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Table of contents
Introduction KPMG is pleased to present its new edition of the Luxembourg Real Estate
Investment Vehicles.
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,
Pierre Kreemer
Head of Real Estate & Infrastructure, Luxembourg
Luxembourg Real Estate Investment Vehicles 2012 | 3
Overview 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.
210
190
170
150
130
110
90
70
50
30
10 5%
Investor Protection
+ -
Undertakings for Specialised Investment Risk Capital Companies Regulated Unregulated
Collective Investment Funds (SIFs) - law of (SICARs) - law of Securitization Vehicles Securitization Vehicles
SOPARFIs/Others
(UCIs) - law of 13 February 2007 15 June 2004 (SVs) - law of (SVs) - law of
20 December 2002 as amended as amended 22 March 2004 22 March 2004
Undertakings Undertakings
for Collective for Collective
Investments Investments
(UCIs) (UCIs)
Part II law of Part II law of
17 December 17 December
2010 2010
Part II (2010 law) SICAF Part II (2010 law) FCP SIF (2007 law) FCP
SIF (2007 law) SICAV-SCA SIF (2007 law) SICAV-SA SIF (2007 law) SICAF-SA
SIF (2007 law) SICAV-S. r.l. SICAR-SA SICAR-SCA etc
SICAR-S. r.l.
Source: ALFI: Luxembourg Real Estate Fund Survey 2011, Data as of 31 December 2010
6 | Luxembourg Real Estate Investment Vehicles 2012
25,000
20.036
14.746 17.580
14.839
20,000
8.131
15,000
10,000 3.307
1.557
5,000 280 850
146 369 522
3.235 469 1.927 2.343 2.280 3.730 4.705 7.315 6.180 4.126 3.846 3.047
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Investment Style
Opportunity
Core
Value-Added
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
Accounting Standards
IFRS
LUXGAAP
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
Luxembourg Real Estate Investment Vehicles 2012 | 7
Annual
Quarterly
Semi-Annual
Source: ALFI: Luxembourg Real Estate Fund Survey 2011 - Direct Funds
8 | Luxembourg Real Estate Investment Vehicles 2012
(UCIs) Part II UCIs may take the form of a SICAV, SICAF or FCP,
certain characteristics being outlined in the table below.
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 No Yes
Company
Governance body Board of directors of SICAV/SICAF Board of directors of the management
company
Voting rights Investors are always entitled to vote as Investors are entitled to vote to the extent
they are shareholders of the company. that the management regulations provide
the possibility.
Annual general meetings Yes 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
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 (rviseur
dentreprises agr). A long form analytical report must also be submitted
to the CSSF within 4 months of the year end.
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.
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 holders country of residence and the country where the FCPs
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.
Specialised The SIF was introduced by the law 13 February 2007, as subsequently
amended. It offers a flexible regime for well-informed investors (namely
Investment institutional, professionals and other investors under conditions) to undertake
collective investments. The SIF law is essentially characterized by flexibility in
Funds (SIFs) view of investment policy, the investor circle and a lightly regulatory regime.
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.
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.
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.
The SIF law offers several possible corporate forms for the SICAV and other
incorporated entities:
> Public limited company (S.A.), > Private limited company (S. r.l.),
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 investor who has adhered in writing to the status of well-informed
investor and complies with one of the following conditions:
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.
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.
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.
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.
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
(SICARs) 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 31st, 2012 demonstrating that the vehicle
meets the needs and requirements of the market.
Well informed
High net worth Other Investors
Investors (corporate
Individuals (management, etc)
or partnership)
SICAR
Investment in
securitised loans
Luxembourg
SOPARFI
Luxembourg Real Estate Investment Vehicles 2012 | 17
Authorisation
A SICAR must be authorised by the CSSF prior to commencing its operations.
The CSSF is the relevant supervisory body for SICARs.
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.
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
SICARs 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 SICARs 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.
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 (rviseur dentreprise agr). 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.
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
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 securities1.
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.
Indirect taxes
The only indirect tax due on incorporation of a SICAR is the fixed registration
duty of EUR 75.
Final Client
(Obligors)
Originator
Assets
Cash
SV
Securities
Cash
Investors
> Ensure a high level of investor protection and legal certainty; and
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:
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).
> 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.
