Luxembourg Update UCITS and Alternative Investment … presentation... · Luxembourg Update UCITS...

Luxembourg Update UCITS and Alternative Investment Funds

Guy Harles – Partner Eric Fort – Tax Partner Stephane Karolczuk – Senior Associate

Hong Kong – October 6, 2011

Welcome Address

Introduction

3

1. The Grand Duchy of Luxembourg

Historical origins go back to the year 963 Constitutional Monarchy Founding member of NATO, the United

Nations and the European Union Seat of the European Court of Justice, the

European Court of Auditors, the Secretariat of the European Parliament and the European Investment Bank

Member of the Euro Zone Surface: 2,586 km2 / Population: 510,000 Workforce 310,000 (incl. 142,000 daily

border migrants) GDP per capita: USD 81,800 (est. 2010)

4

1. The Grand Duchy of Luxembourg (continued)

0

50

100

150

200

250

300

GDP per capita in 2009 (in purchasing power standard)

Source: Eurostat

5

1. The Grand Duchy of Luxembourg (continued)

A strategic position at the heart of Europe Founding member of the European Union Business-friendly and politically stable environment Attractive tax environment Highly skilled and multilingual workforce with high productivity High quality life and safe country International school system Research and innovation Infrastructure and logistical network Top level financial and multinational IT clusters Favorable corporate law

6

2. The Luxembourg Financial Center

143 credit institutions (banks) 315 other professionals of the financial sector (PFS) 3,799 investment funds, over 13,000 fund units, EUR 2,085.- bn in

Assets Under Management, more than 46,000 distribution agreements for Luxembourg UCITS

251 re-insurance companies and 97 insurance companies (2009) Other players including pension funds, securitization vehicles,

SIFs, SICARs, SOPARFIs, private holding companies (SPFs) Great diversity of players 8th largest financial center in the world

(Figures Source Commassu 2011 / CSSF 2011)

7

2. The Luxembourg Financial Center (continued)

Fund formation, administration and management → Luxembourg ranked 2nd largest in the world (behind US)

Corporate and financial structuring → use of Luxembourg-based vehicles for M&A, securitization, venture capital and wealth management

Private banking → Luxembourg is the most important private banking center in the Euro Zone and is ranked 2nd largest in the world for international private banking (15% market share behind Switzerland with 28%)

Bond listing → more than 44,000 securities listed with the LuxSE Clearing and settlement of securities’ transactions (Clearstream) Payment systems and Electronic Money Institutions (ELMI) (such as

PayPal)

8


the Bank passport the Professional of the Financial Sector (PFS) passport the UCITS funds passport the UCITS ManCo passport the Prospectus for securities passport the AIFM passport (as from 2013) Home Country Rule/Control, establishment in Luxembourg and

access to other EU Member States through simple registration procedures, the establishment a branch office or the LPS (Liberte de Prestation de Services, i.e. the freedom to provide services cross-border, within the EU)

Access to European passports such as

9


Undertakings for Collective Investment in Transferable Securities (UCITS): Law of 17

December 2010 on undertakings for collective investment (Part I)

Undertakings for Collective Investment (UCI): Law of 17 December 2010 on undertakings for collective investment (Part II)

Specialized Investment Funds (SIF): Law of 13 February 2007 on specialized investment funds, as amended (currently being revised)

Société d’Investissement en CApital à Risque (SICAR): Law of 15 June 2004 on investment companies in risk capital, as amended

Securitization Vehicles (SV): Law of 22 March 2004 on securitization, as amended

SOciété de PARticipation FInanciere (SOPARFI): Law of 10 August 1915 on commercial companies, as amended

Key structures available in Luxembourg

10

3. Luxembourg – Also a Gateway to Europe for MNCs

Arcelor Mittal, SES, Goodyear, DuPont de Nemours, Guardian Glass, Delphi, Fanuc Robotics, IEE, Sam Hwa Steel, Husky, Swiss RE, Vodafone, as well as Kuehne + Nagel, Panalpina, China Airlines, DHL, Nippon Express, TNT for the international logistic providers

Microsoft, AOL, Amazon, iTunes (Apple) and Skype have decided to set up their European/worldwide headquarters in Luxembourg

Multinational Companies present in Luxembourg

11

4. Agenda of the Seminar

Session 1 – Undertakings for Collective Investment in Transferable Securities (UCITS)

