Luxembourg Investment Vehicles SICAR 2017 MILAN ROME LUXEMBOURG LONDON LUGANO DUBLIN SINGAPORE DUBAI April 2017
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.
> 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 location (see its stringent any money-laundering regulation) has greatly contributed to its business appeal. 3
> SICAR: 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 the reporting and taxation particularities of the Investment Company in Risk Capital (Société d investissement en capital à risque or SICAR ). We hope that you find it useful and that it meets your expectations. SICAR is a regulated, fiscally efficient structure designed for private equity and venture capital investments, benefiting from a light regulatory regime while still being subject to the permanent supervision of the Luxembourg Supervisory Authority of the financial sector ( Commission de Surveillance du Secteur Financier or CSSF ). In a nutshell, SICAR regime offers a great deal of corporate flexibility along with recognized supervision and favorable tax treatment. > LEGAL FRAMEWORK The SICAR regime was established by the Luxembourg Law of 15 June 2004 ( SICAR Law ), as lastly amended: SICAR Law is divided in two parts: (i) general provisions applicable to all SICARs (see PART 1 - PRO- VISIONS APPLICABLE TO ALL SICARs) and (ii) specific provisions applicable to SICARs which qualify as Alternative Investment Funds ( AIFs ) and which 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 SICAR AIFs). 4
Part 1. PROVISIONS APPLICABLE TO ALL SICARs > AUTHORISATION AND SUPERVISION SICARs are regulated vehicles subject to the supervision of the CSSF. Furthermore, SICARs are subject to prior authorisation by the CSSF before they can be launched and carry out the relevant activities. > ELIGIBLE INVESTORS Investment in a SICARs is reserved to well-informed investors who are deemed to be able to adequately assess the risks associated with an investment in such a vehicle. 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 in the SICAR; 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 as sociated with investing in the SICAR. The above conditions do not apply to the persons involved in the management of a SICAR. > ELIGIBLE ASSETS AND RISK DIVERSIFICATION REQUIRE- MENTS SICAR regime can be opted for by vehicles whose object is to invest their assets in securities representing so-called risk capital. The concept of risk capital is defined by the SICAR Law as the direct or indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange. The SICAR Law does not levy any restrictions in terms of eligible assets that can be held by a SICAR. The CSSF published Circular CSSF 06/241 which describes its interpretation of the concept if risk capital under the SICAR Law stating that the same generally pivots on two cumulative elements such as a high risk and an intention to develop the target entities ( portfolio companies ). SICAR Law does not impose any risk spreading requirements. 5
Part 1. PROVISIONS APPLICABLE TO ALL SICARs > STRUCTURAL AND LEGAL ASPECT 1. LEGAL FORMS A SICAR must adopt one of the corporate form expressly provided by the SICAR Law and namely a public limited liability company (société anonyme or SA ), a partnership limited by shares (société en commandite par actions or SCA ), a cooperative set up as a public limited company (société coopérative organisée sous forme de société anonyme or SCSA ), a private limited liability company (société à responsabilité limitée or Sà rl ), a common limited partnership (société en commandite simple or SCS ), a special limited partnership (société en commandite spéciale or SCSp ). 2. UMBRELLA FORM AND MULTIPLE CLASS STRUCTURE The SICAR Law specifically refers to the possibility of creating a SICAR with multiple compartments. The SICAR Law provides that each compartment of such a vehicle is linked to a specific portfolio of assets and liabilities which is segregated from the portfolio of assets and liabilities of the other compartments. 3. CAPITAL REQUIREMENT AND OTHER ASPECTS The minimum subscribed capital, increased by the share premium, if any or, where applicable, the value of the amount constituting the partnership interest as required by the SICAR Law is EUR 1,000,000. This amount must be reached within twelve months of authorization. At least 5% of each share must be paid up at subscription. A SICAR may opt for variable or fixed share capital. 6
Part 1. PROVISIONS APPLICABLE TO ALL SICARs > SERVICE PROVIDERS AND OTHER ISSUES 1. DEPOSITARY SICARs must entrust the custody of its assets to a depositary. The same must either have its registered office in Luxembourg or be established there is its registered office is located abroad. The custody is a function to be understood in the sense of supervision of the assets. The depositary must be a credit institution or an investment firm within the Law of 5 April 1993 on the financial sector ( Financial Sector Law ). However, investment firms are eligible to act as a depositary only if they fulfill certain conditions laid down by the Law of 12 July 2013 on alternative investment fund managers ( AIFM Law ). 2. EXTERNAL AUDITOR The SICAR prepares annual accounts which are audited by an authorized external Luxembourg statutory auditor (réviseur d entreprises agréé) which has received the due approval of the CSSF with appropriate professional experience. There is no obligation to pro-duce a semi-annual report. 3. ADMINISTRATION In accordance with the SICAR Law, a SICAR must have its registered office and central administration in Luxembourg. 7
