Luxembourg implements AIFMD

Transcription

1 10 July 2013 Newsflash Luxembourg implements AIFMD Bill n 6471, to transpose the directive 2011/61/EU of the European Parliament and of the European Council of 8 June 2011 on alternative investment fund managers (the AIFMD), was adopted today by the Luxembourg Parliament (the AIFM Law). While the main purpose of the AIFM Law is to implement the AIFMD into Luxembourg domestic law with specific new legislation governing the regime of alternative investment fund managers (AIFMs), Luxembourg has also taken the opportunity: to adapt its current products laws - UCI Law 1, SIF Law 2, SICAR Law 3 and ASSEP and SEPCAV Law 4 (the Products Laws); to introduce a new regime for depositaries of assets other than financial instruments; to modernise the legal and tax framework of the existing Luxembourg limited partnership (société en commandite simple, LP) which has legal personality and to introduce a new special limited partnership (société en commandite spéciale, SLP) without legal personality; and to clarify the tax treatment of carried interest in Luxembourg (see our newsflash dated 17 October 2012). The AIFM Law will enter into force on the day of its publication in the Luxembourg official gazette, which is expected to occur before 22 July the law of 17 December 2010 relating to undertakings for collective investment, as amended 2 the law of 13 February 2007 relating to specialised investment funds, as amended 3 the law of 15 June 2004 relating to investment company in risk capital, as amended 4 the law of 13 July 2005 on institutions for occupational retirement provision in the form of a pension savings company with variable capital (SEPCAV) and a pension savings association (ASSEP), as amended

2 1. Implementation of the AIFMD The AIFMD primarily introduces the regime applicable to AIFMs. Certain of the provisions of the AIFMD (such as those relating to depositaries, delegation, assets valuation and disclosure to investors), however, directly impact alternative investment funds (AIFs) which may already be governed by the Products Laws. The AIFM Law transposes the AIFMD but also implements changes regarding certain Luxembourg regulated AIFs by amending the Products Laws AIFMD The provisions of the AIFM Law transposing the AIFMD closely mirror the provisions of the AIFMD and apply to AIFMs established in Luxembourg and managing AIFs, irrespective of the country of origin of those AIFs (whether Luxembourg, another Member State or a third country), regulated or not, subject to the exemptions and derogations provided for in the AIFM Law. In addition, the AIFM Law applies to AIFMs that are established outside of the EU to the extent that they manage AIFs established within Luxembourg, or market AIFs (wherever those funds are located) to investors in Luxembourg How do you identify an AIFM? The AIFM Law states that any legal person (the AIFM) whose regular business is to manage one or more AIFs must comply with the AIFM Law unless that AIFM fall out of the scope of the AIFM Law. An AIF is defined as a collective investment undertaking, or its compartments: 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; and which is not covered by Directive 2009/65/EC on undertakings for collective investment in transferable securities (UCITS and the UCITS Directive). An AIFM may be either: (a) external i.e. an external manager, which is the legal person appointed by the AIF or on behalf of the AIF and which is responsible for managing the AIF; or (b) internal i.e. the AIF itself (which must be authorised as AIFM), where the legal form of the AIF permits internal management and where the AIF s governing body chooses not to appoint an external AIFM Entities excluded from the scope of the AIFM Law The AIFM Law does not apply to, inter alia, (i) holding companies, (ii) pension funds, or (iii) securitisation vehicles. 2

3 Exemptions The AIFM Law also provides exemptions for (a) an AIFM in so far as it manages an AIF the only investors in which are its parent undertakings, its subsidiaries or other subsidiaries of its parent undertakings, provided that none of those investors itself is an AIF (intra group exemption); and (b) AIFMs that directly or indirectly (through a company with which such AIFM is linked by common management or control, or by a substantive direct or indirect holding) manage: (i) AIFs the assets under management (the AuM) of which, including any assets acquired through use of leverage, in total do not exceed a threshold of EUR 100 million; or (ii) AIFs the AuM of which in total does not exceed a threshold of EUR 500 million, that are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of the initial investment in each AIF, (each a de minimis Exemption). An AIFM that is exempt on the basis of a de minimis Exemption must nonetheless register with the Commission de Surveillance du Secteur Financier (the CSSF). Such an exempted AIFM (Exempted AIFM) will, at the time of its registration with the CSSF, identify the AIFs that it manages and provide information to the CSSF on the investment strategies of those AIFs. After its registration is complete, an Exempted AIFM will have to regularly (at least annually) provide the CSSF with information on the main instruments in which it is trading, on its principal exposures and on the most important concentrations of the AIFs ot manages in order to enable the CSSF to effectively monitor systemic risk. Should an Exempted AIFM no longer fall under one of the de minimis Exemptions, it will have to notify the CSSF of such change and apply for a full authorisation What if you are a non-eu AIFM? The authorisation of an AIFM established outside the EU (Non-EU AIFM) is expected to become available as from July Until that date, the AIFM Law does not apply to Non-EU AIFMs managing one or more AIFs established outside the EU (Non-EU AIF) without marketing those AIFs in Luxembourg and, pursuant to the CSSF FAQ published recently 5, Non-EU AIFMs should be able to continue to market Non-EU AIFs in Luxembourg under the current Luxembourg private placement rules until 22 July Thereafter, Non-EU AIFMs will have to comply with the provisions of the AIFM Law. 5 Frequently asked questions concerning the Luxembourg Draft Law of 2013 on alternative investment fund managers as well as the Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage transparency and supervision, version 1.0 issued by the CSSF on 18 June For more information on the CSSF s FAQ, see our newsflash dated 19 June