Session 2 – Alternative Investment Funds (AIFs)

Session 1

Undertakings for Collective Investment in

Transferable Securities (UCITS)

13

1. Structure of the Fund Industry

Figures as at September 30, 2010 – Sources: EFAMA & ICI Figures as at March 31, 2011 – Source: EFAMA

Luxembourg - Second largest fund centre in the world

Germany; 14%

United Kingdom; 9,8%

France; 18,4%

Luxembourg; 27,0%

Ireland; 12%

Others; 19,0%

European market share (by AuM)

14

1. Structure of the Fund Industry (continued)

Figures as at December 31, 2010 – Sources: CSSF / ALFI

Promoters are originated from 41 countries US and German players are main promoters

Promoters’ origin of Luxembourg funds (by AuM)

15

2. Number of Funds Domiciled in Luxembourg

0

500

1000

1500

2000

2500

3000

3500

4000August 31, 2011

3,799 funds

Figures as at August 31, 2011 – Source CSSF

16

3. Net Assets of Funds Domiciled in Luxembourg

0

500

1000

1500

2000

2500

€billi

on

August 31, 2011 2,085 bio EUR

Figures as at August 31, 2011 – Source CSSF

17

4. Cross Border Distribution Market-share of UCITS registered in at least 3 countries

74,6

14,1

3,0

2,5

1,2

0,8

0 10 20 30 40 50 60 70 80

LU

IE

FR

UK

BE

DE74.6 % of all UCITS

registered in at least 3 countries (including home state) are Luxembourg funds

Sources: Lipper Hindsight, PWC Global Fund Distribution March 2011

18

4. Cross Border Distribution (continued) Luxembourg market share of foreign funds registrations

19

4. Cross Border Distribution (continued)

Country Total registrations at Q4 2010

% registrations to Luxembourg funds

Switzerland 4595 73%

Singapore 2064 74% Norway 1642 79%

Chile 1262 79%

Hong Kong 1224 78% Macau 906 80%

Taiwan 850 76%

Liechtenstein 744 99%

Bahrain 739 81%

Jersey 558 84%

Peru 524 68%

Guernsey 318 66%

Korea 253 100%

Sources: ALFI Luxembourg cross-border distribution capabilities, September 2011 (data 2010)

Top 13 Non-EU countries for UCITS distribution

20


Top 100 UCITS Promoters distributing in Asia

Country 1998 2010

Singapore 2 71

Hong Kong 8 44

Taiwan 6 42

Japan 9 20

South Korea 3 18

Source: Lipper Hindsight and PwC analysis, end 2010

21

UCITS is a global brand recognized in Asia Flexible regulatory framework allowing alternative investment

strategies, interesting for Asian based Hedge Fund managers Trend towards more regulated onshore investment structures, in

particular since the GFC, rather than the typical offshore Cayman vehicles

Funds sponsors in Asia anticipate the AIFMD Easy access to EU investors, and access to South-American, Middle-

East and other Asian investors (Hong Kong, Singapore, Taiwan, Macao, etc.) on a fast track basis

Success of UCITS ETFs and NewCITS in Asia

Key factors of the success of UCITS in Asia


22

5. Setting up a UCITS in practice

The Directive 2009/65/EC (the “UCITS IV Directive”) was implemented in

Luxembourg by a law on 17 December 2010 (the “2010 Law”), which replaced the 2002 Law.

ESMA (CESR) Guidelines

CSSF Circulars and Regulations. Industry Guidelines or FAQs (ALFI)

The 2010 Law entered into force on 1 January 2011 and is mandatory for all

UCITS from 1 July 2011, except for the provisions on the KIID which will only become mandatory as of 1 July 2012.

Legal framework

23

5. Setting up a UCITS in practice (continued)

Review of the investment strategy

Review of the timing Choice of the legal form Selection of service providers in Luxembourg Substance in Luxembourg / Risk Management Procedure

Preparation and review of the UCITS documents and agreements Filing with the CSSF, approval and launch Notification for cross-border distribution

Ongoing obligations, reporting obligations Launching of new sub-funds, registration thereof

Key questions to consider

24

7. Promotership (sponsor) requirements

The CSSF does not authorize the creation of a UCITS if not “promoted” by a reputable financial institution which commits its name and reputation to the proper functioning of the UCITS to be set up.

