Luxembourg Private Equity Investment Vehicles

September 2007

Preface

This brochure has been prepared jointly by the Luxembourg Bankers’ Association (ABBL) and the Association of the Luxembourg Fund Industry (ALFI) in order to provide general background information on the legal and tax aspects of regulated and unregulated private equity vehicles domiciled in the Grand Duchy of Luxembourg.

Luxembourg offers today a whole platform of services and opportunities to the private equity industry. Products include competitive structures for setting-up private equity funds, such as the SICAR or the SIF, and structures for pan-European private equity acquisitions. Luxembourg based service providers have specialised in servicing the private equity industry and offer today a wide range of customised services in private equity fund and acquisition structuring, transaction advisory, fund administration, custody and audit services.

This publication is intended to provide private equity houses with comprehensive information on Luxembourg’s state-of-the-art fund vehicle for private equity, the SICAR, as well as a summary of the key characteristics of other Luxembourg solutions for private equity.

1 Contents

3 Private equity industry in Luxembourg 30 The fully regulated funds (UCIs Part II) 30 General legal and regulatory framework 3 The context 30 Other key characteristics 3 Private equity 33 Tax regime

4 Overview of available structures 34 The SOPARFI (société de participations 16 The investment company in risk financières) capital (SICAR) 34 Legal framework 34 Regulatory framework 16 General partner access 34 Tax regime 16 Investors 34 Tax substance 16 Investments 35 Market outlook 18 Tax regime 20 Legal structures 22 Capital structure and distributions 36 The SPF (société de gestion de patrimoine 23 Valuation, accounting and reporting familial) 24 The custodian, the administrative agent and 36 General and legal framework the auditor 37 Fiscal framework

26 The specialised investment funds (SIFs) 38 Glossary 26 General legal and regulatory framework 26 Key characteristics and advantages 40 Statistical information 28 Tax regime 29 Former 1991 funds Private equity industry in Luxembourg

The context Private equity can be put into place with SOPARFIs allows private equity partners to have The last years have seen record M&A Luxembourg the flexibility of a mere partnership in transactions with massive volume of Benefiting from a flexible tax and legal a corporate body. These vehicles thus European deals backed by private equity environment Luxembourg has been provide a combination of flexibility and firms, essentially leveraged buy-outs recognised for many years as a pre- an efficient tax regime. eminent jurisdiction for structuring (LBOs), many of them being structured private equity funds and private equity through Luxembourg investment There is also an increasing demand from deals. vehicles. In this respect, Luxembourg may certain types of investors to commit be proud to have joined an important their monies through regulated on-shore The launch in June 2004 of the SICAR market share of the total funds raised by private equity funds. (société d’investissement en capital private equity and venture capital funds. à risque) as an investment vehicle In that respect, Luxembourg offers a dedicated to private equity and venture Traditionally, private equity firms have choice of both regulated and non- capital is the latest illustration of been adverse to submitting their funds to regulated structures that meet the Luxembourg’s commitment to the any specific regulatory framework. This different requirements of a fund sponsor. industry. was driven by many legitimate factors Many large private equity houses now such as a need for maximum flexibility have substantial presence in Luxembourg Financial centre & investment to accommodate specific investor (offices, personnel, accounting, etc) fund centre requests and a need for privacy over and SOPARFIs are used in many private With more than 10,000 fund units certain aspects of the fund’s operation. equity deals such as LBO refinancing or and assets under management in excess As such, most of the private equity funds other types of transaction. Luxembourg’s of EUR 2 trillion at the end of June are incorporated in the form of private efficient vehicles such as the SOPARFI 2007, Luxembourg is the second most limited partnerships in jurisdictions such and dedicated vehicles such as the important investment fund domicile in as the United Kingdom, the Channel SICAR, combined with the willingness of the world after the US. The Luxembourg Islands, Cayman, Bermuda or the State of the Government to promote the private fund centre is the prime location for the Delaware in the USA. equity business, explain the growing pan-European and global distribution of Besides the lightly regulated Luxembourg importance gained by Luxembourg year investment funds. fund structures such as the SICAR and after year in this specific area. Alternative investments sector the SIF, SOPARFIs are often used as At the same time Luxembourg has Luxembourg-domiciled unregulated developed a strong track record in private equity vehicles. This is because alternative investment products and they offer a flexible and efficient tax bespoke investment structures such as regime. Even if SOPARFIs are subject to hedge funds and funds of hedge funds, taxes, these vehicles make it possible private equity vehicles, real estate funds, to manage a private equity investment securitisation vehicles and pension without significant income and exit tax pooling. charges. The tailor-made structuring that

3 Luxembourg Private Equity Investment Vehicles

Overview of available structures

The below table provides an overview analysed herein may also be used as of the Luxembourg structures which are fund vehicles to host private equity available for private equity and venture investments, under certain conditions. capital investments. While the SICAR The SOPARFI is further often used in is the premier private equity/venture combination with other structures, as an capital vehicle per se, other structures acquisition vehicle.

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Applicable legislation SICAR Act (2004) SIF Act (2007) Investment Funds Act, Part II (2002) SPF Act (2007) Securitisation Act (2004) Companies Act (1915)

Prospectus Directive Applicable (i.e., a PD Prospectus must Only applicable if the SIF is closed- Only applicable if the fund is closed- Not applicable as the number of in- Applicable (i.e., a PD Prospectus must Applicable (i.e., a PD Prospectus must be issued where an “offer to the pu- ended (i.e., does not offer any re- ended (i.e., does not offer any re- vestors is limited and shares of a SPF be issued where an “offer to the pub- be issued where an “offer to the pub- blic” within the meaning of the Pros- demption opportunities to investors). demption opportunities to investors). may neither be offered to the public lic” within the meaning of the Pro- lic” within the meaning of the Pro- pectus Directive is made unless the nor listed. spectus Directive is made unless the spectus Directive is made unless the Open-ended SIFs may make a public Open-ended funds may make a pub- offer is made under an exemption of offer is made under an exemption of offer is made under an exemption of offer in Luxembourg on the basis of lic offer in Luxembourg on the basis the Prospectus Directive). the Prospectus Directive). the Prospectus Directive). their issue document compliant with of their prospectus compliant with SICARs which make an offer under an the SIF Act. This issue document must the Investment Funds Act. This pros- exemption of the Prospectus Direc- be updated each time new securities pectus must be updated on an on- tive must issue a prospectus compli- are issued to new investors. going basis. ant with the SICAR Act. This prospectus must be updated each time new securities are issued.

Supervision by the Yes (light supervision) Yes (light supervision) Yes No No, unless issue of securities to the No CSSF public more than 3 times a year (offers to institutional investors and private placements do not constitute “public offers”)

4 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI 1

Applicable legislation SICAR Act (2004) SIF Act (2007) Investment Funds Act, Part II (2002) SPF Act (2007) Securitisation Act (2004) Companies Act (1915)

1 This table only refers to SOPARFIs established under the form of an SA, an SCA or an Sàrl.

5 Luxembourg Private Equity Investment Vehicles

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Eligible investors Institutional investors Institutional investors Unrestricted Individual investors Unrestricted Unrestricted Professional investors Professional investors Private estate management entities Well-informed investors Well-informed investors Intermediaries acting on behalf of the above-referred investors

Eligible assets / All types of private equity / venture Unrestricted Unrestricted (subject to CSSF prior Financial assets only (no controlling Securitisation of risks linked to any Unrestricted strategies capital investments (including real approval) activity over investments) types of assets estate private equity) No active management of the assets Temporary investments in other assets pending investments in private equity / venture capital

Risk diversification Yes (no detailed investment restric- Yes (in principle, investment in any No No No requirement tions; spreading of the investments target company may not exceed 20% over a few targets should be suffi- of the NAV) cient)

Entity type Corporate entity (SA, SCA, Sàrl, SCoSA, SICAV/F (SA, SCA, Sàrl, SCoSA) SICAV (SA) Corporate entity (SA, SCA, Sàrl, SCoSA) Securitisation company (SA, SCA, Sàrl, Any corporate type of entity SCS) SCoSA) FCP SICAF (SA, SCA, Sàrl) Securitisation fund (organised under Other (e.g., fiduciary structure) FCP the contractual form or on a fiduciary (trust) basis)

Segregated sub-funds No. (SICAR Act should be amended Yes Yes No Yes No shortly to authorise segregated sub- funds; tracking stock schemes have been authorised by the CSSF).

Substance in Luxem- Head office in Luxembourg Head office of SIF-SICAV/F (or of Head office of SICAV/F (or of mana- Head office in Luxembourg Head office of securitisation com- Head office in Luxembourg bourg / nationality or management company of SIF-FCP) in gement company of FCP) in Luxem- pany (or of management company of No nationality / residency require- No nationality / residency require- No nationality / residency require- residency requirements Luxembourg bourg securitisation fund) in Luxembourg ments for directors / managers ments for directors / managers ments for directors / managers No nationality / residency require- No nationality / residency require- No nationality / residency requirements for directors / managers ments for directors / managers ments for directors / managers

Required service pro- Depositary (credit institution) Depositary (credit institution) Depositary (credit institution) Usually none No depositary required, unless securi- Independent auditors may be required viders in Luxembourg tisation vehicle is subject to supervi- depending on size of company and/or Administrative agent (PFS or unregu- Administrative agent (PFS) 1 Administrative agent (PFS) 1 sion of the CSSF number of employees (if any) lated company) 1 Independent auditors Independent auditors Administrative agent (PFS or unregu- Independent auditors lated company) 1 Independent auditors

1 The administrative agent is not required if the administration duties are performed by the securitisation company, the SICAR, the SICAV/F or the management company itself in Luxembourg.