4 Grandfathering rules An AIFM falling under one of the de minimis Exemptions will not need an authorisation under the AIFM Law, but will have to register with the CSSF 6. The AIFM Law does not set out grandfathering rules for this registration, nor do the CSSF FAQ. A Luxembourg AIFM existing and exercising a management activity before 22 July 2013 has until 22 July 2014 to submit an application file 7. In applying Article 58(1) of the AIFM Law, the CSSF will distinguish between requirements applicable to the AIFM and the impact on the AIF itself. An AIFM has to submit a duly completed application file by 22 July 2014 at the latest. An AIF established prior to 22 July 2013, under the UCI Law, the SIF Law or the SICAR Law may, until 22 July 2014, appoint an AIFM which itself benefits from the transitional provision of Article 58 (1) of the AIFM Law. This being said, by 1 April 2014, it must submit a file to the CSSF containing information as regards its compliance with the Product Rules by 22 July The AIFM Law mentions two grand-fathering rules for an AIFM managing one or more existing AIFs of the closedended type that have been offered pursuant to a private placement. If such an AIF (i) does not make any additional investments after 22 July 2013, or (ii) closed its subscription period for investors prior to 21 July 2011 and if its term expires at the latest by 22 July 2016, the AIFM may continue to manage the AIF without needing an authorisation under the AIFM Law. In the latter case, however, the AIFM must comply with article 20 of the AIFM Law (Annual report) and, where relevant, articles 24 to 28 (Obligations for AIFMs managing AIFs which acquire control of non-listed companies and issuers), or to submit an application for authorisation under the AIFM Law Amendment of the Product Laws UCI Law Status of Part II UCIs The AIFM Law introduces a rule whereby each undertaking for collective investment (UCI) established under Part II of the UCI Law (Part II UCI) will qualify as an AIF. A Part II UCI will have to be managed by an AIFM even if one of the de minimis Exemptions applies. Consequently, an internally managed Part II UCI will have to be approved as an AIFM, whereas the external manager of an externally managed Part II UCI will have to be approved as an AIFM. The AIFM Law valuation rules will apply together with the current UCI Law valuation rules. Delegation of certain functions and the marketing of a Part II UCI s shares or units will be possible within the framework of the AIFM Law. 6 Art. 3(2) and Art. 3 a) of the AIFM Law 7 Art. 58(1) of the AIFM Law 4

5 Non-UCITS Management Companies (Chapter 16) Under the AIFM Law, management companies (ManCos) which were not compliant with the UCITS Directive will be divided into two categories: (a) AIFMD-compliant ManCos, which will benefit from the favourable treatment of the AIFM Law and an AIFMD passport. To that end, a new regulatory status is created to accommodate the AIFMD-compliant status and will subject such entities to the AIFM Law. These entities will be entitled to perform the core and ancillary functions as described in Annex I of the AIFM Law, which replicates Annex I of the AIFMD; and (b) AIFMD non-compliant ManCos, which primarily will be existing ManCos which are within one of the de minimis Exemptions. These ManCos will not benefit from the AIFMD passport. UCITS Management Companies (Chapter 15) As envisaged by the AIFMD, under the AIFM Law, a ManCo licensed for the management of a UCITS may, in addition, be designated as an AIFM of one or more AIFs, with the prior approval of the CSSF. In relation to AIFs, a UCITS ManCo may also perform the core and ancillary functions referred to above. A UCITS ManCo applying for an AIFM licence will not need to provide the CSSF again with previously delivered up-to-date information/documents SIF Law Implementation of the AIFMD with respect to all SIFs operates in two phases: (i) set-up of appropriate risk management systems and conflicts of interest procedures by 30 June 2012, and (ii) compliance with the conditions on delegation by 30 June In addition, the AIFM Law amends the SIF Law to establish two types of SIFs, namely (i) those managed by an AIFM, and (ii) those managed by a non-aifm. Any AIFMD-compliant SIF manager is subject to the following regime which is the same as the general SIF regime, with some exceptions: (a) the CSSF may approve a SIF whose central administration is not in Luxembourg if it has delegated its management to an AIFM who performs the functions required by the AIFM Law; (b) the valuation rules contained in the AIFM Law will apply together with the current valuation rules contained in the SIF Law; (c) the content of a SIF s annual report must comply fully with the AIFM Law; (d) the information to be communicated to the SIF s investors must be in line with the AIFM Law requirements; (e) the delegation rules contained in the AIFM Law will apply to the SIF in addition to the delegation rules inserted in article 42 of the SIF Law; 5