“anyone who establishes a UCITS, who determines its business

profile and who benefits from its results” The promoter must have financial means in order to face, as the

case may be, claims for indemnification in case damage would arise from any breach, irregularity or failure in the management or administration of the UCITS.

25

8. Selection of service providers

Mandatory service providers in Luxembourg:

• Custodian Bank • Central Administration Agent • Auditor

Optional service providers (not necessarily in Luxembourg):

• Investment Manager • Investment Advisor • Distributor • Paying Agent / Listing Agent

26

9. Available legal forms

Contractual form: UCITS may be of the contractual type (fonds commun de placement or “FCP”). FCP structures necessarily need a Management Company Corporate form: UCITS may also be created under a corporate form

either as (i) a société d’investissement à capital variable (“SICAV”) or (ii) a société d’investissement à capital fixe (“SICAF”). SICAV or SICAF structures may appoint a Management Company Umbrella FCP, SICAV or SICAF, concept of “sub-fund” or

“compartments”

27

10. Capital requirements

Minimum capital (AuM) at SICAV (FCP) level EUR 1,25 million (to be reached within 6 months ) Self-Managed SICAV EUR 300.000.- upon incorporation, EUR 1,25

million thereafter (to be reached within 6 months) Capital requirements for the ManCo EUR 125.000.- upon

launching, thereafter, 0,02% of value of portfolios managed by the ManCo in excess of EUR 250 million.

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11. Substance requirements in Luxembourg

The head office of SICAV or Management Company of the FCP (or of a SICAV) must be located in Luxembourg (subject to the Management Company passport under UCITS IV) Two Conducting Persons must be appointed by the board of directors

of the self-managed SICAV or the board of directors/managers of the management company of a FCP (or of a SICAV), one of whom must be a Luxembourg resident

Human and technical infrastructure in Luxembourg

Three usual scenarios (i) FCP + ManCo, (ii) Self-Managed SICAV and

(iii) SICAV + ManCo

29

12. Professional expertise

Directors and Conducting Persons are subject to CSSF approval

Directors must justify their repute and professional experience,

there is no residency requirement for the Directors Professional qualification of the directors under close scrutiny

30

13. Eligible assets and restrictions

Articles 41 and following of the 2010 Law Eligible assets

• Transferable Securities and structured financial instruments • Money Market Instruments • Units of UCITS and other eligible UCIs • Deposits with credit institutions • Financial derivative instruments (FDIs) based on eligible underlying assets

Possibility to achieve Alternative Strategies CESR/ESMA guidelines / papers Grand-Ducal Regulation of 8 February 2008

31

13. Eligible assets and restrictions (continued)

Articles 43 and following of the 2010 Law A UCITS may invest no more than 10% of its assets in transferable securities

or money-market instruments issued by the same body The total value of the transferable securities and money-market instruments

held by a UCITS in the issuing bodies in each of which it invests more than 5% of its assets shall not exceed 40% of the value of its assets A UCITS may not invest more than 20% of its assets in deposits made with

the same body A UCITS may acquire the units of UCITS and/or other UCIs provided that no

more than 20% of its assets are invested in the units of a single UCITS or other UCI. Investments made in units of UCIs other than UCITS may not in aggregate exceed 30% of the as-sets of a UCITS.

32

14. Reporting obligations

Annual report to be made available within 4 months Semi-annual report to be made available within 2 months Long form report by the Auditor Enhanced disclosure obligations in financial reports Key Investor Information Document (KIID) NAV calculation: min. 2x/month + at subscriptions / redemptions

Specific Reporting / Publishing requirements for UCITS

33

15. Distribution aspects: Cross-border distribution

Enhance cross-border marketing of UCITS in the European Union, the UCITS

IV Directive introduced a new streamlined and harmonized regulator-to-regulator notification procedure Marketing in the host Member State is allowed within 10 working days of

submission of the notification file to the competent authorities of the UCITS home Member State Only the KIID will need to be compulsorily translated into one of the official

languages of the host Member State or a language approved by the latter’s competent authorities

UCITS IV Improved Notification Procedure

34

16. The UCITS IV EU Directive

Master Feeder Structures

A UCITS or sub-fund thereof (feeder UCITS) may be authorised to invest 85% of its assets (at least) in units/shares of a single UCITS or sub-fund thereof (master UCITS) may hold up to 15% of its assets in, inter alia, ancillary liquid assets or derivatives used for hedging purposes only

A master UCITS with at least two feeder UCITS does not have to raise capital from the public, and a master UCITS is not subject to a notification procedure in the feeder UCITS home Member State if it does not raise capital from the public in that Member State

To avoid opaque cascade structures, a master UCITS may not itself be a feeder UCITS or hold units of a feeder UCITS.

