Estate Planning Other
SOPARFI
SICAR
SIF
Securitisation SPV
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Commercial
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None
Investment in any assets
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Investment in all types of risk
Abbreviations CPA
Luxembourg Certified Public Accountant or Réviseur d’Entreprises registered in Luxembourg
SCS
Société en Commandite Simple (Limited Partnership)
CSSF
Commission de Surveillance du Secteur Financier or Commission for Supervision of the Financial Sector (Luxembourg regulatory authority)
SIF
Specialised Investment Fund
DTT
Double Tax Treaty The updated list of Luxembourg DTT can be consulted on the website www.vdbtrust.com
SICAR
Société d’investissement en capital à risque (Investment Company in Risk Capital)
NAV
Net Asset Value
SNC
Société en Nom Collectif (Unlimited Partnership)
SA
Société Anonyme (Public Limited Liability Company)
SOPARFI
Société de Participations Financières
PSF
Luxembourg Professional of the Financial Sector subject to the CSSF supervision
UCI
Undertaking for Collective Investment
SàRL
Société à Responsabilité Limitée (Private Limited Liability Company)
WHT
Withholding Tax
SCA
Société en Commandite par Actions (Corporate Partnership Limited by Shares)
Salient features considered for VANDENBULKE’s rating Eligible investments
Refers to the type of assets an Investment Vehicle may invest into as well as the specific restrictions which may apply.
Eligible investors
Refers to the level of investor sophistication required for investments in the Investment Vehicle.
Umbrella structure
Refers to the possibility for a vehicle to invest in a number of segregated portfolios of assets and liabilities. In this event, Luxembourg regulation provides for ring-fencing protection in the event of liquidation or bankruptcy.
Financing
Refers only to the type of financing available (e.g. shares, notes, PECs, etc.) and the debt/capital ratio if any. Financing requirements or restrictions dependent on the legal form of the Investment Vehicle (e.g. SA versus SàRL) are not addressed.
Regulated (CSSF)
Refers to the supervision by the CSSF, which usually implies an approval of the Investment Vehicle and its various features as well as certain reporting requirements to the CSSF (e.g. filing of the financial statements and issuance documents).
Other regulatory aspects
Refers mainly to an intervention of a CPA beyond general corporate law provisions (e.g. for the valuation of assets) and to the requirement that other parties to the transaction be subject to regulatory supervision (e.g. the requirement that the depositary be a regulated entity).
Asset valuation
Refers to the method used to assess the value of the assets of the Investment Vehicle (e.g. at cost versus fair value).
Publication requirements
Refers to the obligation to make certain information available to the investors i.e. publication of financial report or a prospectus on the securities issued by the Investment Vehicle. Only obligations dependent upon the type of Investment Vehicle are considered irrespective of its corporate form (SàRL, SA).
Legal forms
Refers to the corporate or unincorporated forms available to the Investment Vehicle. The most frequent corporate forms are the SA, the SCA and the SàRL as opposed to the partnership or common fund form (FCP).
Fixed or variable share capital
Fixed share capital is the general principle under corporate law. The share capital is variable when the amount of share capital is equal to the net asset value of the company at all times. Under this regime, new shares can be issued at any time (in accordance with the articles of incorporation).
Taxation of the Investment Vehicle
Refers to taxes applicable to the Investment Vehicle: (1) income tax, (2) WHT on distributions, (3) subscription tax, (4) capital duty, (5) wealth tax and (6) VAT.
Taxation of investors
Refers to taxes applicable to investors. Taxation is reviewed in respect of (i) Luxembourg resident investors and (ii) Luxembourg non-resident investors (corporations only).
Specific Definitions EU Tax Directives
The EC Parent-Subsidiary Directive, the EC Interest Royalty Directive and the EC Merger Directive.
Institutional Investors
Entities managing for business purposes substantial amount of financial assets e.g. banks, insurance companies, pension funds, multinational industrial groups.
Professionnal Investors
Entities subject to authorisation or supervision to carry out their activities. Are also included entities reaching certain thresholds in terms of turnover, equity or staff.