6 (f) it will benefit from the AIFMD marketing passport; and (g) it must align its depositary regime with the requirements of the AIFM Law SICAR Law The modifications to the SICAR Law will also provide for the creation of two types of SICARs: (i) those managed by an AIFM, and (ii) those managed by a non-aifm. The amendments to the SICAR Law are substantially the same as those described above in relation to the SIF Law ASSEP and SEPCAV Law ASSEPs and SEPCAV are allowed to delegate management of their assets to an AIFM established in Luxembourg or another Member State who are duly authorised to carry out investment portfolio management in accordance with the AIFMD Foreign AIFs managed by a Luxembourg AIFM not taxed in Luxembourg Luxembourg subjects foreign entities to taxation if they have their effective place of management or central administration in Luxembourg. An explicit exemption to this rule is made for foreign AIFs. This provision creates a welcoming environment for Luxembourg AIFMs managing foreign AIFs, as they will not expose the foreign AIF to the risk of being taxed in Luxembourg New VAT exemption on fund management and or fund investment advisory services Fund management services provided to Luxembourg regulated funds such as SIFs, SICARs or UCIs currently benefit from a VAT exemption. The AIFM Law extends this VAT exemption to all AIFs, whether regulated or not. Fund management fees, including fees for fund investment advisory services, provided to an AIF, would therefore not trigger VAT, in principle irrespective of whether the service provider is located in Luxembourg or abroad. This puts the AIF in an equivalent VAT position to LPs located in, for instance, an offshore jurisdiction. 2. Introduction of a new depositary status The AIFM Law allows investment firms (and not only credit institutions) to become depositary but also implements the option foreseen by article 21(3) of the AIFMD by creating a new status of professional of the financial sector - professional depositary of assets other than financial instruments (the NF Depositary). An NF Depositary will be able to act as depositary for the assets of those AIFs which (i) have no redemption rights exercisable during the period of five years from the date of the initial investments, and (ii) generally do not invest in assets that must be held in custody (article 19, paragraph 8(a) of the AIFM Law), or generally invest in issuers or non-listed companies in order to potentially acquire control over such companies (article 24 of the AIFM Law). 6

7 AIFs of the private equity type or with a real estate investment policy particularly will be targeted due their specific business model. Consequently, when appointing a Luxembourg depositary, such AIFs will have the option to appoint either a CSSF-approved credit institution, an investment firm, or a NF Depositary. Luxembourg thereby aims at positioning itself even more as the reference player in the alternative investment field. Approval to act as an NF Depositary may only be granted to corporations having a legal personality and an adequate minimum share capital requirement (EUR 500,000 instead of EUR 730,000 for credit institutions). Unlike credit institutions, an NF Depositary will not be subject to additional own funds requirements based on the volume of assets under custody. 3. Luxembourg LP and SLP 3.1. Modernisation of the legal framework of the existing LP The main changes introduced by the AIFM Law to the Company Law 8 in respect of LPs are the following: (a) partners will be granted extensive freedom in drafting the limited partnership agreement (the LPA) form and conditions for most of the decisions will depend on the partners will; (b) the LPA will be able to derogate from the one share, one vote principle; (c) partnership interests could be represented by securities allowing for partnership accounts (and loan accounts) debt securities may also be issued; (d) creditors will not be able to force limited partners to repay dividends that managers incorrectly distributed to them; (e) rights of internal management may be broadly granted to limited partners who will also be able to sign on behalf of the partnership provided that some conditions are met; (f) services contributions (such as the contribution of effort and management by the general partners) will be accepted alongside cash and in-kind contributions; (g) external (third party) managers may be appointed; and (h) the identity of each of the limited partners will not be published at any time Introduction of the SLP The AIFM Law also creates a new type of partnership, the SLP. The SLP will resemble the amended LP but will have no legal personality. SLPs (as long as they are not regulated by any specific Product Law) will not be required to publish annual accounts. 8 the law of 10 August 1915 on commercial companies, as amended 7