Compartment segregation
An SV may comprise different compartments, each corresponding to a
segregated part of its assets and liabilities.
Shareholding
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.
24 | Luxembourg Real Estate Investment Vehicles 2012
Supervision
The law specifies that securitization activities in the sense of the law do not
fall within the scope of legislation relating to the insurance sector.
> A non-regulated entity if the SV only carries out (i) private placement or (ii)
public placement but on an irregular basis; or
Income taxation
The following comments are only applicable to SVs incorporated under the
legal form of a securitization company (SC). SCs 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). Commitments made to
investors (mainly shareholders) and to other creditors (mainly bondholders),
e.g. preferred dividends and interest, are fully tax deductible. As a result, it is
possible to reduce the companys taxable income to a minimum. By reason of
their specific purpose, SCs are not subject to any thin capitalisation rules.
The law prohibits the SV from being a member of a fiscal consolidation group.
Withholding tax
Shareholders of the SC are treated like bondholders. Distributions and
interest payments made by SCs are not subject to domestic withholding
tax (except where required by EU Savings Directive). Under Luxembourg
domestic tax law, the liquidation of a SC, regardless of its legal form, does not
trigger any withholding tax at the level of the SC.
Luxembourg Real Estate Investment Vehicles 2012 | 25
Indirect taxes
The only indirect tax due on incorporation of a SC is the fixed registration
duty of EUR 75. SCs are generally not subject to variable registration duties
unless real estate located in Luxembourg, or aircraft or vessels recorded on a
Luxembourg public register are involved.
SOPARFIs The most common unregulated real estate vehicle set up in Luxembourg
is the SOPARFI which is very often used in combination with the other
Luxembourg investment vehicles.
Taxation of SOPARFIs
Fully taxable corporations with equity investments may however benefit from
the Luxembourg participation exemption regime2 providing for an exemption
from income, dividend withholding and net wealth tax for qualifying
investments held by qualifying entities. The exemption from income tax is
extensive, covering dividends, capital gains and liquidation proceeds.
In addition, no withholding tax on dividend distributions applies if the
conditions for the participation exemption are fulfilled. Finally the net asset
value of participations qualifying for the participation exemption is exempt
from net wealth tax.
The conditions that must be met to qualify for the exemptions are
summarised below. In some cases, tax treaties may provide for even more
favourable rules. It must be determined on a case-by-case basis whether the
exemptions apply to a particular set of circumstances.
> Fully taxable resident corporation not listed in article 166 LIR
paragraph 104; or
Status of subsidiary
> Collective entity listed and covered by the Parent-Subsidiary Directive; or
> Fully taxable resident corporation not listed in article 166 LIR paragraph 10;
or
Size of participation
The minimum participation that qualifies for the exemption is:
> An acquisition price of at least EUR 1,200,000 to qualify for the dividend
and liquidation proceeds exemption; or
> An acquisition price of at least EUR 6,000,000 to qualify for the capital
gains tax exemption.
Deduction of expenses
Expenses directly related to a participation that qualifies for the exemption
(e.g. interest expenses) are only deductible for the amount exceeding exempt
income arising from the relevant participation in a given year. Decreases in
the acquisition cost of a participation that qualifies for the exemption are
deductible. The exempt amount of a capital gain realized on a qualifying
participation is however reduced by the amount of any expenses related
to the participation, including decreases in the acquisition cost, that have
previously reduced the companys Luxembourg taxable income.
If a parent company writes off part or all of a loan to its subsidiary, the value
adjustment is treated in the same way as decreases in the acquisition cost
of the participation, i.e. this is taken into account when calculating the exempt
capital gain.
Status of recipient
> Collective entity listed and covered by the Parent-Subsidiary Directive; or
> Fully taxable resident corporation not listed in article 166 LIR paragraph 10;
or
> Collective entity resident in a treaty country and fully subject to income
tax comparable to the Luxembourg corporate income tax as well as a
Luxembourg permanent establishment of such a collective entity; or
Status of subsidiary
> Fully taxable resident collective entity listed in article 166 LIR paragraph 10,
or
> Fully taxable resident corporation not listed in article 166 LIR paragraph 10.
