The main purpose of the securitisation law is to design a legal and a tax neutral environment for securitisation transactions realised through Luxembourg. The securisation is a technique through which a company be it a bank, a trading company, etc wish to remove a given asset from its balance sheet. This party is called the initiator or the originator. The securitisation vehicle will issue securities (shares or bonds) towards investors against cash consideration. The Securitisation Vehicle (hereinafer referred as “SV”) will then acquire the contemplated asset. Said asset is most of the time acquired with a discount and the discount which is equal to the return of the investor will depend on the risk underluying in the asset acquired.
The scope of the securisation is very broad and offers a fully flexibiliy, legal certainty in a neutral tax environment for the investors.
A securitisation transaction can be depicted as follows :
The securitisation has been introduced by the law of March 22, 2004 and has been amended several times since then, namely by :
the law of December 19, 2008 on capital duty and transfer tax
the law of December 18, 2009 on the audit profession
Like the SOPARFI, the shares of the securitization vehicle are not restricted to any particular type of shareholder. The shares can be subscribed by an individual, a group of individuals or any type of corporate shareholders.
A SV can incorporated as a mutual fund (FCP) managed by a Luxembourg management company
It can also be incorporated as an Investment company which has adopted the following legal form :
Public Limited Company (SA)
Limited Company (SARL)
Partnership Limited by Shares (SCA)
Cooperative Company organized as a Public Limited Company (SCoSA)
Basically, the SV is not subject to any prior authorisation or to prudential supervision unless it issued continuously securities to public investors.
If this is the case, the SV becomes “regulated” and falls under the scope of supervision of the CSSF.
It needs to draft a private placement memorandum and to entrust its assets to a custodian bank
For regulated SVs, the directors of the management company must justify probing experience and be of good standing with regard to the contemplated investment.
The SA, SCA must have a minimum capital of EUR 31,000
The SARL must have a minimum capital of EUR 12,500
SV are obliged to create a legal reserve which is equal to 5% of the profit until the legal reserve reaches 10% of the share capital.
The scope of the securitisation is very broad and covers among other risk linked
Portfolio of securities
There is no diversification requirement. A SV can invest in any type of assets without any limitation.
Legal and regulatory framework
The securitisation law enforces non petition clause which means that investors and creditors commits not to petition for bankruptcy or any other collective insolvency regulations
The law also provides limited recourse provision ensuring that creditors and investors are not allowed to seize the assets of the SV.
A subordination clause may also complete the above mentioned provision. As a result of this subordination clause, rights of investors and creditors may be subordinated to the prior payments of debts and other securities of the SV
The head office of the registered office of the management company must be situated in Luxembourg
The use of a custodian bank is only mandatory for regulated SVs.
Central administration / domiciliation
The central administration concept does not apply as such for SV as they are less regulated, the administration consists in providing a domicile, accounting and tax services for these companies, even if the SV becomes regulated.
The domiciliation agent does not need to own a SPF licence.
Offering document and annual report
Unregulated SVs are not required to have their articles of association, management regulations (in case of a mutual fund) agreed by the CSSF or to draft a Private Placement Memorandum
Regulated SVs needs to have the initial above mentioned documents approved by the CSSF.
Both Regulated and unregulated SVs need to publish an annual report together with the report of the statutory auditor within 6 months from the end of the period these reports refer to. (check out our tax clock)
Issue of new shares
SV can in principle freely issue new shares. The type of legal form and the existence of pre emptive rights or restriction on transfer of shares may influence the increase of the share capital.
The contribution can either be in cash or in kind
Dividend distributions are decided by the annual general meeting of the shareholder
Since 2009 and under certain conditions, interim dividends can also be decided by the board of directors (S.A.) or the board of managers (Sàrl)
Net asset valuation
There is no asset valuation for SVs incorporated as company.
A NAV is calculated for mutual funds
Lux GAAP applies for the valuation of the assets. The valuation is based on a prudent approach meaning that most of the time the acquisition price is the higher amount possible. Depreciation and value adjustments should be accrued in case of a decrease in a given asset value. The recent amendments in the accounting law however allows the fair market value method for the valuation of financial instruments ( read more )
A SV can create segregated compartments like a SICAR or a SIF
Each compartment may have its owns investment policy, characteristics and rules
Each compartment is deemed to be a separate entity unless otherwise provided in the articles of association. A given compartment may be separately liquidated without leading to the liquidation of another compartment.
The rights of investors and of debtors concerning a compartment are strictly limited to the assets of that compartment unless otherwise agreed in the incorporation.
SVs incorporated as mutual fund are tax transparent.
Any income received is therefore automatically deemed attributed to the investors in proportion of their shares in the SV.
Taxation at the level of the investors depends on the tax rules applicable in their country of residence.
Distributions of profit made by the SVs to its investors are not subject to any withholding tax.
Distributions by a regulated SV incorporated as mutual funds may fall in the scope of the savings directive
Opaque SVs are subject to the Corporate Income Tax (CIT), Municipal Business Tax (MBT).
Opaque SVs are exempt from Net Wealth Tax (NWT).
Are deductible from the tax base of the SVs, any commitment taken by this latter towards any debtor or investors. Dividend distributions are regarded as a commitment and are therefore tax deductible.
The tax base of base of a SV should therefore be neutral
Dividends and liquidation proceeds distributed by the SV are not subject to any withholding tax.
The distributions of a SV are furthermore not in the scope of the Savings Directive at the time being.
Management services rendered to a SV are exempted from VAT.