6 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Segregated sub-funds No. (SICAR Act should be amended Yes Yes No Yes No shortly to authorise segregated sub- funds; tracking stock schemes have been authorised by the CSSF).

7 Luxembourg Private Equity Investment Vehicles

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Approval process by Launching of a SICAR is subject to An application for approval of the Launching of a fund is subject to prior Not applicable Not applicable for unregulated secu- Not applicable the CSSF prior approval by the CSSF of: fund will need to be submitted to the approval by the CSSF of: ritisation vehicles CSSF within one month of the offer • Articles, prospectus and agreements • Articles or management regulations, of securities. with main service providers; prospectus and agreements with Although it is anticipated that the main service providers; • directors / managers (must be expe- CSSF will not carry out an in-depth rienced and reputable); • directors / managers (must be expe- review of all materials, the CSSF will rienced and reputable); • choice of depositary and auditor. approve: • investment manager(s) (if any) (must The CSSF generally does not carry out • Articles or management regulations, be experienced and reputable); an in-depth review of documents and prospectus and agreements with mainly checks eligibility of invest- main service providers; • eligibility of promoter (financial ment strategy. institution with sufficient financial • directors / managers (must be expe- means); No offer of securities may be made rienced and reputable); before CSSF approval. • choice of depositary and auditor. • choice of depositary and auditor. No offer of securities may be made In practice, it may be advisable to before CSSF approval. seek CSSF prior approval if the SIF displays unusual features.

Capital Fixed or variable capital Fixed or variable capital Fixed or variable capital Fixed capital Fixed capital for securitisation com- Fixed capital (fixed / variable) panies

Minimum capital / net Upon incorporation: For FCPs For FCPs Upon incorporation: For securitisation companies (upon Upon incorporation: assets requirements SA/SCA: EUR 31,000 Net assets must reach EUR 1.25 mio Net assets must reach EUR 1.25 mio SA/SCA: EUR 31,000 incorporation): SA/SCA: EUR 31,000 Sàrl: EUR 12,500 within 12 months from authorisation. within 6 months from authorisation. Sàrl: EUR 12,500 SA/SCA: EUR 31,000 Sàrl: EUR 12,500 Sàrl: EUR 12,500 Subscribed share capital must reach SCoSA: no requirement SCoSA: no requirement EUR 1 mio within 12 months of For SICAV/Fs For SICAV/Fs No requirement for securitisation authorisation. Upon incorporation: Upon incorporation: funds SA/SCA: EUR 31,000 SA/SCA: EUR 31,000 Sàrl: EUR 12,500 Sàrl: EUR 12,500 Subscribed share capital and share Share capital must reach EUR 1.25 premium must reach EUR 1.25 mio mio within 6 months of authorisa- within 12 months of authorisation. tion.

8 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Capital Fixed or variable capital Fixed or variable capital Fixed or variable capital Fixed capital Fixed capital for securitisation com- Fixed capital (fixed / variable) panies

9 Luxembourg Private Equity Investment Vehicles

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Structuring of capital Capital calls may be organised either Capital calls may be organised For FCPs Capital calls may be organised either For securitisation funds Capital calls may be organised either calls and issue by way of capital commitments or either by way of capital commit- Capital calls may be organised by way of capital commitments (i.e., Capital calls may be organised by way of capital commitments (i.e., of shares / units through the issue of partly paid shares ments or through the issue of partly either by way of capital commit- contractual undertaking of an inves- either by way of capital commit- contractual undertaking of an inves- (to be paid up to 5% at least). paid shares (to be paid up to 5% at ments or through the issue of partly tor to subscribe shares of the com ments or through the issue of partly tor to subscribe shares of the compa- least) or units. pany upon request) or through the ny upon request) or through the issue Existing shareholders have no pre- paid units. paid units. issue of partly paid shares (to be paid of partly paid shares (to be paid up emptive right of subscription, unless Issues of shares of a SICAV do not Existing unitholders do not have a up to 25%). Sàrl and SCoSA cannot Existing unitholders do not have a to 25%). Sàrl and SCoSA cannot issue otherwise provided for in the Articles. require an amendment of the Articles pre-emptive right of subscription in issue partly paid shares. pre-emptive right of subscription in partly paid shares. before a public notary. Issues of shares of SICAR with a vari- case of issue of units, unless other- case of issue of units, unless other- Existing shareholders of an SA/SCA/ Existing shareholders of an SA/SCA/ able capital do not require an amend- Issue price may be freely determined wise provided for in the management wise provided for in the management Sàrl have a pre-emptive right of sub- Sàrl have a pre-emptive right of subs- ment of the Articles before a public in accordance with the principles laid regulations. regulations. scription in case of increase of capital cription in case of increase of capital notary. down in the Articles or management Units must be issued at a price based by way of cash contribution (except if Issue price may be freely determined by way of cash contribution (except if regulations. Issue price may be freely determined on the NAV (plus costs and actualisa- waived by shareholders meeting). in accordance with the principles laid waived by shareholders’ meeting). in accordance with the principles laid For SICAVs, existing shareholders have tion interests, if appropriate). down in the management regula- Issues of shares require an amend- Issues of shares require an amend- down in the Articles. no pre-emptive right of subscription, tions. ment of the Articles before a public ment of the Articles before a public unless otherwise provided for in the For SICAFs notary. notary. Articles. Capital calls in an SA/SCA may be For securitisation companies organised either by way of capital No legal constraints on issue price. Capital calls in an SA/SCA may be No legal constraints on issue price. commitments or through the issue organised either by way of capital of partly paid shares (to be paid up commitments or through the issue of to 25% at least). An Sàrl cannot issue partly paid shares (to be paid up to partly paid shares. 25% at least). Sàrl and SCoSA cannot issue partly paid shares. Existing shareholders of an SA/SCA have a pre-emptive right of subscrip- Existing shareholders of an SA/SCA/ tion in case of increase of capital by Sàrl have a pre-emptive right of sub- way of cash contribution (except if scription in case of increase of capital waived by shareholders’ meeting). by way of cash contribution (except if waived by shareholders’ meeting). Issues of shares require an amendment of the Articles before a public Issue price may be freely determined notary. in accordance with the principles laid down in the Articles. Issue price is determined in accordance with the principles laid down in Issues of shares require an amend- the Articles. ment of the Articles before a public notary. For SICAVs Capital calls must be organised by way of capital commitments (shares must be fully paid-up). Existing shareholders do not have a pre-emptive right of subscription in case of issue of shares, except if otherwise provided for in the Articles. Issues of shares do not require an amendment of the Articles before a public notary. Shares must be issued at a price based on the NAV (plus costs and actualisa- tion interests, if appropriate).

10 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

11 Luxembourg Private Equity Investment Vehicles

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Distribution of There are no statutory restrictions on For SIF-FCPs and SIF-SICAVs For FCPs and SICAVs Distributions may not reduce the For securitisation funds Distributions may not reduce the net dividends payments of (interim) dividends (ex- There are no statutory restrictions on There are no statutory restrictions on net assets of the SPF to less than the There are no statutory restrictions on assets of the SOPARFI to less than cept for compliance with minimum payments of (interim) dividends (ex- payments of (interim) dividends (ex- amount of the subscribed capital plus payments of (interim) dividends. the amount of the subscribed capital capital requirement). cept for compliance with minimum cept for compliance with minimum non-distributable reserves. plus non-distributable reserves. net assets / capital requirement). net assets / capital requirement). Interim dividends are subject to sta- For securitisation companies Interim dividends are subject to stat- tutory conditions. Distributions may not reduce the net utory conditions. For SICAFs For SICAFs assets of the company to less than SCoSA: profits are distributed propor- SCoSA: profits are distributed propor- Distributions may not reduce the Distributions may not reduce the the amount of the subscribed capital tionally to investors each year, except tionally to investors each year, except SICAF’s assets, as reported in the last SICAF’s assets, as reported in the last plus non-distributable reserves. if provided otherwise in the Articles. if provided otherwise in the Articles. annual reports, to an amount less annual reports, to an amount less Interim dividends are subject to stat- than one-and-a-half times the total than one-and-a-half times the total utory conditions. amount of the SICAF’s liabilities to its amount of the SICAF’s liabilities to its creditors. creditors. Interim dividends are subject to stat- Interim dividends are subject to statutory conditions. utory conditions.

Calculation of NAV The NAV must be determined at least The NAV must be determined in ac- The NAV must be determined at least Not applicable Not applicable Not applicable once a year. Assets are to be valued cordance with the rules laid down in once a year on the basis of the reali- at fair value. the Articles or management regula- sation value estimated in good faith. tions. Assets are to be valued at fair value.