Regulatory approval of the feeder UCITS to be granted within 15 working days following filing of the complete file

35

16. The UCITS IV EU Directive (continued)

Management Company Passport A management company authorized to conduct its business in one Member

State can do so in all other Member States, based on a simple notification procedure

Co-existence of two sets of national rules: the national provisions in force in the management company’s home Member State will apply to the organization and management of such company, whereas the rules in force in the UCITS home Member State will apply to the setting-up and running of the UCITS.

Creation of a common legal framework for all management companies (whether they use the new passport or not) for their organization and the conduct of their business, thus ensuring legal certainty in this respect, as well as a level-playing field with MiFID

36


Cross-border Mergers Merger techniques available under Art. 2(1)(p) of the UCITS IV Directive must be

provided for under the law of the merging UCITS home Member State

1. Merger by absorption: ≧ 1 merging UCITS are dissolved (without liquidation) and merged into another existing/receiving UCITS, with transfer of all assets and liabilities

2. Merger by creation of a new UCITS: ≧ 2 merging UCITS are dissolved (without

liquidation) and merged into a newly formed UCITS, with transfer of all assets and liabilities

3. Merger with transfer of net assets only: ≧ 1 merging UCITS continue to exist until

discharge of all liabilities + transfer of net assets to the receiving UCITS (existing or newly formed)

37


Cross-border Mergers (continued) Only one regulator in charge of approving the merger project = the competent authority

of the merging UCITS home Member State

Regulatory approval to be sought prior to the implementation of the merger

The approval will be granted under certain conditions: • the merger project complies with the relevant procedural requirements • the receiving UCITS is authorised to market its units in the same countries in which

the merging UCITS is authorised or notified for distribution • the information to be provided to the unitholders of both UCITS is deemed

satisfactory

38


Cross-border Mergers (continued)

Specific requirements as to the documents to be produced and the content thereof, in particular the Merger Project, the Notice to Unitholders of the merging and receiving UCITS.

Majority rules, as provided under the national laws applicable to the UCITS involved, may not exceed 75% of the votes cast at the general meeting of shareholders.

The presence quorum may not be more stringent (i) for UCITS than for corporate entities, or (ii) for cross-border mergers of UCITS than for purely domestic mergers of UCITS

Involvement of the Custodian Bank and the Auditor.

39

17. UCITS Tax Aspects

CIT, MBT and NWT: • SICAV are exempt from CIT, MBT and NWT • FCP is not subject to CIT, MBT and NWT (considered as tax transparent)

No WHT levied on distributions (save for the Savings Directive)

Subject to an annual subscription tax computed on the net asset value, 0.05% for UCITS

(reduction to 0.01% for certain money market cash funds and institutional funds and exemptions for units or shares held in other Luxembourg UCI subject to the subscription tax, to certain funds - or individual compartments - investing in certain money market instruments or mainly in microfinance, to certain pension pooling funds and to exchange-traded funds) and institutional Class Units/Shares

DTT benefits:

• Several DTTs applicable to SICAV • Not applicable to FCP but investors may claim for the application of DTT concluded

between their State of residence and the State of residence of the investments

General rules

40

17. Tax Aspects (continued)

Existing exemption from subscription tax for pension funds extended to multi-employer pension pooling funds where several employers provide pension benefits to their employees

Capital gains realised by non-resident investors on the disposal of shares held in a Luxembourg UCITS in the form of an investment company (SICAV or SICAF) are no longer subject to Luxembourg income tax (UCITS IV - master-feeder structures)

Tax neutrality in Luxembourg for domestic and cross-border mergers at UCITS

level (UCITS IV)

General rules (continued)

41

ManCo Luxembourg

Luxembourg

Country A Country B Country C

UCI UCI UCI


Objective: removing existing tax barriers Exemption from Luxembourg taxes

(CIT, MBT and NWT) of UCIs governed by foreign law and with central administration or place of effective management in Luxembourg

As a consequence foreign funds do not become subject to Luxembourg taxation due to the fact that they are managed by a Luxembourg management company

