AUDIT - TAX - ADVISORY Luxembourg Real Estate Investment Vehicles 2012 pptx

Luxembourg Real Estate Investment Vehicles KPMG
AUDIT - TAX - ADVISORY
Luxembourg Real Estate
Investment Vehicles
2012
kpmg.lu

Luxembourg Real Estate Investment Vehicles 2012 | 1
Table of contents
Luxembourg Real Estate Investment Vehicles 2
Introduction 2
Overview 3
Undertakings for Collective Investments
(UCIs) 8
Specialised Investment Funds (SIFs) 11
Luxembourg Risk Capital Companies
(SICARs) 16
Securitization Vehicles (SVs) 21
SOPARFIs 26
Appendix 1 - Comparison of Real Estate Vehicles 34
Appendix 2 - The most popular forms
of legal entities 50
Appendix 3 - Glossary of terms 54
2 | Luxembourg Real Estate Investment Vehicles 2012
KPMG is pleased to present its new edition of the Luxembourg Real Estate
Investment Vehicles.
Over the years, Luxembourg has developed a strong reputation as a centre
of excellence for a large variety of investment vehicles and with fund assets
under management over EUR 2 trillion, Luxembourg is the largest fund center
in the European Union and second worldwide.
Luxembourg has also been a pioneer in the structuring of real estate

investments and it has emerged as the leading domicile in Europe for
vehicles investing directly or indirectly in internationally diversified real
estate portfolios.
Next to offering fund vehicles which are supervised by the Commission
de Surveillance du Secteur Financier (CSSF), Luxembourg also offers
unregulated vehicles using a wide variety of legal forms. It has developed
a flexible, predictable and efficient legal and tax system to offer tax
neutral & tailor-made solutions to investors.
Luxembourg is a sound market place with a longstanding experience which
benefits from strong investor recognition, efficient investment products,
a qualified multi-lingual workforce and dedicated service providers involved
in industry associations aimed at constantly improving the overall
Luxembourg experience.
This brochure aims at giving you an overview for setting up real estate
investment vehicles but it does not address all possible structuring
opportunities. For further information please do not hesitate to contact any
of our senior specialists listed at the back of the brochure.
KPMG differentiates and can help you across audit, tax, accounting and
advisory services from project inception through an integrated approach to
the investment life cycle. A description of our services and approach can be
found at the end of this document.
Yours faithfully,
Stéphane Haot
Head of Real Estate & Infrastructure, Luxembourg
Introduction
Luxembourg Real Estate
Investment Vehicles
Luxembourg Real Estate Investment Vehicles 2012 | 3
Luxembourg offers a full range of vehicles relevant for real estate investments
which may be either unregulated investment vehicles or regulated vehicles

which are subject to registration and ongoing prudential supervision by
the CSSF.
Overview
10
30
50
70
90
110
130
150
170
190
210
2005 2006 2007 2008 2009 2010 2011
5%
Growth in number of Luxembourg regulated real estate fund units
Source: CSSF Annual Report 2011
Part II Institutional Funds/SIF
4 | Luxembourg Real Estate Investment Vehicles 2012
Regulated real estate investment vehicles
The types of regulated vehicles that do not benefit from the UCITS directive
provisions but may be used in different circumstances depending upon
investor requirements are as follows:
> Part II Fund, under the law of 17 December 2010;
> SIF, under the law of 13 February 2007; as subsequently amended
> SICAR, under the law of 15 June 2004; as subsequently amended
> Regulated SVs, under the law of 22 March 2004.
Unregulated real estate investment vehicles
The most common unregulated real estate investment vehicle is the