8 3.3. Tax treatment of the LP and SLP Full tax neutrality Through the AIFM Law, Luxembourg unregulated LPs can potentially become fully tax neutral. Under the old legislation LPs were already tax transparent for corporate income tax purposes. In case an LP would conduct a real business or a deemed business through a Luxembourg permanent establishment the business would become subject to municipal business tax (MBT) levied at a rate of 6.75% in Luxembourg City. A deemed business was recognized if the LP had a Luxembourg general partner organized as a capital company. The AIFM Law abolishes the deemed business concept for LPs where the Luxembourg general partner does not hold at least 5% of the LP interests. As general partners will seldom hold such a stake in an fund type of LP, a deemed business will be seldom recognized. The AIFM Law does not exclude an LP acting as a fund from conducting a real business, in which case the business and thus de facto the LP would become subject to MBT. It should be possible to obtain advance tax clearance from the Luxembourg tax authorities that activities of typical private equity funds do not constitute a real business. In all other respects a Luxembourg LP remains tax neutral; its distributions are not taxed in Luxembourg, and non-resident investors receiving distributions are not taxed in Luxembourg either unless the fund s income and capital gains are of Luxembourg source. For Luxembourg SLPs the same tax analysis applies VAT neutrality As mentioned in section 1.4 the AIFM Law extends the VAT exemption for fund management services, including fund investment advisory services, to all AIFs, whether regulated or not. That should put the LP and the SLP in a VAT neutral position, in principle irrespective of whether the service provider is located in Luxembourg or abroad. This brings the LP or SLP AIF in an equivalent VAT position to LPs located in, for instance, an offshore jurisdiction Possibility to structure preferred cross-border classification of the LP Although the transparency of the LP for foreign tax purposes can generally expected to be the default, in some cases tax opaqueness for foreign purposes may be preferred. With the modernised legal framework of the LP, the specific requirements (e.g. legal personality, transferability of LP interests) which are generally relevant for qualifying as either tax transparent or opaque, may now generally be structured as desired. 4. Changes in Luxembourg taxation of carried interest The AIFM Law introduces a beneficial tax regime for certain types of carried interest (l intéressement aux plus-values). It distinguishes between two categories of carried interest earned by the employees of an AIFM: (i) general carried interest; and (ii) carried interest attached to a share or unit in the AIF held by an employee of its AIFM. 8

9 4.1. Tax treatment of general carried interest Income received by employees of an AIFM is qualified as general carried interest when the income is based on an incentive right and is not attached to a share or unit in the AIF. Payments to employees of AIFMs can only be qualified as general carried interest if the investors have recouped their initial capital contributions. Such income will be considered as miscellaneous income and will in principle be taxed at the progressive income tax rates of up to 43.6% for For employees who migrate to Luxembourg, the AIFM Law provides for a substantially reduced tax for general carried interest arrangements. The conditions for benefiting from the reduced tax rate are the following: I. The employee migrates to Luxembourg within five years after the AIFM Law s entry into force; II. The employee in question has not, before migrating to Luxembourg, been domiciled in Luxembourg or been subject to Luxembourg individual income tax in the five years prior to the law s entry into force; III. No advance payments for carried interest have been paid to the employee; and IV. The remuneration is paid within ten years after the year when the employee began to practice the functions for which the carried interest is paid. If all these conditions are fulfilled, employees of an AIFM may benefit from a reduced rate corresponding to 25% of the personal income tax rate, leading to a maximum tax rate of % Tax treatment of carried interest derived from a share or unit Capital gains derived from the disposal of a share or a unit in a tax opaque AIF derived by an employee of its AIFM are taxed as ordinary capital gains. The tax regime applicable to such gains may turn out to be more favorable in comparison with the taxation of general carried interest arrangements, as a total exemption applies for capital gains when the shares or units are disposed of more than six months after their acquisition and represent 10% or less of the AIFs nominal capital. 9

10 For further information, please contact your regular adviser at Loyens & Loeff or: Investment Management Marc Meyers tel: Thibaut Partsch tel: Johan Terblanche tel: Laure Mersch tel: Tobias Niehl tel: Tax Peter Moons tel: Frank van Kuijk tel: VAT Thierry Charon tel: Eric Cayrel tel: Loyens & Loeff Avocats à la Cour 18-20, rue Edward Steichen L-2540 Luxembourg tel: fax: Loyens & Loeff is a leading Luxembourg law firm providing comprehensive and fully integrated legal and tax advice on corporate and commercial law, banking and finance, investment management, M&A, private equity, real estate, tax law and litigation. Our clients include private and public companies, financial institutions, investment funds and family offices. Our office is part of a worldwide network of 17 offices with around 900 legal and tax experts. Disclaimer Although this publication has been compiled with great care, Loyens & Loeff, Avocats à la Cour, Luxembourg and all other entities, partnerships, persons and practices trading under the name Loyens & Loeff, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.