Alex SCHMITT LL M Harvard Law School Maître

Alex SCHMITT LL. M. Harvard Law School Maître d’Enseignement à la Faculté de Droit de l’Université Libre de Bruxelles www. bonnschmitt. net

Investment Vehicles in Luxembourg

AVAILABLE VEHICLES • SIF (specialised investment funds) • SICAR (risk capital investment companies) • SECURITISATION (securitisation vehicles) • SPF (family holding) • SOPARFI (financial participation companies)

ELIGIBLE INVESTMENTS SIF Nature of the Investments A SIF may invest its funds in all kinds of assets : • Hedge Funds; • Private Equity; • Liquid Assets; • Currencies; • Money Market Funds; • Real Estate; • Securities; • Debt Instruments; • Commodities; • Pension Funds; and/or • Deposits. A SIF may purchase target investments up to 100%. Minimum risk diversification (3 to 4 different assets are sufficient) admissible. RISK DIVERSIFICATION SICAR Nature of the Investments A SICAR can invest in different kinds of investments: • Venture capital through either start-ups or listed companies • Private equity investments • Buy outs • Bridge and Mezzanine financing • Convertible debts • Other financing instruments and exit strategies (CSSF circular 06/241) A SICAR has no obligation to diversify its investments. NO DIVERSIFICATION BUT VENTURE CAPITAL SECURITISATION Nature of Investments Almost any predictable stream of income or risk may be securitised. Such risk may be attached to assets of any nature, to obligations of third parties, or to the activities of third parties regardless of the way in which the vehicle bears such risk (i. e. swap, sale, guarantee). Sufficiently identifiable future claims, premised on an existing or future contract may also be securitised. Securitisation may occur either through a transfer of legal ownership of the asset (“true sale”) or through a transfer of the risks linked to the asset (“synthetic securitisation”). NO DIVERSIFICATION SPF Nature of Investments SOPARFI Nature of Investments A SPF can invest in financial instruments such as shares, debt instruments, derivatives and related instruments, deposits and cash held on bank accounts. The SOPARFI is a regular commercial company tailored to enjoy a very extensive participation exemption provided for by Luxembourg tax law. A SPF cannot directly invest in real estate. No investment restrictions. A SPF has no obligation to diversify its investments. However, a SPF is not allowed to receive more than 5 % of dividend payments per year from companies which are either not subject to a tax deemed equivalent to Luxembourg income tax or not covered by the EC Parent Subsidiary Directive. NO DIVERSIFICATION

SETTING UP SIF A SIF may be in form of a SIFSICAV, a SIF-FCP (common fund) or another form. The Law further provides for a high degree of flexibility and a SIF-SICAV may be a: • Public limited company (SA) • Limited liability company (SARL) • Corporate partnership limited by shares (SCA • Private limited corporate partnership (SCS) • Co-operative society organized as a public company (SCSA) The internal organisation rules and the corporate governance mechanisms of a SIF are equally flexible and may be tailored to specific demands. CSSF supervision. A SIF allows a greater freedom and less administrative burden than more traditional investment funds. QUALIFIED INVESTORS ONLY CSSF APROVAL/ LISTING SICAR The law provides for a large degree of flexibility and a SICAR can take the following forms: • Public limited company (SA) • Limited liability company (SARL) • Corporate partnership limited by shares (SCA) • Private limited corporate partnership (SCS) • Co-operative society organized as a public company (SCSA) The internal organisation rules and the corporate governance mechanisms of the SICAR are equally flexible. Another advantage, while all constitutive documents must be pre-approved, no requirements are compelled for the approval of potential promoters of the SICAR. These allow a greater freedom than more traditional investment funds. QUALIFIED INVESTORS ONLY CSSF APROVAL/ LISTING SECURITISATION The securitisation law proposes two forms of vehicles: a special purpose company or a securitisation fund. SPF SOPARFI The SPF law allows the following legal forms for a SPF: • Public limited company (SA) • Limited liability company (SARL) • Corporate partnership limited by shares (SCA) • Co-operative society organized as a public company (SCSA) SOPARFIS are governed by the general corporate law of August 10, 1915 as amended. ALL INVESTORS INDIVIDUALS AND PRIVATE HOLDING ENTITIES ALL INVESTORS APPROVED VEHICLES/ NON APPROVED VEHICLES NO CSSF APPROVAL/ LISTING Securitisation companies must be stock companies: • Public limited company (SA) • Limited liability company (SARL) • Corporate partnership limited by shares (SCA) • Co-operative society organised as a public company (SCSA). SOPARFIS can be set up under one of the following forms: • Public limited company (SA) • Limited liability company (SARL) • Corporate partnership limited by shares (SCA) • Co-operative society organized as a public company (SCSA) Securitisation funds are unincorporated pools managed by a management company.