Financial reports / Audited annual report (within 6 Audited annual report (within 6 Audited annual report (within 4 Not applicable Audited annual report Audited annual report may be re- consolidation months from end of relevant period) months from end of relevant period) months from end of relevant period). quired if company exceeds a certain An audited long form report is re‑ size in terms of turnover, total assets Explicit exemption from consolida- Explicit exemption from consolida- quired to be issued along with the and number of employees. tion requirements tion requirements annual reports. Semi-annual report (within 2 months from end of relevant period)

12 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

13 Luxembourg Private Equity Investment Vehicles

SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

Tax regime Fiscally opaque SICARs (i.e. all SICARs SIFs are subject to an annual sub- Part II funds are subject to an annual SPFs are subject to an annual sub- Securitisation funds are considered SOPARFIs are fully taxable companies, except those established under the scription tax (taxe d’abonnement) of subscription tax (taxe d’abonnement) scription tax (taxe d’abonnement) of to be investment funds. They are sub- subject to an aggregate corporation form of an SCS) are fully taxable. 0.01% p.a. of their NAV. of 0.05% p.a. of their NAV. Classes 0.25% p.a. of their share capital, share ject neither to corporation taxes nor tax burden which currently amounts However, they can generally avoid of shares which are reserved for In- premium and debt exceeding eight to the annual subscription tax (taxe to 29.63% for companies located in Unlike SIF-FCPs, SIF-SICAV/Fs should any substantial tax in Luxembourg as stitutional investors are subject to a times the share capital plus share d’abonnement). Luxembourg City. benefit from certain double tax they are authorised to exempt from subscription tax at a reduced rate of premium, with a maximum of EUR treaties. Investments may be made Securitisation companies are fully However, SOPARFIs benefit from ex- their tax base all income and capital 0.01%. 25,000 per annum. through fully taxable subsidiaries taxable. They may however deduct emptions to corporation tax for divi- gains deriving from: i) investments in benefiting from double tax treaties Unlike FCPs, SICAV/Fs benefit from The SPF is exempt from corporate in- from their taxable profit payments dends received from share-holdings, transferable securities 1 and ii) tempo- and the EU parent-subsidiary direc- certain double tax treaties. Invest- come tax, municipal business tax and made to investors. Basically, investors capital gains made on the sale of rary cash investments pending invest- tive. ments may be made through fully net worth tax. in a securitisation company may hold share-holdings and gains made on ments in risk capital for a maximum taxable subsidiaries benefiting from either equity or debt securities. The liquidation of companies in which period of twelve months. A fixed capital duty of EUR 1,250 This tax regime is not applicable if for double tax treaties and the EU par- Securitisation Act expressly states shares are held. is payable upon incorporation of a given year, at least 5% of total divi- Fiscally opaque SICARs may in princi- ent-subsidiary directive. that for tax purposes payments made SICAV/Fs. dends come from non-resident and Exemption is granted on the follow- ple claim treaty protection and bene- by the company are always interest, A fixed capital duty of EUR 1,250 non-listed companies that are not ing conditions: fit from the parent-subsidiary direc- even if under the Companies Act they is payable upon incorporation of subject to an income tax similar to tive. However, the eligibility of SICARs take the form of dividends. Thus, se- • Dividend and liquidation gains ex- SICAV/Fs. Luxembourg corporate income tax. In must be reviewed on a case-by-case curitisation companies may deduct emption on share-holdings of at that case, the SPF will be fully taxable basis depending on the jurisdiction of any payments to investors. least 10% or the acquisition cost for that given relevant year. the target company. of at least EUR 1.2 million provided A fixed capital duty of EUR 1,250 is SPFs do not benefit from double tax such qualifying share-holding is held SICARs established as an SCS are tax payable upon incorporation of securi- treaties and the EU parent-subsidiary for at least 12 months; transparent and the profit share of tisation companies. directive. foreign investors investing in these • Capital gains exemption of share- SICARs is not subject to any tax in Capital contributions to SPFs are holdings of at least 10% or an acqui- Luxembourg. subject to a 1% capital duty (droit sition cost of at least EUR 6 million d’apport) (likely to be abolished in provided such qualifying share-hold- A fixed capital duty of EUR 1,250 is the future). ing is held for at least 12 months. payable upon incorporation of the SICAR. A 15% withholding tax will be applied on the gross amounts of dividends paid by the SOPARFI (subject to tax treaties and EU parent-subsidiary directive). No withholding tax is levied on liquidation payments. There is no formal legal rule concerning thin capitalisation. The Luxem- bourg tax authorities usually consider that an acceptable debt/equity ratio is 85:15. If this ratio is not complied with and the SOPARFI is over-indebt- ed, interest paid on the excess debt on a loan received from its shareholder or to a bank, when the loan of the bank is guaranteed by the shareholder, can be considered as a hidden profit distribution subject to dividend withholding tax at a rate of 15% and such interest is then not deductible. Capital contributions to a SOPARFI are subject to a 1% capital duty (droit d’apport) (likely to be abolished in the future).

1 Tax authorities have accepted in certain cases that loans may be assimilated to securities for the purpose of the tax exemption, as long as the loan agreement includes a clause providing for the possibility to transfer the loan to a third party.

14 SICAR SIF Part II fund SPF Securitisation vehicle SOPARFI

15 Luxembourg Private Equity Investment Vehicles

The investment company in risk capital (SICAR)

The Société d’Investissement en Capital services providers and any modifications • professional investors defined as “a à Risque, SICAR, was created by the law made thereof. client who possesses the experience, dated June 15, 2004 on the investment knowledge and expertise to make its The authorisation is subject to company in risk capital (the SICAR Act). own investment decisions and properly demonstrating that the custodian and assess the risks that it incurs”; General partner access the central administration of the SICAR are situated in Luxembourg, as further • any other investor who cumulatively In order to carry out its activities, the detailed under section 3.8. a) has confirmed in writing that he SICAR must be authorised by the CSSF. adheres to the status of well-informed Once authorised, the SICAR is put on an investor, and b) invests a minimum of The authorisation regime of the SICAR official list by the CSSF. This registration EUR 125,000 in the company. is relatively light as it is limited to the is tantamount to the authorisation by approval by the CSSF of its constitutive the CSSF but should not be considered The latter minimum investment documents, its directors, the choice of to be an endorsement by the CSSF of the condition (b) may be waived if the the depository, the auditor and the place quality of the SICAR. investor can evidence his expertise, of central administration. experience and knowledge in adequately Investors appraising an investment in risk capital. 1 The directors of the SICAR and the This is done through the deliverance depository must be of sufficiently good Due to the high risk associated to of a written certification by a credit repute and have sufficient experience in the investments made by a SICAR, institution, another professional of the the performance of their functions in the Luxembourg law restricts the access financial sector 3 or by a management private equity field and consistent with to the SICAR to investors who fully company. the investment policy of the SICAR. To acknowledge the risk borne (referred to that end, their identity must be notified as “well-informed investors”,“eligible Investments to the CSSF. This does not concern the investors” or “qualified investors”). initiator and the investment manager/ Investment scope: risk capital In accordance with the SICAR Act, the investment advisor of the SICAR as they The SICAR is a vehicle reserved for following investors may be regarded as are not subject to authorisation by the investments in risk capital. As per well-informed: CSSF, although their experience may be the SICAR Act, the object of a SICAR cross-checked. • institutional investors, which under is to “invest its assets in securities current guidance would include representing risk capital in order to The CSSF will approve the articles notably banks, insurance companies, provide its investors with the benefit of incorporation of the SICAR, its pension funds, commercial companies, of the result of the management of its prospectus, ancillary agreements with investment funds and certain holding assets in consideration for the risk which companies2;

1 The directors who formally represent the SICAR are: the general partner of the partnerships limited by shares and limited partnerships, the board members of public limited companies and cooperative companies set up as public limited companies and the managers of private limited companies. 2 Definition provided by Appendix II of the EU Directive 2004/39/EEC (JOCE L 145, 30/04/2004 P.0001 – 0044). Even if parliamentary documents refer to the definition included in CSSF circular 2000/15 referring to the FESCO recommendations, the definition given in the directive will certainly prevail. For a complete definition, please refer to the directive. 3 Professional of the financial sector as defined within the meaning of the EU Directive 1993/22/EEC of 10 May 1993 on investment services in the securities field.

16 they incur”, where risk capital “is to be from a regulatory standpoint for a No diversification rules understood as the direct or indirect SICAR investing in one single target The SICAR Act does not impose any contribution of assets to entities in view company, this may not necessarily be diversification rules. A SICAR can of their launch, their development or required where the SICAR invests in consequently invest in one single their listing on a stock exchange”. several targets, as long as other criteria company, provided the above criteria are sufficiently establish the risk capital met. The SICAR must fulfil the criteria of criterion. i) “high risk” and ii) the “intention to Fund of funds and master-feeder struc- develop” the investee companies. It is important to note that traditional ture holding companies that make The “high risk” element can be In addition to investing directly in acquisitions with a view to holding on to demonstrated through various investee companies, a SICAR can be set the assets cannot be set up as a SICAR. characteristics of the investment, such up as a fund of funds (such as a fund of as the lack of liquidity due to the fact In practice, traditional investments private equity funds), provided that the that the investments are not listed. The into venture capital and private equity underlying funds also fulfil the criteria of expected return should be in line with always fulfil these criteria as it is for this “high risk” and “intention to develop”. the amount of risk taken. industry that the SICAR Act was created. A SICAR can also be set up as a feeder The “intention to develop” can take a The following are examples of underlying fund investing exclusively in a local or large variety of forms and materialise assets of SICARs that have been set up: foreign master fund, provided that the master fund’s investment policy is in in the value creation at the level of the • Buy-out investee companies. compliance with the SICAR Act’s criterion • Venture capital of risk capital. Value can be added for example via • Mezzanine the restructuration, modernisation Type of investment instruments • Opportunistic real estate or development of new products and All equity and debt instruments are markets as well as any measures aiming • Infrastructure eligible for investment purposes, at a better allocation of resources. This • Renewable energy including shares, bonds, notes, mezzanine often entails the intervention of the loans, convertible loans or straight loans. 1 • Microfinance general partner in the management of Financing the target investment companies, such • Others. as through an active representation at The SICAR can issue equity, debt board level of the target company. While instruments and loans. The SICAR the active management is mandatory Act does not impose any leverage restrictions.

