Luxembourg Investment Vehicles SIF - Lextray · Luxembourg . Investment Vehicles / SIF > SIF: THE...

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On a preliminary basis and for the sake of clarity, the details shared, are of a general nature and shall not be intended as a fully comprehensive tax/legal advice but rather as a preliminary overview. Although we attempt to provide you with precise and timely updates, there can be no guarantee that the information shared is accurate as of the date it is received or it will continue to be accurate in the future. If you wish to have a more specific advice on the same or on different matters, LEXTRAY is at your disposal, to provide you with any advice you may require in connection with the above.

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> THE LUXEMBOURG ENVIRONMENTLuxembourg is the world’s second largest investment funds domicile,and is the prime location for the pan-European and global distributionof investment funds under the UCITS brand. Initially designed as a glo-bal retail funds hub under the sole UCITS brand, Luxembourg has gra-dually opened up to the alternative asset classes, offering personalisedstructuring solutions through specialized investment vehicles.Structuring flexibility, investor protection and tax efficiency are the cru-cial elements that have inter alia helped to convince the investors, toshift their operations and investments to Luxembourg.

In addition to such a fund-friendly environment, the constant work of the legislator to promote Luxembourg as a fully-regulated on shore lo-cation (see its stringent anty-money-laundering regulation) has greatly contributed to its business appeal.

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> LEGAL FRAMEWORKSIFs are subject to the Luxembourg Law of 13 February 2007 on Specia-lized Investment Funds (“SIF Law”) as lastly amended.SIF Law is divided into 2 parts:(i) general provisions applicable to all SIFs (see PART 1 - PROVI-SIONS APPLICABLE TO ALL SIFs);(ii) specific provisions applicable to SIFs which qualify as Alter-native Investment Funds (“AIFs” and “SIFs AIFs”) and arerequired to be managed by an authorized Alternative InvestmentFund Manager (“AIFM”) within the meaning of Directive 2011/61EU of 8 June 2011 on alternative investment fund managers (seePART 2 - SPECIFIC PROVISIONS FOR SIFs AIFs).

The Luxembourg Supervisory Authority of the financial sector (“Com-mission de Surveillance du Secteur Financier” or “CSSF”) has also is-sued several circulars concerning SIFs (CSSF Circulars 07/283 of 13 Fe-bruary 2007, 07/309 of 3 August 2007, 07/310 of 3 August 2007, 08/327 of 5 September 2008.)

Luxembourg Investment Vehicles / SIF

> SIF: THE VEHICLE IN A NUTSHELLThe purpose of this brochure is to provide you with a bird’s eyes viewof the legal framework, investment policies as well as reporting and ta-xation particularities of the Luxembourg Specialized Investment Fund(“SIF”).

We hope that you find it useful and that it meets your expectations.

SIF is a regulated, multipurpose investment fund regime for an interna-tional, institutional and qualified investor base. In other words the SIF regime is applicable to undertakings for collective investment (“UCIs”) whose securities are destined to well informed investors and that expres-sly provide to be subject to the SIF regime. In comparison with institutional funds created under Part II of the Law of 17 December 2010 on undertakings for collective investment, the SIF is characterized by greater flexibility with regard to the investment poli-cy and a more relaxed regulatory regime.

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Luxembourg Investment Vehicles / SIF Part 1. PROVISIONS APPLICABLE TO ALL SIFs

> AUTHORISATION AND SUPERVISIONSIFs are regulated vehicles subject to the permanent supervision of theCSSF. Therefore, a SIF is subject to the prior authorisation by the CSSFbefore it can be launched and carry out its activities.

> STRUCTURAL AND LEGAL ASPECT

1. LEGAL FORMSAlthough, the SIF Law specifically refers to legal forms of contractual type (fonds commun de placement or “FCP”) or of corporate type (i.e. an investment company with variable capital - société d’investissement à ca-pital variable or “SICAV”- or with fixed capital - société d’investissement à capital fixe or “SICAF”), generally it does not limit the legal forms a SIF may take.A corporate SIF may be established as a public limited liability company (société anonyme or “SA”), a partnership limited by shares (société en commandite par actions or “SCA”), a common limited partnership (so-ciété en commandite simple or “SCS”), a special limited partnership (so-ciété en commandite spéciale or “SCSp”), a private limited company (so-ciété à responsabilité limitée or “Sà rl”) or a cooperative company set up as a public limited liability company(société coopérative organisée sous forme de société anonyme or“SCSA”).