SOPARFI. SOPARFIs are fully taxable companies that may benefit from the
participation exemption regime on equity investments in both domestic and
foreign companies.
The securitization vehicles (SV) can also exist as non-regulated entities if
they only carry out (i) private placements or (ii) public placements but on an
irregular basis.
Undertakings for
Collective Investment
(UCIs) -
law of
20 December 2002
Undertakings
for Collective
Investments
(UCIs) –
Part II law of
17 December
2010
Undertakings
for Collective
Investments
(UCIs) –
Part II law of
17 December
2010
Specialised Investment
Funds (SIFs) - law of
13 February 2007
as amended
Risk Capital Companies

(SICARs) - law of
15 June 2004
as amended
Regulated
Securitization Vehicles
(SVs) - law of
22 March 2004
Unregulated
Securitization Vehicles
(SVs) - law of
22 March 2004
SOPARFIs / Others
Investor Protection
+
-
Luxembourg Real Estate Investment Vehicles 2012 | 5
SIF (2007 law) SICAV-SA
SIF (2007 law) FCP
SICAR-SA
SIF (2007 law) SICAV-SCA SIF (2007 law) SICAF-SA
SIF (2007 law) SICAV-S.à r.l.
Part II (2010 law) FCP
Legal regime and structure combined
Source: ALFI: Luxembourg Real Estate Fund Survey 2011, Data as of 31 December 2010
Part II (2010 law) SICAF
SICAR-SCA etc
SICAR-S.à r.l.
Popular regulated real estate vehicles and features
The majority of real estate funds fall under the SIF law. This reflects the
popularity of this regime for real estate fund promoters for a flexible onshore

investment fund vehicle for all types of alternative investment fund products
including direct real estate funds and funds of real estate funds.
6 | Luxembourg Real Estate Investment Vehicles 2012
Core
Value-Added
Opportunity
Investment Style
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
IFRS
LUXGAAP
Accounting Standards
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
0
5,000
10,000
15,000
20,000
25,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
3.235
469
1.927
2.343
2.280 3.730 4.705 7.315 6.180 4.126 3.846
3.047
280
146 369
522
850
1.557

3.307
8.131
14.746
14.839
17.580
20.036
Net assets under management in Luxembourg real estate funds
Source: ALFI: Luxembourg Real Estate Fund Survey 2011
Part II (2002 Law / 2010 Law) Institutional Funds / SIF
(Law of 13 February 2007)
Luxembourg Real Estate Investment Vehicles 2012 | 7
Monthly
Annual
Semi-Annual
Quarterly
Frequency of NAV calculation
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
8 | Luxembourg Real Estate Investment Vehicles 2012
Undertakings for collective investment, established in accordance with
Part II of the law of 17 December 2010 are those destined to the retail market.
Following the introduction of the specialised investment fund regime,
the Part II fund as a real estate vehicle has significantly declined.
Further details relating to Part II funds are outlined below.
Part II UCIs may take the form of a SICAV, SICAF or FCP,
certain characteristics being outlined in the table below.
Undertakings
for Collective
Investments
(UCIs)
Under Part II of the law

of 17 December 2010

SICAV / SICAF FCP
Legal structure Legal entity Not a legal entity. The FCP is a
contractual fund structure managed
by a management company.
Legal requirement for Management
Company
No Ye s
Governance body Board of directors of SICAV / SICAF Board of directors of the management
company
Voting rights Investors are always entitled to vote as
they are shareholders of the company.
Investors are entitled to vote to the extent
that the management regulations provide
the possibility.
Annual general meetings Ye s For management company only
Tax transparency Not tax transparent Tax transparent
Responsibility of depositary Standard Additional oversight and control
responsibilities compared to a
SICAV / SICAF
Decision to liquidate Annual or extraordinary general meeting Management company
Luxembourg Real Estate Investment Vehicles 2012 | 9
Legal and regulatory requirements
The creation of a Part II fund is subject to prior approval by the CSSF.
The fund promoter, required in order to ensure an appropriate level of
investor protection, must have sufficient financial resources and appropriate
experience. The promoter submits an application which includes the articles
of incorporation or management regulations (if an FCP), the prospectus and
the principal agreements with service providers. The application must also