TAX SIF SICAR* SECURITISATION* SPF SOPARFI Taxation of the SIF: Taxation of the incorporated SICAR : Taxation of the Securitisation Company: Taxation of the SPF: Taxation of the SOPARFI: • No income or wealth taxes; 0. 01% annual subscription tax assessed on the NAV of the SIF; • Limited DTT access. • Subject to regular corporate income tax, however exemption of income from transferable securities; • Exemption of short-term (<12 mo. ) investment of available cash; • Net wealth tax exemption • DTT access. Subject to regular corporate income tax but all commitments to investors are deductible, which does not result in significant tax liability; • Net wealth tax exemption; • DTT access. • Corporate income tax exemption; • Net wealth tax exemption; • 0. 25% subscription tax which cannot be in excess of EUR 125. 000. -. As a result, the amount of subscription tax payable by a SPF, the taxable basis of which is higher than EUR 50 million, is fixed. • No DTT access. • Subject to regular corporate Taxation of SIF investor: Taxation of SICAR investor: Taxation of Securitisation Company investor: Taxation of SPF investor: Taxation of SOPARFI investor: • No withholding tax in • No withholding tax on Luxembourg on dividends paid out by the SIF to investors; • No Luxembourg taxation of capital gains made by investors. *This summary of the taxation relates to the incorporated form of the SICAR and Securitisation vehicle. It is possible to establish SICARs and Securitisation vehicles which are transparent for tax purporses. distributions by the SICAR; • No withholding tax on interest paid out by the SICAR, unless application of EC Savings Directive (as transposed in Lux law); • No taxation of capital gains made by investors; • No withholding tax on distributions by the Securitisation Company; • No withholding tax on interests paid out by the Securitisation Company, unless application of EC Savings Directive (as transposed in Luxembourg law) • Short term (< 6 months) capital gains on shares by nonresidents may be taxable (subject to treaties). • No withholding tax on distributions by the SPF; • No withholding tax on interests paid out by the SPF, unless application of EC Savings Directive (as transposed in Lux law); • No taxation of capital gains made by investors. income tax; • Income from equity stakes held by the SOPARFI can be earned tax-free provided these stakes fulfil certain size and holding duration requirements (exemption of dividends and liquidation proceeds; exemption of capital gains); • Annual 0. 5% net wealth tax on net assets; • DTT access. • 15% withholding tax on dividend payments (reduced treaty rates available / exemption available upon application of EC Parent. Subsidiary Directive); • No withholding tax on interest paid out by the SOPARFI, unless application of EC Savings Directive (as transposed in Lux law); • Short term (< 6 months) capital gains on shares by nonresidents may be taxable (subject to treaties).

EXAMPLES

SIF Umbrella SIF ______________________________________ SIF Custodian (z. B. SIF-SICAV in the form of a société anonyme) Investor 1 (holds 100% of Sub-Fond 1) Investor 2 (holds 100% of Sub-Fond 1) SUB-FOND 1 SUB-FOND 2 Sub-Fond 1 holds all assets of Investors 1 Sub-Fond 2 holds all assets of Investors 2 Investor 3 (holds 100% of Sub-Fond 3) SUB-FOND 3 Sub-Fond 3 holds all assets of Investors 3 Management Company (if necessary)

SICAR Example ______________________________________ INVESTORS HOLDING CERTIFICATES NO WITHOLDING TAX ON DISTRIBUTIONS, REDEMPTIONS AND CAPITAL GAINS Custodian SICAR S. C. A. ELIGIBLE INVESTMENTS Investment Advisor Venture Capital Assets Manager as unlimited shareholder holding Management Shares and Limited Shareholder holding Participating Shares Manager S. àr. l.

SECURITISATION Example ______________________________________ ORIGINATOR Subordinated Loan Excess Spread PURCHASING VEHICLE Sale of Assets ISSUING VEHICLE Facility Agreement/ Proceeds of Note Issue INVESTORS TRANCHE 1 Note Issue INVESTORS TRANCHE 2 INVESTORS TRANCHE 3

SPF Example ______________________________________ INVESTOR WITH SEAT IN MONACO Investor holds 100% in SPF Dividends not subject to tax in Luxembourg SPF holds 100% in Prop. Co Dividends Prop. Co owns real estate Profits derived from real estate REAL ESTATE PORTFOLIO

SOPARFI Example ______________________________________ 100% Advisor 2 (e. g. BVI PROMOTER Company (e. g. Switzerland) 100% Advisor 1 (e. g. Germany) + Placement Fee + Advisory Fee Management Company INVESTORS 10% + Dividend + Interest on PECs + Dividend Incentive + Placement Fee + Management Fee + Commitment Fee Partnership Limited by Shares (société en commandite par actions) 100% Third Party Loans SOPARFI REAL ESTATE PORTFOLIO Shareholders’ Loan + Dividend + Interest on Shareholders’ Loan

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