2.UMBRELLA STRUCTUREThe SIF Law refers to the possibility that the SIF may be organized with multiple compartments (“umbrella fund”) and that each compartment of is linked to a specific portfolio of investments which must be segre-gated from the investments compartments. Must be considered that the CSSF may withdraw the authorization granted to one compartment wi-thout undermining the authorization granted to other compartments.

3. CROSS COMPARTMENT INVESTMENTSA compartment of an umbrella SIF can invest in one or more other com-partments of the same SIF, a so-called “cross-compartment investment”.

4. CAPITAL REQUIREMENT AND OTHER ASPECTSSIF Law provides that the capital may not be less than EUR 1,250,000. This amount must be reached within a period of twelve months fol-lowing its authorization by the CSSF.A SIF may also finance its activities and the acquisition of its portfolio of investments, where appropriate, on a substantially predominant basis, via borrowing as well as via the issue of bonds or other debt instrument. Unless provided for in the constitutive documents, the assets of a SIF must be valued at fair value.

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> ELIGIBLE INVESTORSOnly well-informed investors are authorized to invest in SIF.According to SIF Law this term comprises (i) institutional investors, (ii)professional investors as well as any (iii) other investor that:A. has declared in writing its status as a well-informed investor anda. invests a minimum of EUR 125,000; orb. has obtained an assessment from a credit institution, an invest-ment firm or a management company which has certified which certifiesthe investors’ ability to understand the risks associated with investing inthe SIF.

> ELIGIBLE ASSETS AND RISK DIVERSIFICATION REQUIRE-MENTSThere is no restriction in terms of eligible assets so in other words caninvest, inter alia, in equity funds, bond funds money market funds, realestate funds, hedge funds, micro finance funds, venture capital funds,green funds, infrastructure funds and funds investing in tangible assets

such as art, luxury goods, wines etc. However, as a Bill of Law was depo-sited on the 18 January 2016 with the Luxembourg Parliament, concer-ning the introduction of restrictions vis-à-vis the assets in which a SIF can invest, this flexibility might be slightly diminished. SIF Law require that SIFs are subject to the principle of risk-spreading. As to the meaning of risk spreading the CSSF has intervened by issuing guidelines in the Circular 07/309. These are in short: (i) a SIF may not invest more than 30% in securities of the sametype issued by the same issuer;(ii) short sales may not in principle result in the SIF holding a shortposition in securities of the same type issued by the same issuer repre-senting more than 30% of its assets;(iii) when using financial derivative instruments, the SIF must ensu-re, via appropriate diversification of the underlying assets, a similar levelof risk-spreading.

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> SERVICE PROVIDERS AND OTHER REGULATORY ASPECTS

1. DEPOSITARYThe custody of the assets of the SIF must be entrusted to a depositary, having received the due authorization by the CSSF, having its registered office in Luxembourg or being established in Lu-xembourg if its registe-red office is located abroad. The depository shall carry out all operations concerning the day-to-day administration of the assets of the common fund. The depository must be a credit institution or an investment firm within the meaning of the Luxembourg Law of April 1993 on the finan-cial sec-tor, as amended (“Financial Sector Law”).

2. EXTERNAL AUDITORThe SIF’s annual accounts must be audited by a Luxembourg statutory auditor having received the due authorization from the CSSF (réviseur d’entreprise agréé), which must provide evidence of its appropriate level of professional experience.

3. CENTRAL ADMINISTRATIONAdministrative functions may be undertaken by the external AIFM, although.These functions are generally entrusted to a specialized Luxembourg service provider (a central administration agent). The central administration agent may be appointed by the external AIFM (subject to the AIFMD delegation rules) or by the SIF’s management body direct (i.e. without flowing through the external AIFM).