ManCo Passport (UCITS IV)

Questions & Answers

Session 2

Alternative Investment Funds (AIFs)

44

1. The Luxembourg AIFs Market

The leading European regulated PERE funds center

Evolution from PERE acquisition gateway to regulated PERE funds center Leading PERE service providers present in Luxembourg Leading global PERE houses operating in Luxembourg

USD 80 billion in assets, over 400 regulated funds (number of unregulated funds unknown)

45

1. The Luxembourg AIFs Market (continued)

3i

American Capital Apax Partners Bain Capital BC Partners Blackstone Carlyle Cinven CVC Fortress Goldman Sachs

Global private equity houses in Luxembourg

Investcorp JP Morgan KKR Kreditanstalt für Wiederaufbau

(KfW) Lazard LGT Capital Partners Oaktree Capital Permira Unicapital Warburg Pincus

46


Aberdeen AMB Capital Aviva BlackRock Blackstone BNP Paribas Carlyle CBRE Investors Cordea Savills Deutsche Bank ECE Heitman

Henderson Global Investors Hines ING JP Morgan LaSalle Morgan Stanley Pramerica ProLogis Schroders Threadneedle Tishman Speyer

Global real estate houses present in Luxembourg

47


Undertakings for Collective Investment in Transferable Securities (UCITS): Law of 17

December 2010 on undertakings for collective investment (Part I)

Undertakings for Collective Investment (UCI): Law of 17 December 2010 on undertakings for collective investment (Part II)

Specialized Investment Funds (SIF): Law of 13 February 2007 on specialized investment funds, as amended (currently being revised)

Société d’Investissement en CApital à Risque (SICAR): Law of 15 June 2004 on investment companies in risk capital, as amended

Securitization Vehicles (SV): Law of 22 March 2004 on securitization, as amended

SOciété de PARticipation FInanciere (SOPARFI): Law of 10 August 1915 on commercial companies, as amended

Key structures available in Luxembourg

48

2. Criteria for choosing a specific AIF structure

Regulated vs. Non-regulated Distribution aspects: eligible investors Distribution aspects: cross-border distribution Available legal forms Substance requirements Professional expertise Service providers Investment strategies and restrictions Risk management Regulatory approval process Reporting obligations

49

3. Regulated vs. Non-regulated

Legal framework of the SOPARFI

Law dated 10 August 1915 on commercial companies, as amended Contract based No restrictions regarding eligible investors No restrictions regarding eligible assets No restrictions regarding investment strategies No risk diversification rules No approval and/or supervision by a supervisory authority Possibility to create hybrid financing instruments, classes of shares

50

4. Distribution aspects: Eligible investors

Sophisticated

investors: Institutional

investors Professional

investors Well-informed

investors

SIF

Sophisticated

investors: Institutional


investors Well-informed

investors

Retail investors

Institutional


investors

Retail investors

Institutional


investors

SICAR UCI UCITS

51

5. Distribution aspects: Passport

No retail distribution

Private placement with sophisticated investors (currently no harmonisation at EU level)

SIF

No retail distribution

Private placement with sophisticated investors (currently no harmonisation at EU level)

No EU passport for public offer

Registration for public offer according to Host Member State rules

Closed-ended funds-passport and private placement exemptions granted by Prospectus Directive

Public offer via EU passport

SICAR UCI UCITS

52

6. Available legal forms

FCP

SICAV

SICAF

Umbrella

structure possible

SIF

Corporate entity

with fixed or variable share capital

Umbrella

structure possible

FCP

SICAV

SICAF

Umbrella

structure possible

FCP

SICAV

SICAF

Umbrella

structure possible

SICAR UCI UCITS

53

7. Substance requirements in Luxembourg

Head office of

SICAV/SICAF or ManCo of FCP in Luxembourg N/A

SIF

Head office of

SICAR in Luxembourg N/A

Head office of

SICAV/SICAF or ManCo of FCP in Luxembourg

N/A

Head office of

SICAV/SICAF or ManCo of FCP in Luxembourg One of the two

conducting persons of the ManCo of the FCP or of the self-managed SICAV must be in Luxembourg