include the choice of depositary bank and auditor as well as details of the
directors of the fund or of the Management Company and directors of the
depositary bank.
As part of the approval process, the CSSF validates the investment strategy
and objectives which must comply with the risk diversification criteria outlined
in CSSF Circular 91/75 which specifically addresses real estate investments,
and which requires real estate UCIs to invest no more than 20% of their net
assets in one single property except during the start up phase.
Other restrictions such as borrowing or other rules are specified inter alia in
chapter I and III of the Circular.
Reporting
Annual and semi-annual reports are required to be submitted to investors
and the CSSF within 4 and 2 months of the year/period end respectively,
with monthly statistical reporting to be submitted to the CSSF.
The annual report must be audited by an approved statutory auditor (réviseur
d’entreprises agréé). A long form analytical report must also be submitted
to the CSSF within 4 months of the year end.
Appendix 1 provides a comparison of the requirements of Part II funds with
other real estate investment vehicles.
Please refer to our brochure “Undertakings for Collective Investment”
for more detailed information on the legal framework of UCIs.
Risk Management
The risk management function of Part II funds is not regulated.
Taxation of UCIs
Mutual funds (FCPs) are fiscally transparent and are therefore not subject to
Luxembourg income or net wealth tax.
Although investment companies operating as public limited companies with
fixed or variable capital (SICAF or SICAV) are basically treated as resident
taxpayers, they are specifically exempt from income and net wealth tax.
While investors resident in Luxembourg are subject to normal income tax on

their income from investment funds, there is usually no Luxembourg tax on
foreign investors. Luxembourg levies no withholding tax on distributions paid
10 | Luxembourg Real Estate Investment Vehicles 2012
by investment funds, except where the EU Savings Directive applies.
In this case, withholding tax of 35% is levied unless information is exchanged.
A distribution has to be made depending on the form of the investment fund
and distribution notice. (Distinction has to be made depending on the form of
the investment fund and distribution nature). However, tax may be levied by
the foreign unit holder’s country of residence or citizenship.
Income earned by a Luxembourg investment fund may be subject to
withholding tax in the country of source. Tax treaties between Luxembourg
and other countries may provide for partial exemption from or refund of any
withholding tax levied.
Given that the availability and application of treaty benefits varies between
treaties, it is important to seek advice before undertaking these investments.
> FCPs are generally excluded from tax treaty benefits because of their
fiscal transparency (except for the treaty with Ireland). The treaty may be
applied to an FCP unit holder according to the treaty that exists between
the unit holder’s country of residence and the country where the FCP’s
investments are located.
> As a SICAV does not pay income tax, it is usually not entitled to obtain
treaty benefits unless the contracting parties decide differently.
SICAVs currently benefit from the following treaties: Armenia, Austria,
Azerbaijan, Bahrein, China, Denmark, Finland, Georgia, Germany,
Hong Kong, Indonesia, Ireland, Israel, Malaysia, Malta, Moldova, Monaco,
Mongolia, Morocco, Poland, Portugal, Qatar, Romania, San Marino,
Singapore, Slovak Republic, Slovenia, South Korea, Spain, Thailand, Trinidad
and Tobago, Tunisia, Turkey, United Arab Emirates, Uzbekistan and Vietnam.
An annual subscription tax (“taxe d’abonnement”) of 0.01% or 0.05% of the
fund’s net worth is payable by the fund. The rate at which the subscription tax