Qualifying Participation
A shareholding (i) of at least 10% in the share capital of a company subject at least to half of the Luxembourg corporate tax rate (ii) which has been held (or is commited to be held) for 12 months. Dividends received from or capital gains realized on this participation are tax exempt in Luxembourg. The 10% threshold can be substituted by a fixed amount (€ 6 M for capital gains and € 1.2 M for dividends).
Well-Informed Investors
Investors who state in writing that they have sufficient knowledge and experience to understand and bear the risk of their investment and either (i) invest a minimum of €125,000 or (ii) produce an assessment made by a regulated financial institution that they have the expertise, experience and knowledge to appraise the risk of their investment.
SOPARFI or Société de Participations Financières or Holding Company Eligible investments
Financial participations in other undertakings. It may be used for real estate and trade purposes as well. No investment restrictions and no risk-spreading requirements.
Eligible investors
No restrictions. Investors do not need to be sophisticated.
Umbrella structure
No, SOPARFIs cannot be set up as umbrella structures. However, they can issue tracking shares reflecting the performance of their different investment programs/strategies.
Financing
A SOPARFI may be financed through a wide variety of equity, debt and hybrid instruments. It can also leverage its investments by borrowings. It must comply with a 85/15 debt-to-capital ratio with the view to avoid adverse tax consequences. These consequences may be mitigated through adequate structuring.
Regulated (CSSF)
No.
Other regulatory aspects
None.
Asset valuation
Assets are valued at cost and no reevaluation at fair market value is required. Assets value may be written down if a loss is foreseeable and durable.
Publication requirements
The publication of a prospectus is not required, unless for listing or public offering purposes. A SOPARFI may be exempted from drafting consolidated financial statements on a case-by-case basis.
Legal form
A SOPARFI may be set up as SA, SCA, SàRL, SCS, SNC or civil company.
Fixed or variable share capital
Only fixed share capital is possible. New shares can be issued by a decision of the General Meeting of Shareholders or by decision of the Board (if provided by the articles of a SA or SCA). Shares can be issued at any value and partly paid-in (up to 25% for a SA and a SCA but fully paid-in for a SàRL). The redemption of shares beyond 10% of the share capital is authorized.
Taxation of the Investment Vehicle >
Income tax
WHT on distribution to investors
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The standard corporate tax rate applies. Dividends and capital gains derived from Qualifying Participations are exempted. There is no WHT on royalties, interests or liquidation proceeds paid by the SOPARFI. Dividends are subject to a 15% WHT, unless the beneficiary holds a Qualifying Participation in the SOPARFI. Reduced rates are available under DTTs.
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Subscription tax
None.
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Capital duty
None.
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Wealth tax
0.5% on the net assets computed as of 1 January. However, under certain conditions, exemptions or reductions of wealth tax are available for a Qualifying Participation or by creating a dedicated accounting reserve.
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VAT
A SOPARFI qualifies as a taxable person for VAT purposes in respect of its activities other than passive shareholdings.
DTT and EU Directives
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SOPARFIs fully benefit from the Luxembourg DTT network and the EU Tax Directives (without restrictions).
Taxation of investors > Luxembourg
resident investors (Corporations only) Luxembourg nonresident investors
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Dividends received are generally 50% exempt. Interest and capital gains are taxable at the standard corporate tax rate. Full tax exemption may be available for Qualifying Participations. In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of DTTs limits however any taxation in Luxembourg.
SICAR or Société d’Investissement en Capital à Risque or Investment Company in Risk Capital Eligible investments
Only investments in risk capital securities are permitted, i.e. the direct and indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange. Characteristics of the investments include (i) a high risk (ii) the development of the targeted investee and (iii) a clear exit strategy. Investments in real estate and other investment vehicles are allowed provided they meet the risk capital requirements. Riskspreading is not required (investment in one sole target allowed).
Eligible investors
Only sophisticated investors may invest in a SICAR i.e. (i) Institutional investors, (ii) Professional investors and (iii) Well-Informed investors.