SICAR UCI UCITS

54

7. Substance requirements in Luxembourg (continued)

ManCo

requirement (Chapter 16) for FCP N/A

SIF

N/A

ManCo

requirement (Chapter 16) for FCP

N/A

ManCo

requirement (Chapter 15) for FCP SICAV/SICAF

may be self-managed or may appoint a ManCo

SICAR UCI UCITS

55


Subscribed share

capital and share premium: EUR 1,25

million (to be reached within 12 months)

SIF

Subscribed share

capital and share premium: EUR 1 million (to be reached

within 12 months)

Minimum capital at

fund level:

EUR 1,25 million (to be reached within 6 months)

Minimum capital at

fund level:

EUR 1,25 million (to be reached within 6 months)

Self-managed

SICAV/SICAF: EUR 300.000 EUR 1,25

million (to be reached within 6 months)

SICAR UCI UCITS

56


Capital

requirement for ManCo: Initial capital: EUR 125.000

SIF

Not applicable

Capital


Capital


Additional capital: 0,02% of value of

portfolios managed by the ManCo in excess of EUR 250 million

SICAR UCI UCITS

57

8. Professional expertise

No Promoter

requirement Directors subject

to CSSF approval Directors must

justify their repute and professional experience No residency

requirement

SIF

No Promoter

requirement Notification of

Directors to CSSF

Directors must justify their repute and professional experience No residency

requirement

Promoter




requirement

Promoter




requirement

SICAR UCI UCITS

58

9. Service Providers

Mandatory service providers in Luxembourg for UCI/SIF/SICAR:

Custodian Bank Central Administration Agent Auditor

Optional service providers (not necessarily in Luxembourg):

Investment Manager Investment Advisor Distributor Paying Agent / Listing Agent

59

10. Eligible assets and restrictions

No limitation regarding eligible assets and investment strategies

Principle based risk diversification rules (CSSF Circular 07/309), 30% diversification generally accepted.

SIF

Investment in risk capital

No risk diversification requirements

No limitation regarding eligible assets and investment strategies

Risk diversification rules (20% rules)

Art. 41 and following of 2002 Law CESR Guidelines Grand-Ducal Regulation of 8

February 2008 Eligible assets:

Transferable securities and structured financial instruments Money market instruments Units of UCITS and other

eligible UCIs Deposits with credit

institutions Financial derivative

instruments based on eligible underlying assets

Examples of alternative strategies: Hedge Fund indices 130/30 strategy Absolute return strategies

(structured financial instruments)

SICAR UCI UCITS

60

11. Regulatory approval process

• Identifying and deciding on key structural issues

• Drafting key legal documents, amending and settling them with all interested parties

Submission to CSSF • CSSF approval & launch date

• Start of public offer / private placement in Luxembourg

Start of registration in other countries or private placement

T T+4 w T+5 w T+12 w

61

12. Reporting obligations

Annual Report

(to be made available within 6 months)

N/A

N/A Reduced disclosure

obligation in financial reports

No KIID required No min. NAV

calculation

SIF

Annual Report


N/A

N/A Reduced disclosure

obligation in financial reports

No KIID required N/A

Annual Report


Semi-Annual Report (to be made available within 2 months)

Long Form Report Enhanced disclosure

obligations in financial reports

No KIID required NAV calculation: min.

1x/month + at subscriptions / redemptions

Annual Report


Semi-Annual Report (to be made available within 2 months)

Long Form Report Enhanced disclosure

obligations in financial reports

KIID required NAV calculation: min.

2x/month + at subscriptions / redemptions

SICAR UCI UCITS

62

UCI SIF SICAR SOPARFI

1. Direct tax

(CIT and

MBT)

Tax exemption (+ transparency for

FCP)

Tax exemption (+ transparency for

FCP)

Tax transparent or taxable with specific

exemption

Income taxable at 28.80% but

dividends, liquidation proceeds and capital

gains are 100% exempt under

certain conditions

2. WHT No No No 15% on dividends (except participation exemption or treaty

reduction)

3. DTT Limited access Limited access Yes in principle Yes

13. Tax Aspects

63

UCI SIF SICAR SOPARFI

4. EU aspects

No access to parent-subsidiary directive

No access to parent-subsidiary directive

Access to parent-subsidiary directive depends on other country’s analysis

Access to parent-subsidiary directive

5. Registration duty

EUR 75 EUR 75 EUR 75 EUR 75

6. Subscription Tax

0.05% subscription tax but exemptions

or reduced rate

0.01% subscription tax but exemptions

n/a n/a

7. VAT VAT exemption on management

services

VAT exemption on management

services

VAT exemption on management

services

No VAT registration (except performance

of taxable activity)