Size of participation
The minimum participation that qualifies for the dividend withholding tax
exemption is:
Appendix
34 | Luxembourg Real Estate Investment Vehicles 2012
Appendix 1 -
Comparison of Real Estate Vehicles
Part II
Risk diversification requirements Risk diversification requirements are detailed Risk diversification requirements are detailed
in CSSF Circular 91/75 and are less stringent in CSSF Circular 07/309 and are less stringent
than the ones in application for Part I funds. than the ones in application for Part I and
Part II funds.
In addition, specific restrictions are contained in:
Entity type SICAV (SA). SICAV / SICAF (SA, SCA, Srl, SCoSA).
SICAF (SA, SCA, Srl, SCoSA).
FCP.
FCP.
Structures may be open or closed-ended.
Structures may be open or closed-ended.
Luxembourg Real Estate Investment Vehicles 2012 | 35
Law of 15 June 2004, as subsequently Law of 22 March 2004 Law of 10 August 1915
amended (SICAR law). (Law on Securitization). (commercial law).
Restricted to direct and/or indirect investment Securitization of risks linked to all kinds of Unrestricted.
in securities that represent risk capital. assets, whether movable or immovable,
tangible or intangible as well as risks relating
CSSF Circular 06/241 defines the notion of to obligations or liabilities assumed by
risk capital and the way the CSSF will decide third parties or relating to all or part of the
if the investment objective of the SICAR activities of a third party. Such risks can be
complies with the requirement to invest in taken on by the securitization vehicle through
risk capital. the acquisition of assets, the securing or
guaranteeing of liabilities, or the entering into
Risk capital consists mainly of high risk any kind of obligation.
investments made in view of their launch,
development or listing on stock exchange.
Such investments may take varied forms and
are normally done with a medium-term view.
Corporate entity with fixed or variable share Securitization company SA, SCA, Srl.
capital (SA, SCA, Srl, SCoSA, SCS). (SA, SCA, Srl, SCoSA)
Public offering may only be conducted under
the structure of a SA or SCA.
Securitization fund
(FCP, Fiduciary trust).
36 | Luxembourg Real Estate Investment Vehicles 2012
Registration requirements in Luxembourg Head office of SICAV/ SICAF or of the Head office of SICAV/ SICAF or of the
management company of the FCP must be in management company of the FCP must be
Luxembourg. in Luxembourg.
Minimum capital requirement for EUR 1,250,000 to be reached within EUR 1,250,000 to be reached within
fund/company 6 months of authorization. For umbrella 12 months of authorization.
structures, this capital requirement applies
to the structure as a whole.
Risk management The risk management function is not regulated. The risk management function is regulated by
Article 42a of the SIF law.
* Chapter 15 of the Law of December 2010, CSSF Regulation 10-4 and CSSF Circular 11/508
Luxembourg Real Estate Investment Vehicles 2012 | 37
Securitization company
No.
Head office of the SICAR must be in Head office of securitization company Statutory seat must be in Luxembourg.
Luxembourg. or of the management company of the
securitization fund must be in Luxembourg. No nationality or residency requirements for
No nationality or residency requirements Directors.
for Directors. No nationality or residency requirements
for Directors of securitization company or
management company.
Total of subscribed share capital and share Securitization fund EUR 12,500 for a Srl.
premium of EUR 1,000,000 to be reached No minimum requirement. EUR 31,000 for SA and SCA.
within 12 months of authorization.
Securitization company
SA/SCA: EUR 31.000.
Srl: EUR 12.500.
SCoSA: no minimum requirement.
The risk management function is not regulated. The risk management function is not regulated. N/A.
Shareholding
Part II Fund SIF
SICAV SICAV
Capital calls may only be made by way of Capital calls may be done by way of capital
capital commitments as partly paid shares commitments or through the issue of partly
are not allowed for a SICAV. paid shares. At least 5% of each share must
be paid-up.
SICAF SICAF
For a Srl capital calls may only be made by Capital calls may be done by way of capital
way of capital commitments as partly paid commitments or through the issue of partly
shares are not allowed. If the SICAF is set paid shares. At least 5% of each share must
up as a SA, SCA or SCS, capital calls can be be paid-up.
organized through capital commitment or by
way of the issue of partly paid shares.
At least 25% of each share must be paid-up.
SICAV SICAV
The issue of shares does not require an The issue of shares does not require an
amendment of the Articles. amendment of the Articles.
Shares must be issued at the NAV price. The share price will be determined based
Such price may be increased by expenses on the principles laid down in the Articles.
and commissions.