1 The tax consequences for interest derived from loans to target companies are however to be considered (refer to Section 3.4.)

17 Luxembourg Private Equity Investment Vehicles

Exit invest via legal entities which hold the (SCS) and as a non-transparent entity The SICAR Act does not restrict in any real estate assets. (i.e. liable to tax) if it takes the legal way the exit mechanism, such as through form of a partnership limited by shares Non-eligible investments a trade sale or initial public offering. (SCA), a cooperative company organised SICARs are not allowed to invest in as a public limited company (SCoSA), a The ultimate objective is to exit the hedge funds. private limited company (Sàrl) or a public investment company at a profit. This limited company (SA). 1 Although a SICAR may use derivatives differentiates the SICAR from holding for hedging purposes, the investment in companies whose objective is to Transparent entity derivatives cannot be the objective of the “hold” on to its investments. The type Under the legal form of a limited investment policy. of financing used by the SICAR is left partnership (SCS), the SICAR should be entirely at the discretion of the partners Investment in listed securities considered to be a transparent entity for of the SICAR. tax purposes whose income is deemed Investments in listed securities are to be taxed at the level of its investors. It The special case of real estate invest- generally not eligible. Exceptions include is however necessary to analyse the tax ments investments with the intention of treaties signed with source countries. The taking the investee company private, Real estate funds can be set-up as consequences will be as follows: investments in listed securities that do SICARs if they fulfil the criteria of not meet the requirements applicable “high risk” and “intention to develop”. At the level of the target company to regulated markets and the temporary In practice, this category of real estate Withholding tax, if any, on income investment of available cash pending funds mainly includes opportunistic real distributed by the target company to the investment in risk capital assets. estate funds. In addition to “high risk” SICAR should be reduced in accordance criterion (e.g. such as political risk of Further detailed information on the with the double tax treaty between the the countries of investment or high risk concept of risk capital and the scope country of residence of each investor in concentration of the investments), the of the SICAR Act in terms of eligible the SICAR and the country of residence clear objective of developing the real investments can be found in the CSSF of the target company from which the estate is essential. This value creation Circular 06/241 as of April 5, 2006. income is derived. process can take several forms, such as In principle, EU investors investing in a construction, renovation and leasehold Tax regime EU target through the SICAR may benefit improvements, portfolio restructuring, The income tax treatment of the SICAR from the exemption of withholding tax etc. depends upon the legal form under which in the target country, in cases where It is important to note, however, that it has been incorporated. The SICAR will the conditions of the participation SICARs cannot hold real estate items be considered as a transparent entity, exemption provided by the domestic directly on their balance sheet but must for tax purposes, if it is incorporated legislation of the target country are met. under the form of a limited partnership

1 For more detailed information on the legal structures available, please refer to §3.5.

18 At the level of the transparent SICAR Non-transparent entity At the level of the non-transparent The SICAR is not subject to corporate If the SICAR is established as a SICAR income tax (impôt sur les revenus des corporation, it will be considered a The SICAR is subject to corporate collectivités). Moreover, the SICAR is non-transparent entity for tax purposes income tax (impôt sur les revenus des never considered to be carrying out a whose income is in principle subject to collectivités) at the rate of 22.88% commercial activity in Luxembourg. As tax in Luxembourg at the standard rate and to municipal business tax (impôt a result, it is not subject to municipal (i.e. 29.63% in Luxembourg City). The commercial communal) at the rate of business tax (impôt commercial SICAR Act provides however for some 6.75% (Luxembourg City). This leads to a communal). specific exemptions that render the tax total effective tax rate of 29.63%. regime of the SICAR very attractive. This There is no Luxembourg withholding tax The SICAR benefits from an exemption tax regime is as follows: on distributions made by the SICAR. from corporate income tax on income At the level of the target company resulting from transferable securities At the level of the investors Corporate SICARs are in principle entitled (valeurs mobilières) as well as on income Income received by the SICAR will to benefit from double tax treaties resulting from the sale, contribution or in principle be taxed directly in the concluded by Luxembourg. Therefore, liquidation of these assets. This mainly hands of each investor in proportion withholding tax, if any, on income includes dividends, interest and capital to his participation in the SICAR and in generated by the target company should gains. In addition, the exemption is accordance with the tax regime of his be reduced in accordance with the extended to income arising from funds country of residence which may treat the double tax treaty between Luxembourg held for a period of twelve months SICAR either as a transparent or as an and the country of residence of the pending their investment in risk capital. opaque vehicle. target company from which the income For this purpose, it must be proven that the funds have effectively been invested Double taxation of the income generated is derived. However, the eligibility of in risk capital. by the SICAR will generally be avoided at SICARs must be reviewed on a case-by- case basis depending on the jurisdiction the level of the investor by application There is no Luxembourg withholding tax of the target company. of the double tax treaty between his on dividends and liquidation proceeds country of residence and the country of In principle, based on the Parent- distributed by the SICAR. residence of the target company from Subsidiary Directive and provided the which the income is derived. The SICAR cannot apply for tax local conditions are met, no withholding consolidation with another Luxembourg tax should be levied on dividends Foreign investors are not subject to company. Luxembourg tax on any capital gain distributed by EU target companies to realised upon the sale of an interest in the SICAR. the SICAR.

19 Luxembourg Private Equity Investment Vehicles

At the level of the investors The administrative VAT practice Legal structures applicable to the management of Double taxation on the income The SICAR Act offers the choice between UCIs should therefore be relevant for generated by the SICAR will be avoided 5 legal structures. For all matters that determining the VAT treatment of at the level of the investor by application are not expressly provided by the SICAR supplies made to SICARs. The day-to-day of the double tax treaty between his Act, the law dated 10 August 1915 management of a SICAR should notably country of residence and Luxembourg. concerning commercial companies, be exempt. Special attention should as amended from time to time, is In principle, as the SICAR is subject to however be given to sub-contracted applicable. Luxembourg corporate income tax, EU management services which can only be investors may be in the position to exempt if certain conditions are met. In Luxembourg, five corporate forms are benefit from the participation exemption Other taxes available to incorporate a SICAR: on dividends distributed by the SICAR. The following rules apply to both • Partnership limited by shares (Société Foreign investors are not subject to transparent and non-transparent SICARs: en commandite par actions, SCA); Luxembourg tax on any capital gains • Private limited company (Société à Contributions made to a SICAR at the realised upon the sale of the shares of responsabilité limitée, Sàrl); time of its incorporation or further to the SICAR. any capital increase are subject to capital • Public limited company (Société VAT duty (droit d’apport) at a fixed maximum anonyme, SA); The Luxembourg law on the SICAR amount of EUR 1,250. • Limited partnership (Société en amended the Luxembourg VAT Act. The commandite simple, SCS); The SICAR is exempt of net worth tax new VAT provisions stipulate that the (impôt sur la fortune). • Cooperative company organised as management of UCIs, subject to the a public limited company (Société supervision of the CSSF including SICARs, The SICAR is not subject to any cooperative organisée comme une is exempt. subscription tax (taxe d’abonnement). société anonyme, SCoSA).

A key element to the application of this A fixed annual fee of EUR 1,500 is due Each of these five corporate vehicles exemption is the term “management”. by the SICAR to the CSSF. Moreover, the constitutes a legal entity, distinct from The commentaries to the VAT Act application for authorisation to the CSSF its investors as from incorporation. indicate that the objective of the is subject to a registration fee of EUR They exist under a firm name which is modified VAT provision is to ensure that 1,500. followed by “SICAR”. Of the five forms the exemption applies in a similar way to available, most SICARs incorporated so the management of a SICAR and to the far opted for the SCA, the SA and the management of other UCIs. Sàrl. SCA and SA may seek admission of their securities to the Luxembourg or a foreign stock exchange.

20 Partnership limited by shares Where the unlimited partner managing Public limited company (SA) (SCA) the company is a corporate entity, A Luxembourg public limited company, Partnerships limited by shares are such corporate entity must appoint or SA, may be incorporated with only one comparable to foreign structures an individual as its permanent shareholder and there are no limitations common in private equity transactions representative. The permanent to the number of shareholders. such as UK-type limited partnerships. representative bears the same liability Shares in an SA are freely transferable Such partnerships require a minimum as if he had been appointed in his own unless otherwise agreed between the of two partners as from incorporation. name, without prejudice to the joint shareholders by specific provisions in Partners in an SCA must be categorised liability of the legal entity he represents. either the articles of incorporation, or in into two groups: those with unlimited Apart from provisions specific to the a shareholder’s agreement. liability and those with liability limited to organisation of powers and duties of the amount of their contribution. limited and unlimited partners, most An SA is managed by a board of directors of at least 3 directors (except in the The name of the company shall include rules applicable to SAs are applicable to case that there exists only one single the name of one or more unlimited SCAs. shareholder where only one director is partners. Shares held by limited partners are required). The management of the company shall freely transferable to third parties as Recently, the law of 10 August 1915 be assumed by one or several unlimited long as they qualify as eligible investors concerning commercial companies has partners. A limited partner who became according to the SICAR Act. been amended in order to offer the involved in the management would loose Private limited company (Sàrl) option of organising the management of the limitation of his liability. Where the number of investors is to an SA with either the traditional board The unlimited partner in charge of the remain limited (less than forty), an of directors or with a two-tier structure management is entrusted with broad Sàrl offers some flexibility in both where powers are balanced between a powers and thus controls the company. organisation and functionality. The management board and a supervisory Unless otherwise provided for in such management of the company may be board. The management board has the documentation, no amendment to entrusted either to a single manager or power to take any action necessary or the constitutional documents of the to several managers. If there are less than useful to realise the corporate object company may be adopted without his 25 shareholders in an Sàrl, shareholders’ of the company, with the exception of agreement. Where the unlimited partner meetings may be held by written the powers explicitly attributed to the is appointed as manager in the articles of resolution. Shares in an Sàrl are not freely supervisory board or the general meeting incorporation, he benefits from a stability transferable. An Sàrl may not distribute of shareholders. The management board of position. its shares to the public or have them performs its duties under the control listed on a stock exchange. of the supervisory board. Members of