4. OFFERING DOCUMENT AND REPORTING REQUIREMENTSThe SIF is required to produce an offering document to be supplied toinvestors which must include the information necessary for investors tobe able to make an informed judgment of the investment proposed tothem and of the risks connected thereto. The content of the sameand any amendments carried out from time to time are subject to theappro-val of the CSSF.SIF are also required to publish an audited annual report within sixmonths from the end of the period to which the report relates. SIF Lawcontains an appendix which describes the specific information to be in-cluded in the annual report (i.e. qualitative and/or quantitative info tobe given on the portfolio of investments allowing investors to make aninformed judgement concerning the evolution of the activity).


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> REQUIREMENT TO APPOINT AIFMSIFs AIFs must be managed by an authorized AIFM either established in Luxembourg, in a Member State of the EU or in a third country. The AIFM can be either (i) an external AIFM duly appointed to manage the SIF AIF or (ii) the SIF AIF can be internally managed, in case the its legal form permits internal management and its governing body has chosen not to appoint an external AIFM (in this last case the SIF AIF itself will be considered as the AIFM and therefore will be required to comply to the AIFM Law and submit a request for authorization under the AIFM Law.

> DEPOSITARY In conformity to the general regime applied to SIFs, the depositary of a SIF AIF, might be a credit institution or an investment firm within the meaning of the Law of 5 April 1993 on the financial sector.An investment firm shall only be eligible as depositary to the extent that his investment firm also fulfills the conditions provided in Article 19, paragraph 3 of the amended Law of 12 July 2013 relating to alternative investment fund managers.

> EXTERNAL INVESTMENT MANAGERThe AIFM may delegate part of its portfolio management orrisk management functions to third party service providers with the requisite resources and expertise but as a general principle, the AIFM must remain in charge of some of its basic functions.

> ANNUAL REPORTCompared to the general provisions applicable to SIFs, SIF AIFs are re-quired to disclose additional information in their annual report such as(i) the total amount of remuneration paid by the AIFM to its staff for thefinancial year, (ii) the number of beneficiaries, (iii) any carried interestpaid by the SIF AIF and (iv) the aggregate amount of remuneration asbroken down by senior management and by AIFM staff members whoseactions have a material impact on the risk profile of the SIF AIF.

> ADDITIONAL INFORMATION TO INVESTORSAs specified by the AIFM Law, the AIFM of a SIF AIF must provideadditional information to the investors and in particular the securitiesfinancing transaction and total return swaps that the AIFM is authori-zed to use and a clear statement that those transactions and instrumentsare used.


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> MARKETING AND LISTING

1. MARKETING

1.1 SIF AIFs1.1.1 Marketing to EU professional investorsCurrently only SIF AIFs managed by an authorized EU AIFM benefit from a EU passport allowing the AIFM to market the SIF shares/units partnership interest to EU professional investors.On the other side, SIF AIFs managed by a non-authorized EU AIFM do not yet benefit from this EU passport and the marketing is therefore subject to the national placement rules of the countries (“NPR”) where the marketing is performed.

1.1.2 Marketing to other well-informed investors The marketing of SIF AIFs outside or within Europe to well informed investors (which are not professional investors) requires compliance with the NPR of each country where the marketing is performed.

1.2 Other SIFsSIFs managed by a registered AIFM (AIFM not fully authorized but me-rely registered pursuant to the AIFM Law) do not benefit from the EU passport for the marketing of their shares or unit and remain subject to the NPR of each country where the marketing is performed.

2. LISTING

SIF may apply for listing of its shares on the Luxembourg Stock Exchan-ge provided that it complies with its requirement. No prohibition against a SIF seeking a listing on any other stock exchange.


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> TAXATION

1. GENERAL TAX REGIME OF A SIFSIF incorporated as FCP are treated as tax transparent. However, inpractice, the Luxembourg tax authorities will consider that the SIF’s in-come is only transferred to its investors at the time profits are distribu-ted.Generally, SIF set up as a SICAV or a SICAF are treated as opaque fortax purposes. The rate of the annual subscription tax payable by the SIFreferred to in the SIF Law shall be of 0.01%.