Existing shareholders do not have a pre-
Existing shareholders do not have a pre- emption right when new shares are issued,
emption right when new shares are issued, unless specifically provided for in the Articles.
unless specifically provided for in the Articles.
Luxembourg Real Estate Investment Vehicles 2012 | 39
Capital calls may be made by way of capital Securitization fund Increase of share capital is organized by way
commitments or through the issue of partly Capital calls can be made either by way of notarial deed.
paid shares. At least 5% of each share must of capital commitments or through the Partly paid shares possible for SA and SCA.
be paid-up. issue of partly paid shares. The law does not
prescribe the minimum percentage to which
each share must be paid-up.
Securitization company
Partly paid shares are not allowed for the
Srl and SCoSA so capital calls must be
organized through capital commitment.
If the company is set up as a SA or SCA,
capital calls can be organized through
capital commitment or by way of the issue
of partly paid shares. At least 25% of each
share must be paid-up.
The issue of new shares requires an Securitization fund The issue of shares requires an amendment
amendment of the Articles unless the SICAR The unit price will be determined based on of the Articles.
is set-up with variable share capital. the principles laid down in the Management The share price will be determined based
Regulations. on the principles laid down in the Articles.
The share price will be determined based on
the principles laid down in the Articles. Existing unitholders do not have When the SOPARFI is organized as a
a pre-emption right when new units are SA or SCA, existing shareholders have a
The issue of new shares will be conducted issued, unless specifically provided for in pre-emption right when new shares are
as provided for in the Articles. The existing the Management Regulations. issued, unless this right was waived by the
shareholders will have a pre-emption right if Shareholders Meeting.
specifically provided for in the Articles. Securitization company
The issue of new shares requires an
amendment of the Articles.
Shareholding
Part II Fund SIF
The share price will be determined based The share price will be determined based
on the principles laid down in the Articles. on the principles laid down in the Articles.
When the SICAF is organized as a SA or SCA, When the SICAF is organized as a SA or SCA,
existing shareholders have a pre-emption right existing shareholders have a pre-emption right
when new shares are issued, unless this right when new shares are issued, unless this right
was waived by the Shareholders Meeting. was waived by the Shareholders Meeting.
Distribution of dividends The distribution of dividends must be The distribution of dividends must be
foreseen in the prospectus of the fund. foreseen in the prospectus of the fund.
For SICAV and FCP, distributions (interim or For SICAV and FCP, distributions (interim or
final) can be made irrespective of the realized final) can be made irrespective of the realized
results within the period, to the extent the results within the period, to the extent the
minimum share capital is maintained. minimum share capital is maintained.
(EUR 1,250,000).
For SICAF, final dividend distributions may For SICAF, final dividend distributions may not
not result in a decrease in assets to an result in a decrease in assets to an amount
amount less than one-and-a-half times the less than one-and-a-half times the funds total
funds total liabilities to its creditors. liabilities to its creditors.
Interim dividend distributions may be subject Interim dividend distributions may be subject
to statutory requirements per Article 72-2 of to statutory requirements per Article 72-2 of
the Commercial Law. the Commercial Law.
Luxembourg Real Estate Investment Vehicles 2012 | 41
The distribution of dividends must be Securitization fund Final dividend distributions may not result
foreseen in the prospectus of the SICAR. There are no restrictions on distributions in a decrease in assets to an amount
(interim or final). less than the suscriped capital plus
non-distributable reserves.
Dividend distributions, interim and final, Securitization company
are not subject to specific regulatory Final dividend distribution may not result in
requirements, except for compliance with a decrease in assets to an amount less than
minimum capital requirements. the subscribed capital plus non-distributable
reserves.
Reporting requirement
Part II Fund SIF
NAV computation frequency NAV must be computed on each day there NAV is computed on the frequency set in
are subscriptions or redemptions with a the Articles or Management Regulations.
minimum of once a month.
Valuation principles Valuation of assets is made on the basis of Assets are to be valued at fair value to be
the realizable value estimated in good faith determined in compliance with the rules
unless provided for differently in the Articles detailed in the Articles or Management
or Management Regulations. Regulations.
Luxembourg Real Estate Investment Vehicles 2012 | 43
A SICAR that makes an offer under an There are no specific requirements when
exemption of the prospectus Directive must an offer falls under an exemption of the
prepare a prospectus compliant with the Prospectus Directive.