is levied depends on the type of investment carried out by the fund and on the
type of investor in the fund. The annual subscription tax has been set at one
basis point (i.e. 0.01%) for the SIF with certain exemptions being available.
To avoid double taxation, funds that exclusively hold units in other investment
funds already subject to subscription tax are exempt from the subscription tax.
Luxembourg UCIs qualify as taxable persons for VAT purposes. A case-by-
case analysis is required to assess whether this status should result in the
registration for VAT. Management services rendered to a UCI are, in principle,
VAT exempt.
Luxembourg Real Estate Investment Vehicles 2012 | 11
The SIF was introduced by the law 13 February 2007, as subsequently
amended. It offers a flexible regime for “well-informed” investors (namely
institutional, professionals and other investors under conditions) to undertake
collective investments. The SIF law is essentially characterized by flexibility in
view of investment policy, the investor circle and a “lightly” regulatory regime.
Legal and regulatory requirements
Authorisation process
The creation of a SIF is subject to prior approval by the CSSF. An authorization
file must be submitted to the CSSF which includes the articles of
incorporation or management regulations (if an FCP), the prospectus,
the principal agreements with service providers and information on the
honorability and expertise of the persons that will perform the portfolio
management activities.The application must also include the choice of
depositary bank and auditor as well as details of the directors of the fund or
of the Management Company.
The CSSF will grant authorisation subject to the approval of the constitutional
documents and the choice of the custodian, of the persons in charge of the
portfolio management and of the auditor.
No promoter requirement
Unlike investment funds aimed at retail distribution, where investor protection

is the main concern, the SIF may not always be set up by an institutional
promoter with significant financial resources.
The CSSF will however require notification of the identity of the directors of
the SIF or of the Management Company or of the general partner depending
on the legal form of the SIF. The CSSF will ensure that they are of sufficiently
good repute and have sufficient experience, related to the type of specialised
investment fund concerned.
Central administration
The SIF must have a Luxembourg central administration.
Eligible assets and the principle of risk-spreading
In comparison to Part II funds, the SIF offers more flexibility with respect to
the permitted investment assets.
A SIF may invest in principle in any type of assets and may pursue any type
of investment strategy, i.e. in traditional investments as well as alternative
investments - for example transferable securities, money market instruments,
real estate, hedge fund strategies and private equity.
Specialised
Investment
Funds (SIFs)
12 | Luxembourg Real Estate Investment Vehicles 2012
The SIF law does not provide for investment restrictions but refers to the
concept of risk-spreading. This concept is more fully described in CSSF
Circular 07/309 relating to risk-spreading in the context of SIFs, which clarifies
that not more than 30% of its assets can be in a single investment.
Flexible corporate rules
Several legal and corporate forms
As per the SIF law, the fund may be established as a contractual fund (FCP)
or an investment company with variable share capital (SICAV) or fixed share
capital (SICAF).
The SIF law offers several possible corporate forms for the SICAV and other

incorporated entities:
> Public limited company (S.A.), > Private limited company (S.à r.l.),
> Partnership limited by shares (S.C.A.) or,
> Cooperative in the form of a public limited company (S.C.o.S.A.).
Availability of umbrella structures
SIFs may be set up as an umbrella fund with multiple sub-funds and/or
multiple share classes so as to accommodate investor needs.
The “ring-fencing” rule applies to the various sub-funds so that the assets of
one sub-fund are exclusively available to satisfy the rights of creditors
and investors of that sub-fund.

Shareholding
Well-informed investor
The SIF law reserves the SIF for well-informed investors. Within the meaning
of this law, a well-informed investor must be either:

> An institutional investor
Undertakings or organizations, that manage an important amount of funds
and assets. This concept covers inter-alia credit institutions and other financial
sector professionals, insurance and re-insurance undertakings, welfare
institutions and pension funds, industrial and financial groups and structures
put in place by these entities to manage an important amount of funds and
assets; or
> A professional investor
Luxembourg Real Estate Investment Vehicles 2012 | 13
Any professional investor within the meaning of Annex II of the Directive
2004/39/EC on markets in financial instruments; or
> An investor who has adhered in writing to the status of well-informed
investor and complies with one of the following conditions:
- He invests at least EUR 125,000 in the fund; or

