Alex SCHMITT LL.M. Harvard Law School Maître d’Enseignement à la Faculté de Droit de l’Université Libre de Bruxelles

Investment Vehicles in Luxembourg

AVAILABLE VEHICLES SIF (specialised investment funds) SICAR (risk capital investment companies) SECURITISATION (securitisation vehicles) SPF (family holding) SOPARFI (financial participation companies)

Nature of the Investments A SIF may invest its funds in all kinds of assets : Hedge Funds; Private Equity; Liquid Assets; Currencies; Money Market Funds; Real Estate; Securities; Debt Instruments; Commodities; Pension Funds; and/or Deposits. A SIF may purchase target investments up to 100%. Minimum risk diversification (3 to 4 different assets are sufficient) admissible. RISK DIVERSIFICATION Nature of the Investments A SICAR can invest in different kinds of investments: Venture capital through either start-ups or listed companies Private equity investments Buy outs Bridge and Mezzanine financing Convertible debts Other financing instruments and exit strategies (CSSF circular 06/241) A SICAR has no obligation to diversify its investments. NO DIVERSIFICATION BUT VENTURE CAPITAL Nature of Investments Almost any predictable stream of income or risk may be securitised. Such risk may be attached to assets of any nature, to obligations of third parties, or to the activities of third parties regardless of the way in which the vehicle bears such risk (i.e. swap, sale, guarantee). Sufficiently identifiable future claims, premised on an existing or future contract may also be securitised. Securitisation may occur either through a transfer of legal ownership of the asset (“true sale”) or through a transfer of the risks linked to the asset (“synthetic securitisation”). NO DIVERSIFICATION Nature of Investments A SPF can invest in financial instruments such as shares, debt instruments, derivatives and related instruments, deposits and cash held on bank accounts. A SPF cannot directly invest in real estate. A SPF has no obligation to diversify its investments. However, a SPF is not allowed to receive more than 5 % of dividend payments per year from companies which are either not subject to a tax deemed equivalent to Luxembourg income tax or not covered by the EC Parent Subsidiary Directive. NO DIVERSIFICATION Nature of Investments The SOPARFI is a regular commercial company tailored to enjoy a very extensive participation exemption provided for by Luxembourg tax law. No investment restrictions. NO DIVERSIFICATION SIF SICAR SECURITISATION SPF SOPARFI ELIGIBLE INVESTMENTS

A SIF may be in form of a SIF- SICAV, a SIF-FCP (common fund) or another form. The Law further provides for a high degree of flexibility and a SIF-SICAV may be a: Public limited company (SA) Limited liability company (SARL) Corporate partnership limited by shares (SCA Private limited corporate partnership (SCS) Co-operative society organized as a public company (SCSA) The internal organisation rules and the corporate governance mechanisms of a SIF are equally flexible and may be tailored to specific demands. CSSF supervision. A SIF allows a greater freedom and less administrative burden than more traditional investment funds. QUALIFIED INVESTORS ONLY CSSF APROVAL/ LISTING The law provides for a large degree of flexibility and a SICAR can take the following forms: Public limited company (SA) Limited liability company (SARL) Corporate partnership limited by shares (SCA) Private limited corporate partnership (SCS) Co-operative society organized as a public company (SCSA) The internal organisation rules and the corporate governance mechanisms of the SICAR are equally flexible. Another advantage, while all constitutive documents must be pre-approved, no requirements are compelled for the approval of potential promoters of the SICAR. These allow a greater freedom than more traditional investment funds. QUALIFIED INVESTORS ONLY CSSF APROVAL/ LISTING The securitisation law proposes two forms of vehicles: a special purpose company or a securitisation fund. Securitisation companies must be stock companies: Public limited company (SA) Limited liability company (SARL) Corporate partnership limited by shares (SCA) Co-operative society organised as a public company (SCSA). Securitisation funds are unincorporated pools managed by a management company. ALL INVESTORS APPROVED VEHICLES/ NON APPROVED VEHICLES The SPF law allows the following legal forms for a SPF: Public limited company (SA) Limited liability company (SARL) Corporate partnership limited by shares (SCA) Co-operative society organized as a public company (SCSA) INDIVIDUALS AND PRIVATE HOLDING ENTITIES NO CSSF APPROVAL/ LISTING SOPARFIS are governed by the general corporate law of August 10, 1915 as amended. SOPARFIS can be set up under one of the following forms: Public limited company (SA) Limited liability company (SARL) Corporate partnership limited by shares (SCA) Co-operative society organized as a public company (SCSA) ALL INVESTORS NO CSSF APPROVAL/ LISTING SOPARFISPFSECURITISATION SICAR SIF SETTING UP