Part 2. SPECIFIC PROVISIONS FOR SICAR AIFs 1. REQUIREMENT TO APPOINT AIFM SICAR AIFs must be managed by an authorized AIFM either established in Luxembourg, in a Member State of the EU (including EEA Member States) or in a third country. The AIFM can be either (i) externally managed by an external AIFM duly appointed to manage the SICAR AIF or (ii) internally managed, in case the SICAR AIF s legal form permits internal management and its governing body has chosen not to appoint an external AIFM (in the last case the SICAR AIFs 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. 2. DEPOSITARY In conformity to the general regime applied to SICARs, the depositary of a SICAR AIFs, might be a credit institution or an investment firm within the meaning of the Financial Sector Law. Depositaries of SICAR AIFs must comply with the depositary regime provided for by the AIFM Law. 3. ANNUAL REPORT Compared to the general provision applicable to SICARs, SICAR 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 SICAR 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 SICAR AIF. 4. ADDITIONAL INFORMATION TO INVESTORS As specified by the AIFM Law, the AIFM of a SICAR 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
Part 2. SPECIFIC PROVISIONS FOR SICAR AIFs > MARKETING AND LISTING 1. MARKETING 1.1 SICAR AIFs 1.1.1 Marketing to EU professional investors Currently only SICAR AIFs managed by an authorized EU AIFM benefit from a EU passport allowing the AIFM to market the SICAR shares/ unit partnership interest to EU professional investors. On the other side, SICAR 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 SICAR 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 SICARs SICARs managed by a registered AIFM (AIFM not fully authorized but merely 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 SICAR may apply for listing of its shares on the Luxembourg Stock exchange provided that it complies with its requirement. No prohibition against a SICAR seeking a listing on any other stock exchange. 9
> TAXATION 1. IN GENERAL: TAXATION OF A SICAR 1.1 Applicable tax rates As of 2017, the applicable corporate income tax rate in Luxembourg is 19%, for any corporation with a taxable income of more of EUR 30,000. The SICAR established in Luxembourg city in principle is subject to an overall corporate taxation at a rate of 27.08% (including the municipal business tax). This rate will be lowered at 26.01% as of 2018. If a SICAR is incorporated as a Limited Partnership ( LP ), it is the persons carrying on business as partners and not the partnership itself which is liable to tax. In such a case the SICAR remains exempt from corporate income and the municipal business tax. On the contrary thereto, its investors remain liable to tax in the country in which they are resident. 1.2 Exemptions 1.2.1. Exemption from withholding tax on dividends distributed, irrespective of the residence and tax status of its shareholders; 1.2.2. Exemption on: (i) the returns derived from securities, whether in the form of interest incomes, dividends or capital gains; (ii) incomes arising from funds awaiting to be invested (transit funds); 1.2.3. subject to t hmeinimum NWT (max 3,210 Euro); 1.2.4. no Luxembourg tax is levied on capital gains realized by nonresident investors upon the sale of SICAR`s shares/units. 1.2.5. exemption from the net wealth tax as well as on liquidation proceeds. 1.2.6. Moreover, management services provided to a SICAR by a Management Company in Luxembourg is exempt from VAT. 2. DOUBLE TAXATION AGREEMENTS (DTA s) PARENT SUBSIDIARY EU DIRECTIVE (EU P-S Directive) The Law of 18 December 2015 implements into domestic tax law Directive 2014/86/EU on anti-hybrid instruments and Directive 2015/121/ EU on the European general anti abuse rule amending the parent-subsidiary Directive 2011/96/EU. The result is the introduction of measures putting an end to double non taxation situations that result from the mismatch of tax treatment applicable to an income distribution between to member States. Under the new provisions, profits received by an eligible Luxembourg entity (such as SICAR) which have been deducted from the taxable basis of the Member State subsidiary which distributes the profit (anti-hybrid instrument measure) might no longer be exempt in Luxembourg. 10
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. 11
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 - 1528 Luxembourg Tel. + 352 27 85 74 1 Fax + 352 27 85 74 70 Lextray Legal S.à r.l. 5, Rue Aldringen L - 1118 Luxembourg Tel. +352 26 20 2912 Fax +352 26 20 1926 Talk to us about your concerns and find out more by visiting us at