Luxembourg Investment Vehicles SIF 2017 MILAN ROME LUXEMBOURG LONDON LUGANO DUBLIN SINGAPORE DUBAI

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1 Luxembourg Investment Vehicles SIF 2017 MILAN ROME LUXEMBOURG LONDON LUGANO DUBLIN SINGAPORE DUBAI Juin 2017

2 We are what we repeatedly do. Excellence, then, is not an act, but a habit. -Will Durant- 2 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.

3 > THE LUXEMBOURG ENVIRONMENT Luxembourg is the world s second largest investment funds domicile, and is the prime location for the pan-european and global distribution of investment funds under the UCITS brand. Initially designed as a global retail funds hub under the sole UCITS brand, Luxembourg has gradually opened up to the alternative asset classes, offering personalised structuring solutions through specialized investment vehicles. Structuring flexibility, investor protection and tax efficiency are the crucial elements that have inter alia helped to convince the investors, to shift 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. 3

4 > SIF: THE VEHICLE IN A NUTSHELL The purpose of this brochure is to provide you with a bird s eyes view of the legal framework, investment policies as well as reporting and taxation 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 international, 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 expressly 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 policy and a more relaxed regulatory regime. > LEGAL FRAMEWORK SIFs are subject to the Luxembourg Law of 13 February 2007 on Specialized 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 Alternative Investment Funds ( AIFs and SIFs AIFs ) and are required to be managed by an authorized Alternative Investment Fund Manager ( AIFM ) within the meaning of Directive 2011/61 EU of 8 June 2011 on alternative investment fund managers (see PART 2 - SPECIFIC PROVISIONS FOR SIFs AIFs). The Luxembourg Supervisory Authority of the financial sector ( Commission de Surveillance du Secteur Financier or CSSF ) has also issued several circulars concerning SIFs (CSSF Circulars 07/283 of 13 February 2007, 07/309 of 3 August 2007, 07/310 of 3 August 2007, 08/327 of 5 September 2008.) 4

5 Part 1. PROVISIONS APPLICABLE TO ALL SIFs > AUTHORISATION AND SUPERVISION SIFs are regulated vehicles subject to the permanent supervision of the CSSF. Therefore, a SIF is subject to the prior authorisation by the CSSF before it can be launched and carry out its activities. > STRUCTURAL AND LEGAL ASPECT 1. LEGAL FORMS Although, 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 capital 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 STRUCTURE The 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 segregated from the investments compartments. Must be considered that the CSSF may withdraw the authorization granted to one compartment without undermining the authorization granted to other compartments. 3. CROSS COMPARTMENT INVESTMENTS A compartment of an umbrella SIF can invest in one or more other compartments of the same SIF, a so-called cross-compartment investment. 4. CAPITAL REQUIREMENT AND OTHER ASPECTS SIF 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 following 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. 5

6 Part 1. PROVISIONS APPLICABLE TO ALL SIFs > ELIGIBLE INVESTORS Only 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 and a. invests a minimum of EUR 125,000; or b. has obtained an assessment from a credit institution, an investment firm or a management company which has certified which certifies the investors ability to understand the risks associated with investing in the SIF. > ELIGIBLE ASSETS AND RISK DIVERSIFICATION REQUIRE- MENTS There is no restriction in terms of eligible assets so in other words can invest, inter alia, in equity funds, bond funds money market funds, real estate 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 deposited on the 18 January 2016 with the Luxembourg Parliament, concerning 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 same type issued by the same issuer; (ii) short sales may not in principle result in the SIF holding a short position in securities of the same type issued by the same issuer representing more than 30% of its assets; (iii) when using financial derivative instruments, the SIF must ensure, via appropriate diversification of the underlying assets, a similar level of risk-spreading. 6