64


Tax advantages of the SOPARFI

Luxembourg tax resident entitled to treaty network + EU Directives (tax residence certificates available);

Several exemptions from CIT/MBT (max. rate 28.80%) available for profits derived from shareholdings, IP rights and foreign assets (real estate)

Several exemptions from NWT (0.5%) available for profits derived from shareholdings, IP rights and foreign assets (real estate)

Several exemptions from dividend WHT (15%) No WHT on liquidation proceeds No WHT royalties

65


Tax advantages of the SOPARFI (continued)

No WHT on interest payments made to companies No WHT on interest payments made to individuals (except Luxembourg

residents or non-residents subject to the EU Savings Directive who have not opted for an exchange of information)

No capital duty on incorporation (except a fixed registration duty of EUR 75) of companies through contributions in cash

No stamp or registration duty on disposal of shares (except a fixed registration duty of EUR 12 in case of voluntary registration)

Losses may be carried forward indefinitely Fiscal consolidation regime available No CFC rules No thin cap rules (except regarding intra-group financing transactions) Advance tax confirmations and advance pricing agreements available

66


DTT Hong Kong - Luxembourg

Withholding tax rates: • Dividends: 10% reduced to 0 if beneficial owner is a company holding at least 10% of

the capital of the distributing company or shares with an acquisition value of EUR 1.2 million

• Interest: Nil • Royalties: 3%

Elimination of double taxation:

• Hong Kong: tax credit • Luxembourg: exemption or tax credit

Exchange of information: In line with article 26 of the OECD Model (incl. paragraph 26-5 stating that the fact that the

information is held by a bank, financial institution is not sufficient to decline to supply the requested information)

67

Example of SOPARFI structure

68

SICAV / SICAF / FCP: no CIT, MBT and NWT on profits and gains no WHT on distributions to Investors (subject to

Savings Directive) subscription tax of 0.05% (subject to

reductions/exemptions)

LuxCo: taxable income of LuxCo offset by interest expenses

save for an arm’s length taxable spread (aggregate CIT and MBT rate for 2011: 28.80%)

Luxembourg participation exemption regime on dividends and capital gains deriving from Local SPVs

no WHT on interest paid to the fund

Investors: no Luxembourg taxation (incl. capital gains) foreign tax treatment of income received from the

fund should be considered (DTT benefit)

SICAV/SICAF/FCP

Local SPV Local SPV

LuxCo

Investors

Interest-bearing loan PPL

Interest-bearing loan PPL

Example of SICAV/SICAF/FCP structure

69

Lux SICAR: income from securities (incl. capital gain) is

tax exempt not subject to NWT no WHT on dividends / interest paid to

Investors

Investors/Target: no Luxembourg taxation (incl. capital gains) DTT to be checked on a case-by-case

basis tax treatment of income paid to / received

from a SICAR should be considered Interposition of a fully-taxable Luxembourg

company generally reduces potential tax costs

Lux SICAR

Target

Income from securities

Investors

Interest or dividend

Example of SICAR structure

70

Corporate income tax (CIT) : 22.05% (incl. surcharge for employment fund)

Municipal business tax (MBT) for Luxembourg City: 6.75%

Withholding tax (WHT) on dividends: 15%

WHT on interest and liquidation proceeds: N/A (unless application of Savings Directive 2003/48/EC)

Net worth tax (NWT): 0.5% on NAV

Subscription Tax (ST): 0.01%


2011 Tax Rates

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Circulars 164/2 and 164/2 bis LIR on intra-group financing transactions

Circular 164/2 LIR (January 2011) dealing with the tax treatment of companies engaged in intra-group financing transactions, clarifies prior clearance through advance pricing agreements (APA)

• Introduction of transfer pricing guidelines for the determination of arm’s length character of intra-group financing transactions based on article 9 of the OECD Model Convention and the OECD Transfer Pricing Guidelines

• Applicable to all entities engaged in intra-group financing transactions, meaning entities which: grant loan(s) as a main activity to direct or indirect affiliated / controlled companies refinanced by debt

Circular 164/2 bis (April 2011) clarifying that advance tax agreements (ATA) in relation to intra-group financing transactions obtained before January 2011 no longer binding on Revenue as from 2012