21 Luxembourg Private Equity Investment Vehicles

the management boards are appointed Capital structure Variable capital and may be revoked by the supervisory Minimum capital SICARs – with the exception of SICARs board (or the shareholders meeting if The minimum capital for the launch of incorporated as SCSs – have the option the articles of incorporation so provide). a SICAR, as required by the SICAR Act, of adopting a fixed or a variable share The management board has to report in is EUR 1 million (or the equivalent in a capital. Where a SICAR has a variable writing to the supervisory board at least foreign currency). A period of 12 months capital, it is at all times equal to the net every 3 months. Members of either board is granted, as from the authorisation asset value of the SICAR. may only serve on one board at a time. of the SICAR by the CSSF, to reach the This provision provides flexibility as the minimum capital. Other corporate forms variations in the capital are thus effected Although less frequently used, the At the time of incorporation of the ipso jure without having to comply with limited partnership (SCS) and the corporate structure, the required share the requirements that are applicable to cooperative company organised as a capital for the various structures varies: unregulated commercial companies with public limited company (SCoSA) may respect to modifications of the share present opportunities to address specific • SCS no minimum capital. needs of promoters. • Sàrl EUR 12,500 Issuance of securities • SA/SCA EUR 31,000 Capital structure and A SICAR may issue different kinds of distributions Contributions can be made in cash securities such as shares, bonds, founders or in kind. The valuation of the assets shares or other financial instruments Provisions relating to the capital contributed in kind to an SA or an SCA (with some restrictions for S.à.r l. due to structure and distributions to investors must be supported by an auditor’s report. their private features, i.e. limitation to are for the large part drawn from the forty shareholders and no issuance to the legislation applicable to investment The minimum capital requirement public). funds and even go beyond in order to applies to the subscribed capital. Only increase efficiency for private equity and 5% must be paid-up immediately. New securities are issued in accordance venture capital investments. For such This provision allows a SICAR to be with the conditions and procedures set investments, it is usual that, in a first launched with a minimum of funds at forth in the articles of incorporation period, the investment vehicle collects incorporation. The outstanding capital without further constraints imposed by commitments from investors to invest a will be paid-up, in one or several the SICAR Act. Notably, it is not required certain amount of funds. The funds are payments, when funds are drawn by law that the new securities be issued not immediately needed but they will down by the SICAR as investments at the net asset value per share at the be at a later stage during the investment opportunities are identified. time of issuance. period. The investment vehicle will then The shares may have a nominal value, address capital calls to the investors and with a minimum set at EUR 1, or draw down funds in order to match the alternatively be without mention of a rhythm of investments to be made. nominal value.

22 Distributions must describe the fund’s fair valuation law on annual accounts). The SICAR Distributions are for the most part left methodology, introducing an expectation Act however introduces a number of to the contractual agreement of the that such methodology would be in line differing treatments to LuxGAAP, the shareholders expressed in the articles with the valuation principles established main one being (i) the reporting of assets of incorporation. Hence, there are no by professional associations, such as the at fair value and (ii) the exemption from 2 legal restrictions on repayment of EVCA. consolidation. capital or distribution of dividends to Practice Consolidation exemption investors, subject to those set forth in Whilst the SICAR Act introduces The SICAR benefits from an explicit the articles of incorporation. In particular, flexibility on the methodology to adopt exemption from consolidation provisions organising distribution of for determining the market value of requirements. Consequently a SICAR that interim dividends in SA and SCA are not investments it is a clear requirement that holds controlling interests is not required applicable to SICAR. investments need to be fair valued. to produce consolidated accounts. This This flexibility is completed by the constitutes a major advantage in the In practice, general partners opt absence of obligation for the SICAR to private equity industry. to comply with all or part of the maintain a legal reserve. International Private Equity and Venture Optional application of IFRS Valuation, accounting and Capital Valuation Guidelines issued by The SICAR can be granted the approval 3 4 reporting the EVCA, the BVCA and the AFIC in by the CSSF to adopt IFRS 5 as its March 2005 or with another recognised accounting framework instead of Valuation set of valuation guidelines. It is also LuxGAAP. It has to be noted that if Legal requirement: fair value acceptable to use a robust internal a SICAR holds controlling interests, valuation methodology that responds The SICAR law requires the SICAR IFRS will require the production of to the unique nature of the Fund’s assets to be “valued at their foreseeable consolidated accounts. investments. realisation value estimated in good Reporting faith” (Article 5 (3)). The concept of Accounting Format and content of the annual “foreseeable realisation value” is to be LuxGAAP accounts understood as the “fair value” 1 and a The SICAR reports under Luxembourg current draft SICAR Act amendment The SICAR Act does not prescribe a Generally Accepted Accounting bill replaces the notion of “foreseeable specific format or content for the Principles (LuxGAAP) as per the law realisation value” by “fair value” so as preparation of the annual accounts, on the annual accounts of companies to avoid any confusion. According to so that the general framework of the as of December 19, 2002 (the 2002 the SICAR Act, the Articles of the SICAR 2002 law on annual accounts regulates

1 As per the definition of the International Accounting Standards’ Board (IASB), the fair value is “the value for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties at an arm’s length transaction”. 2 European Private Equity and Venture Capital Association 3 British Venture Capital Association 4 Association Française des Investisseurs en Capital 5 Intrenational Financial Reporting Standards

23 Luxembourg Private Equity Investment Vehicles

the format and content of the SICAR Act amendment bill eliminates this The custodian acts exclusively in the accounts (except in case of adoption of requirement. interest of the investors of the SICAR IFRS in which case IFRS accounting rules and is liable to both the SICAR and its Reporting to the CSSF are to be followed). investors for any losses suffered through Regulatory reporting to the CSSF the non-execution or fautive execution The annual accounts also include an corresponds to the concept of light of the custodian functions. While the activity report detailing any information supervision as it is condensed and custodian can sub-delegate some of its of significance to the investors of the should not result in any significant functions to third parties, it nevertheless SICAR so that they are able to make an administrative burden. The SICAR needs remains fully liable to the SICAR and its informed judgment on the development to report the following information to investors. and the results of the SICAR. the CSSF on a semi-annual basis: The custodian’s key function is the This framework consequently offers • a balance sheet or statement of net safekeeping of the assets of the SICAR. general partners a sufficient degree of assets and liabilities, This function entails certain monitoring flexibility with regard to the nature and • a statement of capital subscribed, functions such as the verification that detail of disclosures to be done in the drawn down and committed, the capital calls or subscription price annual accounts. • a schedule of investments, for the shares of the SICAR are received within the time limits specified in the Filing deadline • information about the type of investors SICAR’s articles of incorporation or that The SICAR must establish its annual in the SICAR, the income generated at the level of accounts within six months of the end of • information about debt financing used the SICAR is allocated to the investors the financial year. The annual accounts by the SICAR, where applicable. (general and limited partners) in must be filed at the Luxembourg accordance with the SICAR’s articles of companies and trade register (Registre de The custodian, incorporation. In practice, the custodian’s Commerce et des Sociétés). the administrative agent services may include a range of other The SICAR is not required to produce and the auditor value-added services, targeted to the semi-annual accounts. needs of a private equity fund. The custodian Net asset value (NAV) The SICAR must appoint a custodian The administrative agent The NAV of the SICAR must be located in Luxembourg per article 8 of The SICAR must appoint a Luxembourg- computed at least once a year. Upon the SICAR Act. The custodian must be based administrative agent fulfilling the request by the limited partners, the a credit institution as per the Law of role of central administration as per SICAR must inform the investors of April 5, 1993 relating to the financial articles 1(3) and 12(5) of the SICAR Act. the NAV of the SICAR on a semi- sector and needs to be approved by the annual basis: the current draft SICAR CSSF.

24 No special licence or status as a The auditor PSF is required to fulfil the role of The SICAR has to appoint an administrative agent. The CSSF will independent auditor (Réviseur approve the choice of the administrative d’Entreprises) in Luxembourg. This agent based on the latter’s level appointment requires the approval of expertise as well as sufficient of the CSSF so as to ensure that the technical and human resources to independent auditor has sufficient administer private equity funds. Also, professional expertise in the area of GPs are free either to appoint a third private equity. party administrative agent or to fulfill themselves all or part of the functions of The main role of the independent auditor the central administration. is to audit the annual accounts of the SICAR. In practice, the administrative agent’s functions include services such as the accounting function of the SICAR, the computation of the NAV or the production of the legal and investor reporting. As for the custodian, professional administrative agents in Luxembourg offer a complete range of customised services such EVCA- compliant and multiple GAAP reporting or capital account services.

As the SICAR is obliged to have its registered office in Luxembourg, full range domiciliary services are of course also available.