7 Part 1. PROVISIONS APPLICABLE TO ALL SIFs > SERVICE PROVIDERS AND OTHER REGULATORY ASPECTS 1. DEPOSITARY The 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 registered 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 financial sec-tor, as amended ( Financial Sector Law ). 2. EXTERNAL AUDITOR The 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 ADMINISTRATION Administrative 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 REQUIREMENTS The SIF is required to produce an offering document to be supplied to investors which must include the information necessary for investors to be able to make an informed judgment of the investment proposed to them and of the risks connected thereto. The content of the same and any amendments carried out from time to time are subject to the appro-val of the CSSF. SIF are also required to publish an audited annual report within six months from the end of the period to which the report relates. SIF Law contains an appendix which describes the specific information to be included in the annual report (i.e. qualitative and/or quantitative info to be given on the portfolio of investments allowing investors to make an informed judgement concerning the evolution of the activity). 7

8 Luxembourg Investment Vehicles / SIF > REQUIREMENT TO APPOINT AIFM SIFs 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 MANAGER The AIFM may delegate part of its portfolio management or risk 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 REPORT Compared to the general provisions applicable to SIFs, SIF AIFs are required to disclose additional information in their annual report such as (i) the total amount of remuneration paid by the AIFM to its staff for the financial year, (ii) the number of beneficiaries, (iii) any carried interest paid by the SIF AIF and (iv) the aggregate amount of remuneration as broken down by senior management and by AIFM staff members whose actions have a material impact on the risk profile of the SIF AIF. > ADDITIONAL INFORMATION TO INVESTORS As specified by the AIFM Law, the AIFM of a SIF AIF must provide additional information to the investors and in particular the securities financing transaction and total return swaps that the AIFM is authorized to use and a clear statement that those transactions and instruments are used. 8

9 > MARKETING AND LISTING 1. MARKETING 1.1 SIF AIFs Marketing to EU professional investors Currently 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 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 SIFs SIFs 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. 9

10 > TAXATION 1. GENERAL TAX REGIME OF A SIF SIF incorporated as FCP are treated as tax transparent. However, in practice, the Luxembourg tax authorities will consider that the SIF s income is only transferred to its investors at the time profits are distributed. Generally, SIF set up as a SICAV or a SICAF are treated as opaque for tax purposes. The rate of the annual subscription tax payable by the SIF referred 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, provided that such units have already been subject to the subscription tax; b) SIFs as well as individual compartments of SIF with multiple compartments: (i) whose sole objective is the collective investment in money market instruments 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 recognized rating agency; c) SIFs whose securities or partnership interests are reserved for: (i) institutions for occupational retirement provision, or similar investment vehicles, set up on one or more employers initiative for the benefit of their employees and (ii) companies of one or more employers investing funds they hold, in order to provide retirement benefits to their employees. d) SIFs as well as individual compartments of SIFs with multiple compartments whose main objective is the investment in microfinance institutions. 2. EXEMPTION FROM LUXEMBOURG INCOME TAXES A 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. 10

11 3. VALUE ADDED TAX SIFs are considered a taxable entity for VAT purpose. The management company and the FCP are considered to be a single legal entity for VAT purposes. The fee perceived by the «management and the administration» of the SIFs are exempt from VAT in Luxembourg. 4. TAXATION OF THE MANAGEMENT COMPANY The management company of a SIF is fully taxable (Corporate Income Tax in Luxembourg, Municipal Business Tax and Net Wealth Tax). 5. TAX AUTHORITY FOR THE TAX CONTROL The tax authority responsible for the tax control of the SIF is Administration de l Enregistrement et des Domaines. If the Administration considers the SIF is engaging in operations which fall outside the framework of the activities authorized by the Law, the tax provisions of the SIF Law shall cease to be applicable and, furthermore, a fine of 0,2 % can be levied on the amount of the assets of the SIF. 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. 11

12 Presentation of the Firm 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 jurisdictions (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 Luxembourg 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, regulatory and 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. 12

13 CONTACT We would love to hear from you. Don t hesitate to get in touch with one of our professionals or dedicated departments. info@lextray.lu Lextray Corporate and Tax S.à r.l. 2, Boulevard de la Foire L Luxembourg Tel Fax Lextray Legal S.à r.l. 5, Rue Aldringen L Luxembourg Tel Fax Talk to us about your concerns and find out more by visiting us at