Umbrella structure
A SICAR may be set up as an umbrella structure with independent compartments.
Financing
SICARs may be financed through a wide variety of equity, debt and hybrid instruments. The subscribed share capital must reach €1 million within 12 months of the CSSF authorisation.
Regulated (CSSF)
Yes, SICARs must be authorised by the CSSF before they start their activities. Process review includes mainly approval of the constitutional documents (prospectus/PM, articles of incorporation/partnership agreement), directors/managers, choice of depositary and CPA, and SICAR’ service providers agreements.
Other regulatory aspects
SICARs remain subject to light CSSF regulation until liquidation. The depositary bank must be a Luxembourg credit institution and the central administrator a PSF. Annual financial statements must be audited by a CPA who can be required by the CSSF, under certain circumstances, to specific reporting.
Asset valuation
Assets are valued at their fair value.
Publication requirements
A prospectus must be made available to investors enabling them to make an informed assessment of the investment. No specific lay-out or minimum content applies. The NAV must be made available at least twice a year to investors who request it.
Legal form
The SA, SCA and SàRL corporate forms and the SCS contractual form may be used. The FCP form is not allowed.
Fixed or variable share capital
The share capital may be fixed or variable. Each share must be paid-in up to at least 5% (with the exception of SICARs set-up under the SCS form).
Taxation of the Investment Vehicle >
Income tax
WHT on distribution to investors
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The standard corporate tax rate applies, but all profits derived from risk capital securities (dividends, capital gains, interests as well as profits derived from cash funds to be invested in risk capital) are exempted. No WHT on dividends or liquidation proceeds. No WHT on interest payments, except in limited cases under the EU Savings Directive.
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Subscription tax
None.
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Capital duty
None.
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Wealth tax
Exempt.
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VAT
Qualifies as taxable person for VAT purposes. The provision of management and administration services to SICARs may be VAT exempted.
DTT and EU Directives
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In principle, SICARs benefit from the Luxembourg DTT network and the EU Tax Directives.
Taxation of investors >
Luxembourg resident investors (Corporations only)
Dividends received are generally 50% exempt. Interest and capital gains are taxable at the standard corporate tax rate. Full tax exemption may be available for Qualifying Participations.
Luxembourg nonresident investors
In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of DTTs limits however any taxation in Luxembourg.
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SIF or Specialised Investment Fund Eligible investments
No restrictions. Hence it may invest in real estate, private equity, derivatives, listed companies or other investment vehicles (fund of fund structure) or any combination thereof. A SIF must aim at spreading its risk either directly or indirectly (in principle, investment in same securities of same issuer cannot exceed 30% of the SIF’s assets). Derogations can be granted by the CSSF on a case-by-case basis and after CSSF assessment.
Eligible investors
Only sophisticated investors may invest in a SIF i.e. (i) Institutional investors, (ii) Professional investors and (iii) Well-Informed investors.
Umbrella structure
A SIF may be set up as an umbrella structure with segregated portfolios of assets and liabilities.
Financing
SIFs may be financed through a wide variety of equity, debt and hybrid instruments. The subscribed share capital must reach €1.25 million within 12 months of CSSF authorisation.
Regulated (CSSF)
Yes. A SIF must be authorised by the CSSF. However, the application for such authorisation can be made within one month after its establishment. Process review includes mainly approval of the constitutional documents (prospectus/PM, articles of incorporation/partnership agreement), directors/managers, choice of depositary and CPA, and FIS’ service providers agreements. Neither the investment manager nor the promoter of the SIF is subject to CSSF approval.
Other regulatory aspects
SIFs remain subject to a light CSSF supervision until liquidation. The depositary bank must be a Luxembourg credit institution and the central administrator a PSF. Annual financial statements must be audited by a CPA who can be required by the CSSF, under certain circumstances, to specific reporting.
Asset valuation
In principle, assets are valued at their fair value, unless otherwise provided in the articles of incorporation or the management regulations.