SICAR law.
Assets are to be valued at fair value to be Securitization fund Lower of acquisition cost or market value or
determined in compliance with the rules Valuation of assets is made on the basis of at acquisition cost less any durable
detailed in the Articles. the realizable value estimated in good faith impairment considered by the board
unless provided for differently in the Articles of directors.
or Management Regulations.
Securitization company
Valuation of assets is made at the lower
of acquisition cost or market value or
at acquisition cost less any permanent
impairment considered by the Board
of Directors.
44 | Luxembourg Real Estate Investment Vehicles 2012
Reporting requirement
Part II Fund SIF
Financial reports Audited annual report is required within Audited annual report is required within
4 months of the year-end. 6 months of the year-end.
Generally accepted accounting principles Irrespective of the methodology used for the Irrespective of the methodology used for the
calculation of the NAV, the reports may be calculation of the NAV, the reports may be
prepared as follows: prepared as follows:
The content and layout of the annual report. The content and layout of the annual report.
The valuation of assets which is ruled by The valuation of assets which is ruled by
articles 93, 284, 39, 90, 95, 995 of the articles 9, 284, 401 of the SIF law.
Fund law. or
or
- IFRS.
- IFRS.
- IFRS.
Audited annual report is required within Securitization fund Annual report is required at year-end.
6 months of the year-end. Same requirements as for the Fund law. It must be available 15 days before the
Annual General meeting of shareholders and
No semi-annual report is required. Securitization company filed with the Registar within 7 months of the
Audited annual report is required at year- year-end. Staturoy audit requirements vary
end. It must be available 15 days before the depending on legal form (see appendix 2).
Annual General meeting of shareholders and
filed with the Registrar within 7 months of
the year-end.
No semi-annual report is required. No semi-annual report is required.
If the entity has securities listed on If the entity has securities listed on If the entity has securities listed on an
an EU regulated market the deadlines an EU regulated market the deadlines EU regulated market the deadlines may
may be shorter. may be shorter. be shorter.
Irrespective of the methodology used for the Irrespective of the methodology used for the
calculation of the NAV, the reports may be calculation of the NAV, the reports may be
prepared as follows: prepared as follows:
- IFRS.
- IFRS.
Semi-annual report
Not required
The law contains an exemption for the SICAR No exemption granted. Exemption possible.
to prepare consolidated accounts.
46 | Luxembourg Real Estate Investment Vehicles 2012
Approval process Creation of a fund is subject to prior approval Creation of a SIF is subject to prior approval
by the CSSF of: of the CSSF.
Half-yearly:
At year-end:
Creation of a SICAR is not subject to prior Creation of a securitization vehicle is subject N/A.
approval of the CSSF. to prior approval by the CSSF of:
Taxation
Part II Fund SIF
Withholding tax on interest dividends Not subject to withholding tax except Not subject to withholding tax except in the
and capital gains in the cases forseen by EU savings directive. cases by the EU savings directive.
Value Added tax (VAT) Tax exemption on management services. Tax exemption on management services.
SICAV/SICAF SICAV/SICAF
Limited to some DTTs. Limited to some DTTs.
Tax exemption for income derived from Securitization company Luxembourg corporations are subject to a
transferable securities. Fully taxable at a rate of 28.80% in 2012 28,80% tax rate (in 2012):
(Municipal Business Tax + Corporate Income
Tax exemption for one year for income Tax - Luxembourg city 2012). A reduction 22,05% of corporate income tax (in 2012).
on cash held for the purpose of a future of the taxable income to close to EUR 0 is 6 ,75% of municipal business tax
investment. possible (engagements made to investors (Luxembourg city 2012).
and other creditors are fully tax deductible).
The remaining income is subject to the
ordinary income tax of 28.80% in 2012 Securitization fund The participation exemption regime provides
(Municipal Business Tax + Corporate Income Tax exempt. for exemption of income from qualifiying
Tax - Luxembourg city 2012). equity investments.
Not subject to withholding tax except Not subject to withholding tax except A withholding tax of 15% is levied on
in the cases forseen by EU savings directive. in the cases forseen by EU savings directive. dividend payments, unless tax treaties
provide for lower rates or the Luxembourg
participation exemption regime applies to
reduce withholding tax to 0%.