25 Luxembourg Private Equity Investment Vehicles

The specialised investment funds (SIFs)

General legal and regula- regime was considered too restrictive, Key characteristics and tory framework in particular with respect to real estate advantages and private equity funds. In particular, The SIF Act introduces a new type of the concept of “institutional investor” The main features of the SIF Act may be UCI which is clearly differentiated from was too limited and excluded a large summarised as follows: the ones governed by the Investment pool of potential investors, the high net Eligible investors Funds Act. worth individual and/or “well-informed Only well-informed investors are investor”. In addition, the requirement The first purpose of the SIF Act was to allowed to invest in SIFs. The definition to have an official promoter approved by replace the Institutional Funds Act due of a well-informed investor is the the CSSF for specific types of UCIs was to the numerous cross references in the same as the one comprised in the an obvious obstacle to many projects. Institutional Funds Act to the law of 30 SICAR Act i.e. institutional investors, March 1988 on UCIs which expired on 13 Although procuring more flexibility as professional investors as defined in February 2007. regards the different elements described Directive 2004/39/EC of the European below, the SIF Act offers a vehicle subject Parliament and the Council of April 21, The SIF Act was also an opportunity to regulatory supervision, guaranteeing 2004 in financial instruments and other to create a self-contained body of law, thereby an appropriate level of investor investors (i) who adhere in writing to independent of the Investment Funds Act, protection. the status of well-informed investor to be the perfect tool for the creation and (ii) who invest at least EUR 125,000 in a European context of specialised The SIF can be a particularly appropriate in a particular SIF or who have been UCIs subject to regulatory supervision vehicle for private equity investment subject to an assessment made by a and consequently to strengthen the when the pure private equity or risk credit institution, an investment firm or competitiveness of Luxembourg as a capital component of the fund is not so a management company certifying their financial centre. obvious and thus rules out the creation of expertise, experience and knowledge in a SICAR, in compliance with CSSF Circular It was important to secure the adequately appraising an investment in 06/241 of April 5, 2006 on the concept of competitiveness of Luxembourg in this SIF. risk capital under the SICAR Act. the specific area of UCIs dedicated to The SIF Act represents an important sophisticated investors. This industry broadening of the range of investors is thriving, witness the development permitted to invest in such types of UCI of such UCIs in Luxembourg. At the compared to the Institutional Funds Act. time the new legislation was passed, Well-informed investors now have an there were 207 UCIs under the 1991 appropriate and specific legal framework law holding EUR 78.4 billion in net suitable to their particular interests and assets (source: CSSF monthly report, needs. December 2006). However, the 1991 law

26 Organisational flexibility that only the formal “directors” of the amounts to EUR 1,250,000, this amount, Legal structure SIF are subject to CSSF approval and not if the SIF is incorporated as a SICAV or the “persons who effectively determine SICAF, will be examined in respect of the Large flexibility is granted as to the legal the conduct of the activities of the subscribed capital and issue premiums form adopted by a SIF. In contrast to Undertaking for Collective Investment” instead of the net paid-up assets. This the SICAR Act, the SIF Act permits the as provided in the 2002 Investment amount must be reached within twelve creation of UCIs of the contractual type Funds Act. It results from this provision months of receiving approval from the (FCP). that the investment manager of a SIF CSSF. SIFs of the corporate type must SIFs may also be created in a corporate will also no longer be subject to CSSF have their capital entirely subscribed, but form (investment companies) with approval. only five percent of each share must be fixed (SICAF) or variable (SICAV) capital. paid-up. In addition, it will be possible for A SIF created as a FCP must be managed Whereas the Institutional Funds Act only SIFs of the corporate type to issue partly by a management company submitted authorised the creation of SICAVs under paid shares. to chapter 13 or 14 of the Investment the form of a public limited company Funds Act. SIFs are allowed to issue not only (SA), the law on SIFs also allows such shares or units, but also other types of vehicles to be established under the legal The central administration of the SIF instrument, such as notes, for example. forms of a private limited company (Sàrl), must be located in Luxembourg. a partnership limited by shares (SCA) or Authorisation a cooperative company organised as a Custodian A SIF may start its activities before public limited company (SCoSA). 1 The custodian’s role is restricted to the approval by the CSSF, provided that safekeeping and general supervisory Furthermore, the Law of February 13, within a period of one month following functions. Additional monitoring 2007 permits the creation of umbrella the creation of the SIF an application for functions as applicable under the SIFs. A SIF consequently enables approval is filed with the CSSF. Institutional Funds Act are no longer promoters to create a single structure be applicable. This also differentiates Information requirements with several sub-funds, each having a the SIF from the SICAR, for which more different investment policy. The “Issuing Document”, i.e. the responsibilities are entrusted to the prospectus, does not require any Classes of shares may also be created custodian. minimum content and needs to be within subfunds. updated only in the case of new issuance Capital structure and distributions of shares or units to new investors. Central management & administration The SIF Act provides several advantages The SIF Act does not provide a list of with regard to capital requirements. A SIF does not need a promoter with information to be included in the Issuing The share capital structure can be very significant financial resources requiring Document. the approval of the CSSF. Indeed, Article flexible in the sense that while the 42, paragraph 3 of the SIF Act provides minimum capital required for a SIF still

1 Please refer to §3.5. for advantages/disadvantages of the different available types of companies.

27 Luxembourg Private Equity Investment Vehicles

In addition, SIFs will not be required Investments The SIF Act, unlike the Investment Funds to publish semi-annual reports, Compared to the Investment Funds Act, does however not require that the notwithstanding the obligation to publish Act and even to the SICAR Act, the participating pension funds be of the an annual report. SIF Act grants increased flexibility in same group and permits that individual terms of eligible assets. A SIF may sub-funds or individual classes reserved Valuation, accounting and reporting invest in transferable securities, money to pension schemes also benefit from the The terms and conditions applicable market instruments, real estate, hedge exemption. to the subscription and/or redemption funds, funds of funds, private equity, of shares or units of a SIF will be the SIFs of the corporate type commodities, financial derivative ones described in its Issuing Document, SIFs of the corporate type benefit from instruments, debt instruments, implying a softening of the regulation an exemption which relates to ordinary microfinance, etc. However, contrary and supervision by the CSSF relating corporate taxes on both income and to SICARs for which there are no thereto. In particular, the price applied to capital. In other words, all their current diversification requirements, SIFs will the issue or the redemption of units or income - from domestic or external remain subject to the principle of risk shares of a SIF may be different from the sources - as well as capital gains spreading. net asset value. (whether realised or not) are tax exempt (article 66 of the SIF Act). As regards the valuation of the assets Tax regime of a SIF, the SIF Act requires that this General SIFs of the contractual type valuation be made in accordance with The tax regime of a SIF is similar to the SIFs of the contractual type are the accounting principle of “fair value”. one which used to be applicable to UCIs transparent for taxation purposes. The precise valuation methodology of subject to the Institutional Funds Act. Income of such SIFs is attributed this “fair value” must be set out in the proportionally to its investors, and any constitutional documents or by reference At the level of the SIF investor resident in a State having a to valuation methods recommended by SIFs will be subject to a subscription treaty with Luxembourg may therefore, professional associations of the industry tax at a rate of 0.01% of the fund’s net to the extent practicable, be able to take or business concerned. assets; however, the portion invested advantage of treaty benefits, for example by offsetting his tax liability in his own There is, in addition, no requirement as in other Luxembourg undertakings for jurisdiction against the withholding taxes to the frequency of the net asset value collective investment subject to the incurred by the SIF in territories where calculation which can be limited to subscription tax, certain institutional the SIF has made its investments. one NAV per year, at least for reporting cash funds and pension pooling funds purposes. will be exempt from the subscription tax.

28 At the level of the investors Former 1991 funds Shareholders are not subject to any Undertakings for collective investment capital gains, income or withholding tax the securities of which are not intended in Luxembourg, except for: to be placed with the public created • those domiciled, residing or having according to the Law of 19 July, 1991 a permanent establishment in have ipso jure become subject to the SIF Luxembourg, or law on 13 February 2007. • non-residents of Luxembourg who hold more than 10 per cent of the shares of a fund of the corporate type and who dispose of all or part of their holdings within six months from the date of acquisition, or • in some limited cases, some former residents of Luxembourg who hold more than 10 per cent of the shares of such corporate-type fund.

In addition, any dividends, other distributions of income made by some SIFs (with the FCP form) or payments of the proceeds of sale and/or redemption of shares in such SIFs, might be subject to the withholding tax and/or information providing regime imposed by Directive 2003/48/EC of 3 June 2003 (the Savings Directive), where payment is made to a shareholder who is an individual resident in a Member State for the purpose of the Savings Directive (or a “residual entity” established in a Member State) by a paying agent resident in another Member State.