- His expertise, experience and knowledge are confirmed by a credit
institution as defined in Directive 2006/48/EC, by an investment firm
as defined in Directive 2004/39/EC or by a management company as
defined in Directive 2001/107/EC.
In this respect, the SIF law enables access to a broad investor base to a range
of products, which were, before the SIF law, predominantly reserved for an
institutional circle of investor base, such as insurance companies or banks.
Flexible capital structure
The minimum share capital of a SIF amounts to EUR 1,250,000 to be reached
within twelve months of authorisation by the CSSF.
Capital calls may be made by way of capital commitments or through the
issue of partly paid units or shares. For FCPs, the law does not prescribe the
percentage to which each unit must be paid up, but for SICAVs, at least 5%
of each share must be paid-up.

Reporting
The offering document and the annual financial statements are the only
mandatory documents prescribed by the SIF law. The SIF has therefore no
obligation to prepare a simplified prospectus, a semi-annual report nor a
long-form report as is required for Part II funds.
The SIF law does not prescribe a specific format for the offering document
but indicates that it must include the information necessary for investors to
be able to make an informed judgment of the investment proposed to them
and, in particular, the risk attached thereto. An ongoing update of the offering
document is not required but it must however be updated whenever new
shares are issued to new investors.
The annual financial statements must be available to investors within six
months from the end of the period to which they relate. This goes beyond
the normal four month period for other fund types and thus accommodates
investment strategies for which the compilation of the financial statements

may be difficult within the regular four month period. In addition, no detailed
information on the investment portfolio must be disclosed; reduced
qualitative and/or quantitative information enabling the investors to make
an informed judgment on the development of the activities and the results
is required.
14 | Luxembourg Real Estate Investment Vehicles 2012
Another interesting feature of the SIF is the exemption for the SIF and its
subsidiaries from the obligation to consolidate the companies owned for
investment purposes.
Flexible administrative requirements
The SIF law provides a very flexible regime in terms of valuation of assets,
frequency of NAV calculation and price of the shares/units issued or redeemed.
The minimum frequency of NAV calculation is annual in line with the
requirement to prepare annual financial statements.
The valuation of the assets shall be based on fair value unless provided
for differently in the documents constituting the SIF. This allows SIFs
holding more specific investment types to select a more appropriate
valuation methodology.
Furthermore, the issue and redemption of shares/units must not necessarily
be made at the NAV per share of the day but will follow the conditions and
procedures set forth in the documents constituting the SIF thus allowing the
issue and redemption process to meet the fund’s requirements.
Risk Management
The SIF must implement an adequate risk management system in order to
appropriately detect, measure and manage the risks associated with the
positions taken and their contribution to the overall risk profile of the portfolio.
The SIFs must communicate to the CSSF a concise description of the risk
management systems implemented according to the proportionality principle
in order to appropriately identify, measure, manage and control all the material
risks to which the fund or its compartments are or might be exposed to.

Luxembourg Real Estate Investment Vehicles 2012 | 15
Supervision
The supervisory authority is the CSSF.
Custodian
The custody of the assets of the fund must be entrusted to a depositary.
The depositary must be a credit institution within the meaning of the
amended law of 5 April 1993 concerning the financial sector and must
either have its registered office in Luxembourg or must be established in
Luxembourg as the branch of a credit institution having its registered office
in another Member State of the European Union.
As it is the case for all Luxembourg regulated investment funds, the duties of
the depositary shall be understood in the sense of “supervision” and not only
“safekeeping”. This implies that the depositary must know at all times how
the assets of the fund have been invested and where and how these assets
are available. The assets of the fund may be deposited with the depositary
itself or with any professional designated by the fund in agreement with the
depositary.
The depositary is liable to the investors for any loss suffered by them as a
result of its wrongful failure to perform its obligations or its wrongful improper
performance thereof. The liability of the depositary is not affected if it has
entrusted all or some of the assets in its custody to a third party.
Taxation of SIFs
The tax regime for UCIs (including SIFs) is described on page 9
(“Taxation of UCIs”).
16 | Luxembourg Real Estate Investment Vehicles 2012
The SICAR, a lightly regulated venture capital/private equity vehicle,
was introduced in Luxembourg in 2004.
The purpose of the SICAR law of 15 June 2004 is to facilitate fund raising
and investment in risk-bearing capital. SICARs represent around 12% of
Luxembourg regulated real estate funds.