Taxation of the SIF: No income or wealth taxes; 0.01% annual subscription tax assessed on the NAV of the SIF; Limited DTT access. Taxation of SIF investor: No withholding tax in Luxembourg on dividends paid out by the SIF to investors; No Luxembourg taxation of capital gains made by investors. * This summary of the taxation relates to the incorporated form of the SICAR and Securitisation vehicle. It is possible to establish SICARs and Securitisation vehicles which are transparent for tax purporses. Taxation of the incorporated SICAR : Subject to regular corporate income tax, however exemption of income from transferable securities; Exemption of short-term (<12 mo.) investment of available cash; Net wealth tax exemption DTT access. Taxation of SICAR investor: No withholding tax on distributions by the SICAR; No withholding tax on interest paid out by the SICAR, unless application of EC Savings Directive (as transposed in Lux law); No taxation of capital gains made by investors; Taxation of the Securitisation Company:  Subject to regular corporate income tax but all commitments to investors are deductible, which does not result in significant tax liability; Net wealth tax exemption; DTT access. Taxation of Securitisation Company investor: No withholding tax on distributions by the Securitisation Company; No withholding tax on interests paid out by the Securitisation Company, unless application of EC Savings Directive (as transposed in Luxembourg law) Short term (< 6 months) capital gains on shares by non-residents may be taxable (subject to treaties). Taxation of the SPF: Corporate income tax exemption; Net wealth tax exemption; 0.25% subscription tax which cannot be in excess of EUR As a result, the amount of subscription tax payable by a SPF, the taxable basis of which is higher than EUR 50 million, is fixed. No DTT access. Taxation of SPF investor: No withholding tax on distributions by the SPF; No withholding tax on interests paid out by the SPF, unless application of EC Savings Directive (as transposed in Lux law); No taxation of capital gains made by investors. Taxation of the SOPARFI: Subject to regular corporate income tax; Income from equity stakes held by the SOPARFI can be earned tax-free provided these stakes fulfil certain size and holding duration requirements (exemption of dividends and liquidation proceeds; exemption of capital gains); Annual 0.5% net wealth tax on net assets; DTT access. Taxation of SOPARFI investor: 15% withholding tax on dividend payments (reduced treaty rates available / exemption available upon application of EC Parent- Subsidiary Directive); No withholding tax on interest paid out by the SOPARFI, unless application of EC Savings Directive (as transposed in Lux law); Short term (< 6 months) capital gains on shares by non-residents may be taxable (subject to treaties). SIFSICAR* SECURITISATION* SPFSOPARFI TAX

EXAMPLES

SIF (z.B. SIF-SICAV in the form of a société anonyme) SUB-FOND 2SUB-FOND 1SUB-FOND 3 Investor 1 (holds 100% of Sub-Fond 1) Investor 3 (holds 100% of Sub-Fond 3) Sub-Fond 1 holds all assets of Investors 1 Sub-Fond 2 holds all assets of Investors 2 Sub-Fond 3 holds all assets of Investors 3 Custodian Management Company (if necessary) SIF Umbrella SIF ____________________________________________________________________________ Investor 2 (holds 100% of Sub-Fond 1)

SICAR Example ____________________________________________________________________________ Manager as unlimited shareholder holding Management Shares and Limited Shareholder holding Participating Shares INVESTORS HOLDING CERTIFICATES Venture Capital Assets SICAR S.C.A. Custodian Manager S.àr.l. NO WITHOLDING TAX ON DISTRIBUTIONS, REDEMPTIONS AND CAPITAL GAINS ELIGIBLE INVESTMENTS Investment Advisor

SECURITISATION Example ____________________________________________________________________________ INVESTORS TRANCHE 1 PURCHASING VEHICLE ORIGINATOR ISSUING VEHICLE INVESTORS TRANCHE 2 INVESTORS TRANCHE 3 Subordinated Loan Sale of Assets Facility Agreement/ Proceeds of Note Issue Excess Spread Note Issue

SPF Example ____________________________________________________________________________ SPF REAL ESTATE PORTFOLIO INVESTOR WITH SEAT IN MONACO PropCo Investor holds 100% in SPF SPF holds 100% in PropCo PropCo owns real estate Dividends not subject to tax in Luxembourg Dividends Profits derived from real estate

Advisor 2 (e.g. BVI PROMOTER Company (e.g. Switzerland) Management Company Advisor 1 (e.g. Germany) Partnership Limited by Shares (société en commandite par actions) INVESTORS 100% 10% 100% Third Party Loans Shareholders’ Loan + Dividend + Interest on PECs + Dividend + Interest on Shareholders’ Loan + Placement Fee + Advisory Fee + Placement Fee + Advisory Fee + Dividend + Dividend Incentive + Placement Fee + Management Fee + Commitment Fee SOPARFI REAL ESTATE PORTFOLIO SOPARFI Example ___________________________________________________________________________

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