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Advance Pricing Agreement (APA)

APA conditions:

• demonstrate genuine presence in Luxembourg (i.e. a minimum substance, such as Luxembourg resident directors, Luxembourg bank account, ...); and

• assume transaction risk (i.e. a minimum equity of 1% of the financing volume with a maximum of EUR 2 million)

• prepare transfer pricing analysis (de minimis rule: < EUR 25 million)

APA validity of maximum 5 years (but renewable)

APA with binding effect on the Luxembourg tax authorities unless:

• the situation or the operations described were incomplete or not accurate • the base elements of the transaction differ from the request, or • the confirmation is contrary to international law


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AIF related intra-group financing transactions

LuxCo

Local SPV Local SPV

Lux HoldCo Lux FinCo

Loan

Investors

LuxAIF

Loan

Loan

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14. AIFMD – Impact on Luxembourg PERE funds

Are all PERE funds AIFs? Exemptions Each AIF must appoint an AIFM AIF passport

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Are all PERE funds AIF?

No, the scope of the AIFMD is defined by other criteria than the type of vehicles

An AIF is A collective investment undertaking which raises capital from a number of investors with a view to investing it in accordance with a defined investment

policy for the benefit of those investors which is not governed by the UCITS regulation

14. AIFMD – Impact on Luxembourg PERE funds (continued)

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Are all PERE funds AIF? (continued)

PERE funds which may fall outside the scope of the AIFMD:

Single investor vehicles Joint ventures Club deals Single target investment vehicles set up on an ad hoc basis Holding companies


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Exemptions

de minimis exemption • AIF whose AUM are below EUR 100 mio • Unleveraged AIF with no redemption rights for a period of 5 years whose

AUM are below EUR 500 mio

grand fathering provisions applicable to AIFM who manage closed-

ended AIF may benefit PERE funds • which do not invest after the final transposition date (July 2013) • which closed before the entry into force of the directive (July 2011) and

whose term expires at the latest in 2016


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General Partner (SCA)

Holdco

SPV

Investment Manager

Asset Manager

Investors

Investment Advisor

and / or SICAV

(UCITS, UCI, SIF)

Authorisation requirements

Capital requirements

Good repute, professional experience of conducting persons

Conduct of business rules

Remuneration policies

Conflicts of interest

Risk management

Target Assets


http://de.wikipedia.org/w/index.php?title=Datei:Flag_of_Luxembourg.svg&filetimestamp=20100406182026

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Each AIF must appoint an AIFM

An AIFM must at least perform • portfolio management and • risk management

Portfolio management in the context of a PERE AIF

• Role of the governing body of the AIF • Investment Advisor or Investment Manager • Asset Manager / Property Manager


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Possibility for such AIFM to delegate

Delegation of portfolio management (or risk management) to entities which are authorised or registered for the purpose of asset management and subject to supervision

• delegates must be qualified and capable, have sufficient resources and be

of sufficiently good repute and experienced. • portfolio management may only be delegated to an authorised and

supervised entity, unless with the prior approval of the manager’s regulator. • not applicable to property managers, however mandates to property

managers containing strategic asset management services should be reviewed carefully.

• a delegate may only be a third country entity where an appropriate cooperation agreement is in place between that third country and the AIFM’s own jurisdiction.


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2013 – Passport becomes available for EU AIFM marketing EU AIF within the EU

2015 – Passport becomes available for EU AIFM marketing non-EU AIF within the EU AND for non-EU AIFM marketing EU OR non-EU AIF within the EU

2018 – National private placement regimes replaced by Passport regime


AIFM Passport

Questions & Answers

Guy Harles – Partner / Member of Private Equity Practice Email : [email protected] Tel. (Luxembourg): (+352) 40 78 78 204 Tel. (Hong Kong): (+852) 2801 58 55 Eric Fort – Tax Partner, Arendt & Medernach Email : [email protected] Tel. (Luxembourg): (+352) 40 78 78 306 Stephane Karolczuk – Senior Associate / Head of Hong Kong Office Email : [email protected] Tel. (Hong Kong): (+852) 2801 58 33

Contact Us

This presentation of Arendt & Medernach is designed to provide with summarized information and illustrations regarding the topics covered by such a presentation. This information and those illustrations are not intended to constitute legal advice and do not substitute for the consultation with legal counsel required before any actual undertakings.

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