Exempt from the subscription tax are:a) the value of the assets represented by units held in other UCIs, pro-vided that such units have already been subject to the subscription tax;b) SIFs as well as individual compartments of SIF with multiple com-partments:(i) whose sole objective is the collective investment in money marketinstruments and the placing of deposits with credit institutions, and(ii) whose weighted residual portfolio maturity does not exceed 90 days;and(iii) that have obtained the highest possible rating from a recognizedrating agency;

c) SIFs whose securities or partnership interests are reserved for:(i) institutions for occupational retirement provision, or similar invest-ment vehicles, set up on one or more employers’ initiative for the benefit of their employees and (ii) companies of one or more employers inve-sting funds they hold, in order to provide retirement benefits to their employees.d) SIFs as well as individual compartments of SIFs with multiple com-partments whose main objective is the investment in microfinance in-stitutions.

2. EXEMPTION FROM LUXEMBOURG INCOME TAXESA SIF is exempt from Luxembourg income taxes (Corporate Income Tax, Municipal Business Tax and Net Wealth Tax). Therefore, they are not entitled to tax credits.

There is no withholding tax applied on distributions from Luxembourg SIF, except in situations where the Savings Directive (Council Directive 2003/48/EC) applies. There is no stamp duty in Luxembourg on share issues or transfers. The taxation of the investors has to be studied according to the country of residence.


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3. VALUE ADDED TAXSIFs are considered a taxable entity for VAT purpose. The managementcompany and the FCP are considered to be a single legal entity for VATpurposes. The fee perceived by the «management and the administra-tion» of the SIFs are exempt from VAT in Luxembourg.

4. TAXATION OF THE MANAGEMENT COMPANYThe management company of a SIF is fully taxable (Corporate IncomeTax in Luxembourg, Municipal Business Tax and Net Wealth Tax).

5. TAX AUTHORITY FOR THE TAX CONTROLThe tax authority responsible for the tax control of the SIF is Administra-tion de l’Enregistrement et des Domaines. If the Administration consi-ders the SIF is engaging in operations which fall outside the frameworkof the activities authorized by the Law, the tax provisions of the SIF Lawshall cease to be applicable and, furthermore, a fine of 0,2 % can be le-vied on the amount of the assets of the SIF.


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6. DOUBLE TAXATION AGREEMENTS (DTA’s) AND PARENT SUBSIDIARY EU DIRECTIVE (“P-S EU Directive”)SIF cannot generically benefit from Luxembourg “DTA’s” and from "EU P-S Directive".Nevertheless, the SIF might profit from the tax benefits deriving from the DTA’s or EU P-S Directive in word, by means of the insertion in the control chain of a simple Luxembourg SOPARFI (SA, Holding) that would benefit by default.

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LEXTRAY is committed to providing the highest quality legal and tax services. Our team is at your service in 6 different languages (English, French, Italian, German, Spanish and Arabic), directly active in 7 juri-sdictions (Luxembourg, Italy, Switzerland, UK, Ireland, Singapore and Dubai) and indirectly through our associates in the Netherlands, Spain, USA, Argentina and Brazil, to provide you with the finest tailor-made work products and solution. Our widespread territorial coverage allows us to remain in constant contact with you, 24h24 and 7/7, guaranteeing a first-rate standard and rapid execution as well as a clear, practical and up-to the minute advice.Considering the fast moving and aggressive business environment we nowadays facing, we are committed to a relentless professional skill update and are outmost attentive to tuning to the clients’ wishes and adapting to new laws and regulations.

EMPHASIS ON OUR INVESTMENT VEHICLES PRACTICE AREA Our Luxembourg team has a robust expertise in all areas of Luxem-bourg investment vehicles law.

This includes among others: (i) support in finding the ideal investment vehicle to meet your

requirements and your goals from a governance, regulatoryand tax perspective;

(ii) support in setting up the vehicle;(iii) tax structuring support;(iv) providing ongoing corporate support service throughout the

lifetime of the vehicle; (v) keeping you updated on the new regulatory developments.

Presentation of the Firm

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CONTACTWe would love to hear from you.

Don’t hesitate to get in touch with one of our professionals or dedicated [email protected]

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Tel. + 352 27 85 74 1 | Fax + 352 27 85 74 70

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Tel. +352 26 20 2912 | Fax +352 26 20 1926

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