The SICAR fills the gap between publicly financed vehicles qualifying as UCIs
under the amended law of 17 December 2010 (which are strictly regulated)
and the unregulated standard taxable companies investing in shares or
financing (so called SOPARFIs).
275 SICARs had been set up by May 31
st
, 2012 demonstrating that the vehicle
meets the needs and requirements of the market.
A typical use of a SICAR structure is shown below:
Luxembourg
Risk Capital
Companies
(SICARs)
Well informed
Investors (corporate
or partnership)
Other Investors
(management, etc)
High net worth
Individuals
Investment in
securitised loans
SICAR
Luxembourg
SOPARFI
Luxembourg Real Estate Investment Vehicles 2012 | 17
Legal and regulatory requirements
A SICAR is a vehicle with the principal object of investing in risk-bearing
assets to the benefit of investors.
Unlike investment funds subject to the law of 17 December 2010, SICARs

are not subject to risk spreading obligations. As a result, a SICAR may invest
all of its funds or acquire the majority of voting power in a single company.
One reason for this flexibility is the limitation on investors discussed under
the heading “well-informed investors” below. Well-informed investors are
assumed to be aware of the risks of their investments and to accept the
SICAR’s proposed investment policy from the outset.
Authorisation
A SICAR must be authorised by the CSSF prior to commencing its operations.
The CSSF is the relevant supervisory body for SICARs.
In line with the semi-regulated nature of SICARs, the conditions for
authorisation are less stringent than for Part II funds. There are no restrictions
on the SICAR’s investment policy. However, the CSSF must approve:
> The SICAR’s incorporation documents;
> The choice of the Depositary and Auditor
The CSSF requires additionally notification of the identity, function and
responsibility of the directors of the SICAR or of the general partner
depending on the legal form of the SICAR.
Risk-bearing assets
The key qualification for gaining SICAR status is that the capital of a SICAR is
invested in risk capital. Risk capital is defined in Circular 06/241 as follows:
> Investment risk (i.e. the risk of the investment is higher than normal
business risk); and
> Intention to realize the investment (i.e. clear intention to develop and
then realize the investment, for instance by onward sale or by an
initial public offer).
The above definition is broad and the classification of assets in “risk capital” is
therefore somewhat subjective and will be a key discussion with the regulator
at the initiation of the project.
18 | Luxembourg Real Estate Investment Vehicles 2012
Corporate rules

Legal forms
The law only applies to companies that elect in their bylaws to be governed by
the SICAR law.
A SICAR can be established in any of the following legal forms:
> A public limited liability company (S.A.);
> A private limited liability company (S.à r.l.);
> A partnership limited by shares (S.C.A.);
> A cooperative company organized as a public limited liability
company (S.C.o.S.A.);
> Limited partnership (S.C.S.).
The head office and central administration of the SICAR must be located in
Luxembourg.
Umbrella structures
A SICAR can be set up in the form of an umbrella fund with multiple
segregated compartments. Each compartment forms a distinct part of the
SICAR’s patrimony and the prospectus has to state the investment policy of
each compartment. The rights of investors/creditors are limited to a specific
compartment. It is possible to liquidate a compartment separately without
liquidating the others (only the liquidation of the final compartment triggers
the SICAR’s liquidation).