29 Luxembourg Private Equity Investment Vehicles

The fully regulated funds (UCIs Part II)

General legal and regula- UCITS compatible investment strategies, development of the companies in which tory framework most notably in relation to venture investments were made. In the case of capital funds, futures and options funds, sale of securities, the UCI must publish Apart from the possibility of gaining real estate funds and UCIs pursuing separately the profit or loss amount exposure to listed private equity alternative investment strategies (hedge for each investment. In addition, the companies in the context of UCITS funds and funds of hedge funds). 1 The financial statements must mention compliant funds subject to Part I of the regime of circular 91/75/IML on venture whether there is a potential conflict Investment Funds Act, private equity capital funds can be summarised as of interest between the interest of a investors wishing to set up a fully follows: director of the management bodies and regulated investment vehicle under • With regard to their professional the UCI. the Investment Funds Act can do so by qualification the directors of the • In addition, the circular clarifies that submitting their fund to Part II of the management bodies and the the prospectus must contain a detailed Investment Funds Act governing UCIs investment advisers must establish that description of the investment risks which do not qualify as UCITS. Such they have sufficient experience in the inherent to the investment policy of the regulated UCIs are nevertheless subject field of venture capital investments. UCI and the type of conflict of interest to authorisation and ongoing supervision which may arise between the interests by the CSSF and a promoter must be • Even though the traditional investment of a director of the management bodies presented to the CSSF for each project. restrictions do not apply to venture capital funds, the UCI must ensure a and the interests of the UCI. A collective investment scheme can minimum risk spreading (i.e. not invest • Finally, the prospectus must include qualify as a UCI under Part II if 1) it more than 20% of its net assets in any statements indicating relevant risk is of the closed end type 2) it raises one company). factors and the fact that the UCI is only capital without promoting the sale of • Securities issued to participants must suitable for the persons who can afford its shares or units to the public within at the moment of issue have a value of to take such risk. the European Union 3) it reserves in at least EUR 12,500 but there are no its constitutional documents the sale Other key characteristics further eligibility criteria for investors. of its units or shares to the public in non-EU countries or 4) it pursues • The prospectus must clearly identify Available legal forms investment policies for which the whether the (potentially higher) UCIs can be created in contractual or in investment restrictions of UCITS funds investment management fees are corporate form. are inappropriate (which would typically also due on the portion of the assets Under both legal forms umbrella funds be the case for private equity vehicles). not yet or not invested in venture capital. The financial reports of the offering segregated sub-funds can be The CSSF has issued several circulars UCI must contain information on the created. in relation to UCIs that pursue non-

1 Circular 91/75/IML of 21 January 1991 on revision and recasting of rules governing Luxembourg undertakings covered by the law of 30 March 1988 on undertakings for collective investment and Circular 02/80/CSSF of 5 December 2002 on specific rules applicable to Luxembourg undertakings for collective investment (UCIs) pursuing alternative investment strategies.

30 Contractual form An SA or Sàrl will be managed by its Central administration and The unincorporated form is that of the own board of directors/managers in auditor “fonds commun de placement” or “FCP”, charge as a collegiate body for all The central administration has being an unincorporated co-ownership material decisions affecting the company. to be located in Luxembourg and of assets managed by a management The designation of a management a Luxembourg auditor (Réviseur company in accordance with company is not required but investment d’Entreprises) must be appointed to management regulations established management functions can be delegated exercise the supervision functions by such management company and to professionals authorised by the CSSF provided by the Investment Funds Act. signed by the custodian. Investment (which may be located abroad). management functions can be delegated The SCA is managed by a manager to professionals authorised by the CSSF appointed in the Articles and is similar (which may be located abroad). to a partnership limited by shares issuing Authorisation for a management two classes of shares: the management company to manage FCPs is delivered shares issued to the manager entailing an separately by the CSSF in compliance unlimited liability towards third parties with the requirements of chapter 14 of and the participating shares where the the Investment Funds Act. Alternatively, holders’ liability is limited to the amount such Part II FCP can also be managed paid in on the shares. by a UCITS III compliant management Custodian bank company created under chapter 13 of For all UCIs, the depositary bank must be the Investment Funds Act. a Luxembourg based bank. The depositary Corporate form bank will have been authorised by the UCIs are usually created as SICAVs competent governmental authorities in or SICAFs. The SICAV (société the context of its establishment but the d’investissement à capital variable - CSSF requires confirmation that such investment company with variable bank is properly equipped to fulfil its capital) can only be incorporated as a duties under the Investment Funds Act. public limited company (SA) while the The depositary bank has, in the case of SICAF (société d’investissement à capital an FCP, certain specified functions in fixe - investment company with fixed order to ensure the protection of the capital) can be incorporated as a public unitholders of the scheme. limited company (SA), as a partnership limited by shares (SCA) or as a private limited company (Sàrl).

31 Luxembourg Private Equity Investment Vehicles

Summary table

SICAV SICAF FCP

Supervision by CSSF Yes Yes Yes

CSSF approval process Articles of incorporation Articles of incorporation Management regulations Prospectus Prospectus Prospectus Directors Directors/managers Directors of management Investment manager (if any) Investment manager (if any) company Eligibility of promoter Eligibility of promoter Investment manager (if any) Choice of custodian Choice of custodian Eligibility of promoter Choice of custodian

Legal entity SA SA, SCA /

Management By board of directors or By board of directors or Management company or appointed manager appointed manager appointed manager

Type of fund Open-ended or closed ended Closed-ended or open-ended Open-ended or closed-ended

Minimum capital EUR 31,000 Upon incorporation: EUR 1.25 mio (to be attained EUR 1.25 mio (to be attained SA/SCA: EUR 31,000 within 6 months) within 6 months) EUR 1.25 mio (to be attained within 6 months)

Capital (fixed/variable) Variable Fixed /

Financial reporting Audited annual report within 4 Audited annual report within 4 Audited annual report within 4 months of end of relevant period months of end of relevant period months of end of relevant period Semi-annual report within 2 Semi-annual report within 2 Semi-annual report within 2 months of end of relevant period months of end of relevant period months of end of relevant period

NAV calculation Normally once a month but Normally once a month but Normally once a month but derogation possible derogation possible derogation possible

Required service providers Central custodian Central custodian Central custodian in Luxembourg Administrative agent Administrative agent Administrative agent Auditor Auditor Auditor

Eligible investors Unrestricted Unrestricted Unrestricted

Diversification Yes Yes Yes requirements

32 Tax regime a fund of the corporate type and who dispose of all or part of their holdings There is no Luxembourg tax payable within six months from the date of on income received and capital gains acquisition, or realized by a UCI. • in some limited cases, some former Schemes of the corporate type have to residents of Luxembourg who hold pay a capital duty which has been fixed more than 10 per cent of the shares of as a lump sum of EUR 1,250. such corporate-type fund.

UCIs investing in private equity are In addition, any dividends, other subject in Luxembourg to an annual distributions of income made by some subscription tax (taxe d’abonnement) UCIs (with the FCP form) or payments of amounting to: the proceeds of sale and/or redemption • 0.05% p.a. of the net assets, such tax to of shares in such UCIs, might be be levied quarterly on the basis of the subject to the withholding tax and/or net assets at the end of each calendar information providing regime imposed quarter; by the Savings Directive, where payment is made to a shareholder who is an • 0.01% p.a. of the net assets of individual resident in a Member State undertakings or of sub-funds or for the purposes of the Savings Directive classes within a sub-fund of collective (or a “residual entity” established in investment schemes regulated by a Member State) by a paying agent the Investment Funds Act which are resident in another Member State. restricted to institutional investors;

If investments are made by a collective investment scheme in other Luxembourg UCIs no subscription tax will be payable.

Shareholders are not subject to any capital gains, income or withholding tax in Luxembourg, except for:

• those domiciled, residing or having a permanent establishment in Luxembourg, or • non-residents of Luxembourg who hold more than 10 per cent of the shares of

33 Luxembourg Private Equity Investment Vehicles

The SOPARFI (société de participations financières)

In Luxembourg, the most common Regulatory framework are excluded from the taxable base non-regulated private equity vehicle for the purpose of the computation of SOPARFIs are not specifically regulated is known as the SOPARFI. This type of the net worth tax. Lastly, under certain by any supervisory authority. vehicle, which may carry on holding conditions, a SOPARFI may be exempted and financing activities, benefits from Tax regime from the registration duty (e.g. in case of an efficient tax regime: it has access to a contribution of a participation). Luxembourg’s treaty network (which A Luxembourg SOPARFI is subject to As SOPARFIs benefit from EU directives comprises over 60 countries) and to the the general corporate tax regime. The and double tax treaties signed by EU Parent-Subsidiary Directive. These company is thus subject to corporate Luxembourg, they are generally able are all key factors in selecting a private income tax and municipal business to distribute dividends without any equity investment vehicle. tax at an aggregate rate of 29.63% for significant Luxembourg withholding companies located in Luxembourg City. Nowadays, it is common practice for tax cost. In instances where this is not It is also subject to net worth tax (at the private equity funds, irrespective of possible, dedicated financial instruments rate of 0.5% of the unitary value of the their country of incorporation, to use may reach a similar exemption goal. company, computed on the basis of the Luxembourg SOPARFIs as investment balance sheet as of 31 December of the vehicles into target companies. Tax substance preceding year). Lastly, it is subject to Legal framework a capital duty amounting to 1% of the One growing issue in international subscribed capital (upon incorporation of taxation is the requirement by foreign The Companies Act constitutes the the company and at the occasion of any tax administrations of real substance general legal framework applicable to subsequent share capital increase). for private equity vehicles (and more Luxembourg companies. A SOPARFI is generally in international tax structures However, this general tax regime a Luxembourg commercial corporate as well) in order to benefit from a desired includes a participation exemption entity, which can be incorporated as a tax status (e.g., tax treaty eligibility, regime, which results for a SOPARFI, as public limited company (SA), a private application of Parent-Subsidiary for any Luxembourg company, in a tax limited company (Sàrl) or a partnership Directive, avoidance of CFC rules, etc.). exemption on all income (dividends and limited by shares (SCA). The lack of substance may thus lead a capital gains) derived from its holdings foreign tax administration to conclude The management of those types of (dividends, capital gains and liquidation that a specific entity is purely artificial companies may be organised in ways bonuses) provided that provisions set and should be disregarded from a tax that are specific to private equity forth by the law are met (i.e. essentially standpoint. investments. In this respect, the choice conditions regarding the target company, between an SA, an Sàrl and an SCA may the participation itself and the duration The requirements for substance for these sometimes be crucial. However, this of the holding). entities are determined primarily by the choice can be reversed during the life of tax rules of the country where entities Moreover, holdings benefiting from the company without any adverse tax directly own the assets, rather than the the participation exemption regime consequences if properly managed.