Normal interest and liquidation proceeds are
not subject to withholding tax except in the
cases forseen by the EU Savings Directive.
Liquidation proceeds are not subject to
withholding tax.
Securitization fund
Tax exemption.
Tax exempt. Tax exempt. 0,5% of the fair value of non exempt net
assets as at each January 1st.
The participation exemption regime provides for
an exemption of qualifying equity investments.
Tax exemption on management services. Tax exemption on management services. VAT statues depends on activities.
SICAR in the form of a corporate entity Securitization company Luxembourgs tax treaties generally apply
(all types except the SCS) should benefit from Yes (all types except the SCS). Luxembourg SOPARFIs.
the Luxembourg double tax treaty network.
Securitization fund Substance requirements under Luxembourg
No access to DTT. law and the law of the contracting state
need to be considered.
50 | Luxembourg Real Estate Investment Vehicles 2012
Appendix 2 -
The most popular forms of legal entities
Formation The company is incorporated through a notarial The company is incorporated through a notarial
deed. The articles of incorporation are filed with deed. The articles of incorporation are filed with
the commercial registrar and published the commercial registrar and published
(in extenso) in the Official Gazette (Mmorial C). (in extenso) in the Official Gazette (Mmorial C).
Share capital Minimum share capital: EUR 31,000, 1/4 of Minimum share capital: EUR 12,500 fully paid
which must be paid up at incorporation. Bearer up at incorporation.
and registered shares are permissible. Capital is divided in registered shares.
Shareholders At least one investor, who may be a From one to forty investors, who may
natural person or legal entity, resident be a natural person or legal entity, resident
or non-resident. or non-resident.
Shareholders meeting An ordinary shareholders meeting must be An annual statutory shareholders meeting
held annually. The date and time should be is required only if there are more than
specified in the articles of incorporation. 25 shareholders. Otherwise each shareholder
may give his vote in writing.
Board The shareholder(s) appoint the board, which The shareholders appoint one or more
manages the company. The board may transfer managers, who need not be shareholders.
responsibility for daily management to one or There are no requirements on the nationality or
more persons who do not need to be members domicile of managers.
of the board. The company may have only
one director if it is held by a sole shareholder.
Otherwise, the board must have at least three
members, who need neither be shareholders nor
natural persons.
SOCIT EN COMMANDITE PAR ACTION S (S.C.A.) SOCIT EN NOM COLLECTIF (S.N.C.) SOCIT EN COMMANDITE SIMPLE (S.C.S.)
Partnership limited by shares General partnership Limited partnership
The company is incorporated through a notarial The company may be incorporated through a The company may be incorporated through a
deed. The articles of incorporation are filed with notarial deed or through private agreement. The notarial deed or through private agreement. The
the commercial registrar and published latter procedure requires civil law requirements latter procedure implies civil law requirements to
(in extenso) in the Official Gazette (Mmorial C). to be observed, e.g. the same number of copies be observed, e.g. the same number of copies as
as number of parties must be signed. The articles number of parties must be signed. The articles
of incorporation shall be published (by extract) in of incorporation shall be published (by extract) in
the Official Gazette (Mmorial C). the Official Gazette (Mmorial C).
Minimum share capital: EUR 31,000, 1/4 of The share capital is defined in the bylaws. The share capital is defined in the bylaws.
which must be paid up at incorporation. Bearer No minimum or maximum share capital No minimum or maximum share capital
and registered shares may be held by limited is required. The capital is divided into is required. The capital is divided in
partners. General partners may only hold registered shares. registered shares.
registered shares.
General partners have joint and several, unlimited Shareholders liability is unlimited. General partners have joint and several,
liability. Limited partners have liability limited to The shareholder is personally, jointly, severally unlimited liability. Limited partners have liability
the amount of the contribution, and indefinitely liable. limited to the amount of the contribution,
as long as they do not intrude in the as long as they do not intrude in the
management of the company. management of the company.
At least two investors, who may be a natural At least two investors, who may be a At least two investors, who may be
person or legal entity, resident or non-resident. natural person or legal entity, resident a natural person or legal entity, resident
or non-resident. or non-resident.
An ordinary shareholders meeting must be held The ordinary partners meeting should be The ordinary partners meeting should be
annually. The date should be specified in the specified in the companys bylaws. specified in the companys bylaws.
articles of incorporation.
