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  • Etude Maître Laurent Ries

Securitization and private equity deals and SPV structuration generally


Why luxembourg?

Luxembourg is politically stable, its public debt is very low and its economy, with its proven resilience, is consistently outperforming the EU average.


The global financial community has recognized Luxembourg's sustained competitive advantage with an AAA rating.


The Luxembourg financial centre offers a wide range of financial services connecting investors and markets around the world. Its unique cross-border expertise attracts international financial services providers, while the infrastructure of its capital markets makes it the ideal place to finance the European and global activities of companies of all sizes. From the construction of the world's largest investment fund centre to the listing of the world's first green bond, Luxembourg has been a pioneer for many decades.


Always at the forefront of financial innovation, Luxembourg is developing new frameworks for real estate investments following the example of the 2004 law on securitisation. With the number of securitisation vehicles increasing from 610 to 1259 (+8.4% per year) and total assets growing from 116.2 to 278.3 billion euros (+10.2% per year) between the first quarters of 2010 and 2019, Luxembourg's securitisation activities have experienced (almost) continuous growth over the last 9 years. At the end of the second quarter of 2019, the ECB estimated that Luxembourg's securitisation vehicle industry accounted for 13.6% of the euro area industry as a whole.


Core advantages:


No limitation on securitized assets;


Tax neutrality for securitization transactions;


Possibility of segregation via multiple compartments;


Lack of supervision unless the securities are offered to the public continuously.



Securitization under Luxembourg law:


Securitization is defined by Luxembourg law as the operation by which a securitized Vehicle acquires (directly or through another entity) via the issuance of transferable securities, the value and return of which vary according to the level of risk.


With securitization, there are various ways to gain exposure to VT (securitization vehicle) risks, through the acquisition of assets, collateral on liabilities or through a bond.


There are no restrictions on the types of assets securitized in VT. More concretely, all asset classes generating cash flow can be securitized. Be it debt, real estate, mortgages or a patent.


Below is an explanatory diagram of the securitization vehicle.


The securitization vehicle can take different forms:


- a company (securitization company);

- a contractual form (more commonly a securitization fund);


A - If you opt for the form of a securitization company, here are the different options:


- public limited company (SA)

- limited liability company (Sàrl)

- limited partnership with shares (SCA)

- cooperative company organized in the form of a public limited company (SCSA)


To go further, there is no restriction on the level of the minimum share capital determined for the securitization company. For this, the minimum share capital depends on the legal form adopted (12,000 EUR for a Sàrl and 30,000 EUR for SA for example).


A securitization company has the option of adopting a structure with different compartments.


Each compartment has a set of strictly separate assets and liabilities.


In order to use the different compartments correctly, there must be authorization in the documents constituting the VT.


B - Securitization funds


In the event that you decide to opt for the contractual form (securitization fund), these can take the form of fiduciary contracts or co-ownership structures (more commonly mutual funds - FCP).


If the securitization fund does not have legal personality (you have not opted for a securitization company), then it must be administered by a management company with its registered office in Luxembourg.


Like its sister (securitization company), it can adopt a structure with different compartments. Each compartment has a strictly separate set of assets and liabilities. In addition, the fund is not subject to any requirement in terms of minimum share capital.


Regulatory aspects


Only VTs which continuously issue transferable securities to the public will be subject to prior approval and supervision by the specific financial authority of Luxembourg (CSSF).


The Luxembourg financial services regulatory authority (CSSF) concludes that the issuance of securities operates on a continuous basis with the presence of more than three issues intended for the public each year. In the case of an issue of securities for private placements, the VT will not be subject to supervision by the CSSF.


Regarding the second criteria, i.e. issuing securities to the public, an issue of securities to professional clients as defined in Annex Il of Directive 2004/39/EC of April 21, 2004 on markets in financial instruments (the "Mifl Directive" or "MiFID") is not considered by the CSSF as an issue to the public for the purpose of the Law.


Securities issued with a nominal value of at least EUR 125,000 each, are considered as not being issued to the public.


Each year, the financial statements of regulated and unregulated VTs must be audited by an independent auditor in Luxembourg. If the vehicle is made up of several compartments, each of them must be presented separately in the financial statements.


An attractive tax environment


The tax regime applicable to VT depends on their legal form.


VTs incorporated under the form of a company have the following main tax features:


Tax neutrality


VTs are subject to corporate income tax. However, their taxable basis including income from securitized assets is reduced by payments of interests or dividends made to securities holders. As a result their taxable basis is likely to be nil or close to nil.


No withholding tax

There is no withholding tax on dividend distributions, payments on fund units and interest payments on debt securities;


Exemption from Net Worth Tax

No capital stamp duty

Only a fixed capital duty of €75 is due upon incorporation of the VT and any further capital increase. For regulated VTs. additional registration duties are due to the CSSF.


Daily management services rendered to an VT are generally VAT exempt


Eligibility to Luxembourg double tax treaties network subject to confirmation beforehand with the Luxembourg tax authorities

Possibility to obtain advanced tax clearances

VTs created as a securitisation fund are considered as transparent vehicles i.e. their income or distributions are not subject to taxation.