34 The SOPARFI (société de participations financières)

territory where the entity is established Market outlook or based. These requirements vary from Many large private equity houses now country to country and will therefore have substantial presence in Luxembourg need to be considered on a case by case (offices, personnel, accounting, etc) basis. and SOPARFIs are used in many The entities must be provided with private equity deals such as primary sufficient “business substance” in terms or secondary Buy-Outs, refinancings of purpose of the business, and sufficient or other types of transactions. “material substance”, i.e., office premises, Luxembourg’s efficient acquisition equipment, staff, etc. vehicles like SOPARFIs or dedicated fund vehicles like the SICAR and the It is important to point out that SIF, combined with the willingness of these requirements impact not only the government to promote the private Luxembourg, but all locations playing a equity business, explain the growing role in the private equity sector, as well importance of Luxembourg year after as in the international tax structuring year in this industry. area.

In this respect it should be stressed that Luxembourg service providers have been accustomed to providing such a level of substance for a long time. The human resources potential existing in Luxembourg and in the neighbouring countries also makes it easier for Luxembourg than for some other jurisdictions to accommodate the substance requirement of e.g. staffing.

35 Luxembourg Private Equity Investment Vehicles

The SPF (société de gestion de patrimoine familial)

The Law of 11 May 2007 creates a General and legal Secondly, the SPF is open to wealth new vehicle for the management of framework management entities acting exclusively individuals’ family wealth. The family in the interest of the private wealth wealth management company (société Legal form of individuals. This includes entities – de gestion de patrimoine familial, SPF) The SPF should adopt the form of a whether or not they have the status is designed as an investment company corporate entity. It may then choose of legal person – such as trusts, private intended solely for individuals managing between the form of a private limited foundations or similar entities, the object their private wealth. Just as an individual company (Sàrl), a public limited or purpose of which is to manage all or may directly invest his/her savings or company (SA), a partnership limited by part of the private wealth of individuals, private liquid assets in shares, bonds, shares (SCA) or a cooperative company to the exclusion of any commercial bank balances, undertakings for collective organised as a public limited company undertaking. It should be added that any investment, etc., that person may wish to (SCoSA). legal person, resident or not, is included create one or more corporate structures in this notion, provided that it does not to manage all or part of his/her private Corporate name exercise any commercial activity. A pure liquid assets, which is the aim of the The company articles of incorporation holding company exercising no economic SPF. The latter is, therefore, empowered should clearly indicate that the company activity under EU law could, then, be a to acquire, hold, manage and sell any is a family wealth management company shareholder of an SPF, provided that it is financial asset insofar as this is possible (SPF). itself owned by investors eligible under within the framework of private wealth the terms of the Law, to the exclusion of Agreement management for individuals, irrespective any commercial undertaking. of the level of the person’s wealth or SPFs require no agreement, unlike other Finally, intermediaries acting on a sophistication. vehicles, such as specialised investment funds (SIFs), for example or investment fiduciary basis or in a similar capacity, on The private character of the SPF enables companies in risk capital (SICARs). behalf of investors who are themselves those individuals involved to have the eligible may also hold shares in a SPF. assets of the SPF managed in the way Shareholders they wish and, if so desired, to waive the Given the specific tax regime of the Supervision of the company risk-spreading requirement imposed on company, restrictions apply with respect Fiscal control over SPFs is attributed to undertakings for collective investment. to the qualification of the shareholders. the Administration de l’enregistrement et des domaines. Eligible investors comprise, first and foremost, any individual acting within the framework of the management of his/her private wealth.

36 Capital structure and distribu- This exemption will not be applicable for eight times the paid-up share capital and tions a given year, if during this financial year, the share premium on 1 January or, for Minimum capital upon incorporation the SPF has received at least 5% of total the year of its incorporation, existing at dividends from shareholdings in non- the date of incorporation. • EUR 31,000 for an SA or SCA, resident and non-listed companies which Finally, the SPF is not subject to VAT • EUR 12,500 for an Sàrl. are not subject to taxation comparable obligations. • No requirement for a SCoSA to the Luxembourg corporate income tax. In that case, the SPF will lose the Distributions At the level of the investors benefit of its favourable tax regime for Capital gains from sales of their Distributions may not reduce the net the financial year in question and will shareholding in the SPF or from assets of the SPF to less than the amount have to pay income tax and municipal liquidation proceeds of the SPF received of the subscribed capital plus non- business tax (i.e. a maximum combined by non-residents are exempt from any distributable reserves. rate of 29.63% in 2007 in Luxembourg taxation in Luxembourg. City) as well as a net worth tax of 0,5% Interim dividends are subject to statutory on its net assets as determined on Dividend distributions by an SPF are not conditions. 1 January of that year. subject to withholding tax. However, For a SCoSA, profits are distributed resident individuals to whom dividends The SPF does not benefit from double proportionally to investors each year, are paid are taxed at the progressive tax treaties and from the provisions of except if provided otherwise in the rate since the subjective exemption of the EU parent-subsidiary directive. articles of incorporation. the SPF excludes the application of the The SPF is subject to a capital duty of half-dividend system provided for in Fiscal framework 1% on incorporation and on further article 115 (15a) of the Luxembourg income tax law (exemption up to 50% The Law introduces a subjective or contributions (cash or in kind). of the dividends paid by fully-taxable personal exemption regime for most The SPF is subject to a 0.25% companies). direct taxes. This subjective exemption subscription tax. The Law, however, is justified by the fact that the SPF does provides for minimum annual taxation of Interests paid by an SPF are not subject not have a commercial activity. EUR 100 and maximum annual taxation to withholding tax except in cases where At the level of the SPF of EUR 125,000. The taxable base of the the EU Savings Directive or Luxembourg subscription tax is composed of the paid- domestic withholding tax apply. The SPF is personally exempt from up share capital plus, if applicable (i) the income tax and municipal business tax share premium and (ii) the part of the on profits and capital gains. It is also debt, in whatever form, which exceeds exempt from net worth tax.

37 Luxembourg Private Equity Investment Vehicles

Glossary

Articles Articles of incorporation of a Luxembourg company.

Companies Act The act dated 10 August 1915 on commercial companies, as amended.

CSSF Commission de surveillance du secteur financier, the Luxembourg financial supervisory authority.

FCP Fonds commun de placement, an unincorporated co-ownership of assets managed by a management company.

GP General partner.

Institutional Funds The act dated 19 July 1991 concerning undertakings for collective investment the securities of which are not intended Act to be placed with the public.

Institutional investor Undertakings and organisations 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.

Investment Funds Act The act dated 20 December 2002 concerning undertakings for collective investment, as amended.

NAV Net asset value.

Professional investor Any professional investor within the meaning of Annex II to the Directive 2004/39 on markets in financial instruments.

PD Prospectus Prospectus compliant with the Prospectus Directive.

Prospectus Directive Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trad- ing and amending Directive 2001/34/EC.

PFS Luxembourg professional of the financial sector.

SA Société anonyme (public limited company).

Sàrl Société à responsabilité limitée (private limited company).

SCA Société en commandite par actions (partnership limited by shares).

38 Articles Articles of incorporation of a Luxembourg company.

SCoSA Société coopérative organisée comme une société anonyme (cooperative company organised as a public limited company).

SCS Société en commandite simple (limited partnership).

Securitisation Act The act dated 22 March 2004 on securitisation, as amended.

SICAR Société d’investissement en capital à risque (investment company in risk capital).

SICAR Act The act dated 15 June 2004 on the investment company in risk capital, as amended.

SICAF Société d’investissement à capital fixe (investment company with fixed capital).

SICAV Société d’investissement à capital variable (investment company with variable capital).

SIF Specialised investment fund.

SIF Act The act dated 13 February 2007 on specialised investment funds.

SOPARFI Société de participations financières.

SPF Société de gestion de patrimoine familial

UCI Undertaking for collective investment.

UCITS Undertaking for collective investment in transferable securities.

VAT Value-added tax.

Well-informed Any investor who has adhered in writing to the status of well-informed investor and complies with one of the following investor conditions: (i) he/she/it invests at least EUR 125,000 in the special fund; (ii) or his/her/its expertise is confirmed by a Luxembourg professional of the financial sector or management company; or (iii) he/she/it has carried out a certain minimum number of significant transactions on the relevant market over the previous year.

39 Luxembourg Private Equity Investment Vehicles

Statistical information

The following information is as of 31 July 2007, except where indicated:

• SICARs: (17 August 2007) 152 • SIFs: 302

of which SIFs created under the new regime 85 • Part II UCIs: • Part II SICAVs: 374 • Part II FCPs: 203 • Part II others: 9

• SOPARFIs: approximately 25,000

The Luxembourg Bankers’ Association Address: 59, boulevard Royal, L-2449 Luxembourg Postal address: P.O. Box 13, L-2010 Luxembourg Tel.: +352 46 36 60-1 • Fax: +352 46 09 21 E-mail: [email protected] • Website: www.abbl.lu

Association of the Luxembourg Fund Industry Address: 59, boulevard Royal, L-2449 Luxembourg Postal address: P.O. Box 206, L-2012 Luxembourg Tel.: +352 22 30 26-1 • Fax: +352 22 30 93 E-mail: [email protected] • Website: www.alfi.lu