Publication requirements
A prospectus must be made available to investors enabling them to make an informed assessment of their investment. No specific lay-out or minimum content applies. The NAV must be made available to investors once a year.
Legal form
Corporate forms (usually SA, SCA or SàRL) and contractual forms (SCS, SNC, civil company) are available. The SIF may be structured as a FCP.
Fixed or variable share capital
A SIF may be set up either with a fixed or variable share capital. Each share must be paid-in up to at least 5% (with the exception of SIFs set-up under the following forms: SCS, SNC or civil company).
Taxation of the Investment Vehicle >
Income tax
WHT on distribution to investors
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Exempt. No WHT on dividends or on liquidation proceeds. No WHT on interest payments, except in limited cases when the SIF is structured as a FCP.
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Subscription tax
0.01% p.a. calculated on the NAV of the SIF or its compartment/sub-fund. Exemptions are available in limited cases.
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Capital duty
None.
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Wealth tax
Exempt.
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VAT
SIFs qualify as taxable persons for VAT purposes. The provision of management and administration services to SIFs may be exempted.
DTT and EU Directives
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SIFs benefit partially from the Luxembourg DTT network but do not benefit from the EU Tax Directives.
Taxation of investors >
Luxembourg resident investors (Corporations only)
Dividends and capital gains are taxed as ordinary income. Interests are generally taxed as ordinary income.
Luxembourg nonresident investors
In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of some DTTs may limit any taxation.
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Securitisation Vehicle Eligible investments
Any financial assets, claims, securities, real estate, insurance contracts and more generally any type of risk.
Eligible investors
No restrictions.
Umbrella structure
Yes. The law allows creating independent compartments or sub-funds with ring-fencing characteristics.
Financing
A securitisation vehicle may be financed through a wide variety of equity, debt and hybrid instruments. It can also leverage its investments by borrowings.
Regulated (CSSF)
No. Unless the vehicle issues securities (i) to the public (ii) more than 3 times a year. If either condition is not fulfilled, the vehicle is not subject to CSSF supervision.
Other regulatory aspects
The financial statements must be audited by a CPA. If the securitisation vehicle is CSSF regulated, the CPA must be approved by the CSSF.
Asset valuation
Assets may be valued at their mark-to-market value or probable realisation value. In addition, the securitisation companies (as opposed to securitisation funds) may value their assets in accordance with the lower of cost or market principle.
Publication requirements
No obligations specifically related to the qualification as securitisation vehicle.
Legal form
Securitisation vehicles usually take a corporate form (most used are the SA, SCA and SàRL). Securitisation funds may be set up either as a co-ownership or as a fiduciary property structure.
Fixed or variable share capital
Only fixed share capital is possible. Shares can be issued at any value and partly paid-in (up to 25% for a SA and a SCA but fully paid-in for a SàRL). Capital increases of securitisation corporations are made pursuant to general corporate law provisions, including the authorised capital technique.
Taxation of the Investment Vehicle >
Income tax
WHT on distribution to investors
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The securitisation vehicle is fully taxable at the standard corporate tax rate. However, any commitments to shareholders or creditors are tax deductible. An appropriate structuring and financing planning allows avoiding any taxation. None, except in limited cases under the EU Savings Directive.
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Subscription tax
None.
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Capital duty
None.
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Wealth tax
None.
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VAT
The management and administration services provided to the securitisation vehicle are exempted from VAT.
DTT and EU Directives
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Securitisation vehicles benefit, in principle, from the Luxembourg DTT network and the EU Tax Directives (with some restrictions).
Taxation of investors >
Luxembourg resident investors (Corporations only)
Interests are taxed as ordinary income. Dividends qualify as interest income and are taxed as ordinary income. Capital gains realized by a resident company holding a Qualifying Participation in a securitisation vehicle do not benefit from the specific regime of participation exemption (Affiliation privilege). However, these capital gains may be generally exempted pursuant to general principles of tax law.
Luxembourg nonresident investors
In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of some DTTs may limit any taxation in Luxembourg.
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