Shareholding
Well-informed investors
The shares/units of a SICAR may only be issued/offered to investors with
a high level of expertise (well-informed investors), such as professional
investors and institutional investors. Directors and managers of a SICAR are
deemed to be well-informed investors in the meaning of the SICAR law.
Other investors may be allowed provided they declare in writing that they
adhere to the well-informed investor status and they invest at least
EUR 125,000 or obtain confirmation of their capacity from a

financial institution.
Luxembourg Real Estate Investment Vehicles 2012 | 19
Capital requirements
The minimum subscribed capital of a SICAR is EUR 1 million (share capital and
share premium), which must be reached within 12 months of the company
being authorized by the CSSF. The share capital must be fully subscribed
and each share must be paid up to at least 5%. This facilitates successive
drawing down of subscriptions once satisfactory investments are identified.
No debt-to-equity ratio applies.
There are no legal restrictions on capital repayments, share redemptions,
dividends or interim dividends. The only restrictions are those found in
the SICAR’s articles of association. A SICAR is not obliged to maintain a
legal reserve.

Reporting
The SICAR is required to prepare a prospectus and an annual report for each
financial year. The annual report must be audited by a Luxembourg approved
statutory auditor (réviseur d’entreprise agréé). The audited annual report must
be made available to the investors within six months following the end of the
financial period to which it relates.

Risk Management
The risk management function is not regulated.

Supervision
CSSF supervision of compliance by the SICAR and its directors with their
legal and contractual obligations is undertaken on a simplified basis.

Taxation of the SICAR
Income taxation

SICARs are resident companies fully liable to corporate and municipal
business tax at an aggregate tax rate of 28.80% (rate applicable in
Luxembourg city in 2012). Income derived from securities (see below for
definition) held by a SICAR is exempt from Luxembourg income tax. Income
on cash held by the SICAR for the purpose of a future investment is also tax
exempt for a period of 12 months, provided that it can be proved that these
funds have effectively been invested in risk bearing activities. Other income
of a SICAR that is not connected with investments in risk-bearing capital
(e.g. interest earned after 12 months, management fees, etc.) is subject to
normal income tax. Losses and deductions relating to tax exempt income may
not be offset against taxable income.
20 | Luxembourg Real Estate Investment Vehicles 2012
A SICAR established in the form of a limited partnership will be treated as a
tax transparent entity for Luxembourg tax purposes. These SICARs are not
considered to have a commercial activity and consequently are not subject
to municipal business tax even if the unlimited partner or the majority of the
limited partners are share capital companies.
The Luxembourg fiscal consolidation rules do not apply to SICARs.
Definition of a security
The term “security” is not defined in the SICAR law. However, parliamentary
documents on the law clearly state that the term securities is “to be
considered in the larger sense, to include shares, bonds and other debt
instruments, as well as any other negotiable instruments that give right to
acquire any of the above-mentioned securities”
1
.
Withholding tax
The SICAR law provides a full withholding tax exemption on dividends
distributed by a corporate SICAR, irrespective of the residence and tax status
of its shareholders. Interest payments made by SICARs are not subject to

domestic withholding tax (except where required by EU Savings Directive).
Under Luxembourg domestic tax law, the liquidation of a SICAR, regardless of
its legal form, does not trigger any withholding tax at the level of the SICAR.
Double Tax Treaty Protection and access to EU Parent-Subsidiary Directive
From a Luxembourg perspective, SICARs (except if established in the form
of a limited partnership) benefit from the EU Parent-Subsidiary Directive and
the double tax treaties concluded by Luxembourg as they are fully taxable
corporations. The Luxembourg tax authorities issue on request certificates of
Luxembourg tax residency for SICARs.
Indirect taxes
The only indirect tax due on incorporation of a SICAR is the fixed registration
duty of EUR 75.
A SICAR qualifies as taxable person for VAT purposes. A case-by-case analysis is
required to assess whether this status should result in the registration for VAT.
Management services rendered to a SICAR within the scope of the SICAR
law are, in principle, VAT exempt.
Net wealth tax
SICARs are exempt from the annual 0.5% wealth tax.
Capital gains realized by non-residents
Non-residents are exempt from Luxembourg income tax on capital gains
realized on the disposal of shares of a SICAR.
1 Bill N°5201, p22.
Luxembourg Real Estate Investment Vehicles 2012 | 21
In 2004, Luxembourg introduced an attractive legal, regulatory and tax
framework for Securitization Vehicles (SVs).
The purpose of the law is to facilitate (i) capital market securitization
transactions, (ii) certain intra-group securitization transactions and (iii)
a combination of these two transaction types.
The below chart summarises a typical securitization transaction:
In general terms, the law aims to:

> Allow a high degree of flexibility when structuring a securitization
transaction through Luxembourg;
> Ensure a high level of investor protection and legal certainty; and
> Ensure a tax neutral treatment of securitization in Luxembourg.
Securitization
Vehicles (SVs)
Final Client
(Obligors)
SV
Originator
Investors
Goods /
Services
Payment over time
(cash flow on assets)
Assets
Cash
Cash
Securities
22 | Luxembourg Real Estate Investment Vehicles 2012
Legal and regulatory requirements
Inspired by Luxembourg’s well-known investment funds regime, the law
permits SVs to be established as a corporation or as a fund. The securities
issued by a SV may, under certain conditions, be listed on a stock exchange.
Luxembourg SVs are flexible and can be used in a range of structures of
varying complexity, both in an intra-group and a third party context.

Elective
The SV law does not automatically apply to securitization transactions which
can therefore be structured outside the scope of the law.

As of today, more than 880 SVs have been incorporated, including 28 CSSF
regulated SVs .
Securitization transactions
The SV law defines securitization as the transactions by which an SV acquires
or assumes, directly or through intermediary entities, the risks relating to:
> Holding of assets, whether movable or immovable, tangible or intangible;
> obligations assumed by third parties; or
> all or part of the activities of third parties

and issues securities, whose value or yield depends on such risks.
Securitization Vehicles
A SV is defined as a vehicle through which a securitization transaction is
effected. The SV law only applies to SVs located in Luxembourg. The location
of the SV depends on the place of its head office (corporation) or the head
office of its management company (fund).
Nature of the risks
The risk transferred to the SV in a securitization transaction may relate to
the activities listed in ‘Securitization transactions’ paragraph as well as risks
relating to obligations or liabilities assumed by third parties or relating to all or
part of the activities of a third party.
The risks may be held by the SV in a number of ways, for example by
purchasing the relevant assets, by guaranteeing the relevant liabilities,
or by entering into any other form of obligation. This allows for securitization
transactions to be executed in one of two typical forms, i.e.:
> As a true sale transaction where the originator sells or contributes a pool
of assets to the SV; or
> As a synthetic transaction where the originator buys credit risk protection
from the SV through a series of credit derivatives.

Luxembourg Real Estate Investment Vehicles 2012 | 23

Legal forms
The law allows the SV to take either the legal form of a company or that of
a fund run by a management company.
The Securitization Company (SC) can take the following forms:
> A public limited liability company (S.A.);
> A private limited liability company (S.à r.l.);
> A partnership limited by shares (S.C.A.);
> A cooperative company organized as a public limited liability company
(S.C.o.S.A.).
The securitization fund can be organized in the form of co-ownership or as
fiduciary trust.
Compartment segregation
An SV may comprise different compartments, each corresponding to a
segregated part of its assets and liabilities.

Shareholding
Enhanced investor protection
The SV law provides for a solid “bankruptcy remoteness feature”. It permits
certain contractual provisions and makes them enforceable to protect the
securitised assets from any insolvency risk relating to the originator or the
SV itself.
Fiduciary representative
To offer investors/creditors an instrument to which they can entrust the
safeguard of their interests, the law provides the possibility (i.e. not
an obligation) to elect a fiduciary representative that is qualified as a
“professional of the financial sector” under the law of 5 April 1993,
as amended.

Risk Management
The risk management function is not regulated.