There must be at least one manager who must At least one manager is required. If the At least one manager who must be one of the
be one of the general partners. There are no companys bylaws do not provide otherwise, general partners. If the companys bylaws do
requirements on the nationality or domicile all the partners are deemed to be managers. not provide otherwise, all the general partners
of managers. There are no requirements on the nationality or are deemed to be managers. There are no
domicile of the managers. requirements on the nationality or domicile of
the managers.
52 | Luxembourg Real Estate Investment Vehicles 2012
Appendix 2 -
The most popular forms of legal entities
Annual accounts The annual accounts comprise the balance The annual accounts comprise the balance
sheet, the profit and loss account and the sheet, the profit and loss account and the notes
notes to the accounts. The annual accounts to the accounts. The annual accounts shall be
shall be approved by the shareholders approved by the shareholders within 6 months
meeting within 6 months after the closing of after the closing of the financial year and filed
the financial year and filed with the commercial with the commercial registrar within one month
registrar within one month after the after the shareholders approval.
shareholders approval. Notice of the filing is Notice of the filing is published in the Official
published in the Official Gazette (Mmorial C). Gazette (Mmorial C).
Monitoring and audit of Small companies need to have their accounts Companies with more than 25 shareholders
annual accounts monitored by a commissaire (no professional are required to have their accounts monitored
qualification required). Large companies are by one or more commissaires (no professional
required to have their accounts audited by qualification required). Large companies are
an independent qualified auditor (rviseur required to have their accounts audited by
dentreprises agr). an independent qualified auditor (rviseur
dentreprises agr).
A report by a rviseur dentreprises is required,
with exceptions.
Listed companies must have their annual/ Listed companies must have their annual/
consolidated accounts audited by an consolidated accounts audited by an
independent qualified auditor (rviseur independent qualified auditor (rviseur
dentreprises agr). dentreprises agr).
Contributions other A report by a rviseur dentreprises agr is No external auditors report is required.
than cash required, with exceptions.
Luxembourg Real Estate Investment Vehicles 2012 | 53
SOCIT EN COMMANDITE PAR ACTION S (S.C.A.) SOCIT EN NOM COLLECTIF (S.N.C.) SOCIT EN COMMANDITE SIMPLE (S.C.S.)
Partnership limited by shares General partnership Limited partnership
The annual accounts comprise the balance The annual accounts comprise the balance The annual accounts comprise the balance
sheet, the profit and loss account and the sheet, the profit and loss account and the sheet, the profit and loss account and the notes
notes to the accounts. The annual accounts notes to the accounts. The annual accounts to the accounts. The annual accounts shall be
shall be approved by the shareholders shall be approved by the partners within approved by the partners within 6 months after
meeting within 6 months after the closing 6 months after the closing of the financial year the closing of the financial year and filed with
of the financial year and filed with the and filed with the commercial registrar within the commercial registrar within one month after
commercial registrar within one month after one month after the partners approval. the partners approval.
the shareholders approval. Notice of filing is
published in the Official Gazette (Mmorial C).
Small companies need to have their accounts Large companies are required to have their Large companies are required to have their
monitored by at least three commissaires accounts audited by an independent qualified accounts audited by an independent qualified
(no professional qualification required). Large auditor (rviseur dentreprises agr). auditor (rviseur dentreprises agr).
companies are required to have their accounts
audited by an independent qualified auditor
(rviseur dentreprises agr).
Appendix 3 -
Glossary of terms
Articles Articles of incorporation of a Company / Fund.
Commercial Law The Law dated 10 August 1915 on commercial companies, as amended.
Offer to the public Offer to the public within the meaning of the Prospectus Directive:
a communication that is addressed in any form or by any means to
individuals and containing sufficient information on the conditions of the
offer and on the shares offered, so that the investor is in a position to decide
on the purchase or subscription of those shares. This definition also applies
to the placement of shares by financial intermediaries.
Part II fund A fund that complies with Part II of the law of 17 December 2010.
-h
is expertise is confirmed by a banking 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 2009/65/EC.
SC Securitization Company.
SICAF Socit dInvestissement Capital Fixe (investment company with fixed capital).
SIF Specialised investment fund, compliant with the law of 13 February 2007,
a is amended.
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