Private Equity in Luxembourg 5

Luxembourg Private Equity & Venture Capital Association LUXEMBOURG Your guide to set up and manage your Private Equity and 12, rue Erasme | L-1468 Luxembourg Venture Capital structure in Luxembourg Grand-Duché de Luxembourg Tel. (+352) 28 68 19 602 | www.lpea.lu 2 LPEA 2020

DISCLAIMER LPEA believes the information document. The information and data contained in this document to be provided in this document are for reliable and correct. However, LPEA general information purposes. It does makes no representation or warranty not constitute legal, tax or investment (express or implied) as to the accuracy, advice nor can it take account of your completeness or continued availability own particular circumstances. If you of the information and data available require any advice, you should contact from this document. To the fullest extent a fi nancial or other professional adviser. permissible under applicable law, LPEA No material in this documentation is does not accept any responsibility an offer or solicitation to buy or sell or liability of any kind, with respect any professional services, fi nancial to the accuracy or completeness of products or investments. the information and data from this

Contributions provided by the following LPEA members: Elvinger Hoss Prussen, Etude Loesch, EY, GSK Stockmann, Intertrust and PwC Legal.

Foreword by the CEO of LPEA and Message from the Minister of Finance

1. Executive Summary

2. Luxembourg – a Conducive Environment to the development of private equity

3. The LPEA GP Survey

4. Private Capital – Legal Framework

5. Private Debt

6. The Luxembourg Tax Environment

ABOUT LPEA 7. Accounting Framework for The Luxembourg Private Equity and Luxembourg PE Vehicles Venture Capital Association (LPEA) is the representative body of private equity and 8. The Alternative Investment Fund Managers venture capital practitioners with a presence Directive (AIFMD) in Luxembourg.

With over 250 members, LPEA plays a leading 9. The Regulations on European Venture role locally and actively promotes PE and VC Capital Funds (EuVECA) in Luxembourg.

LPEA is the go-to platform for PE and VC 10. Regime for European Long-Term investors and advisers, with a focus on the Investment Funds (ELTIF) latest trends in the industry. International by nature, it allows members to discuss and 11. Private Equity Services Provision exchange while learning via workshops and networking events held on a regular basis and often with distinguished partners. 12. How to Set Up a Private Equity Fund in Luxembourg

Appendix 1: Double Tax Treaty Network

Appendix 2: Glossary

Appendix 3: Useful References

Appendix 4: LPEA Members 4 LPEA 2020

Foreword by the CEO of LPEA • Choose from a wide range of legal entities, to suit their AuM size, strategy and end investor base

At the heart of Luxembourg´s success as an • Work from an EU-compliant jurisdiction that stays international PE hub lies the ability to reconcile long- abreast of the latest legal and tax developments term stability with short-term adaptability. Since the last edition of this brochure (November 2016), the • Benefit from the support of public stakeholders most notable development is the tremendous success who are well aware of the strategic importance of of the RAIF, the latest addition to our Luxembourg our industry for the local economy toolbox, which has attracted investors of all types to launch investment vehicles out of Luxembourg. This • Get support from a professional and international is to be seen in the perspective of the gradual shift pool of advisers who are able to work in different towards dealmaking substance in Luxembourg- languages, all phsyically present in Luxembourg. based structures, as driven by more stringent OECD requirements. PE in Luxembourg thus employs a several thousand people today, some of whom are Our growing base of members, especially GPs and LPs, middle or front office positions.” is a demonstration of Luxembourg´s dynamism as a PE hub that can cater to a wide range of needs. With over In practice, this ability to combine stability and agility 250 members, 50% of whom are end investors, LPEA means that PE investors who elect Luxembourg as a also offers a great exchange platform for newcomers domicile for their structure and/or teams, be they GPs, to Luxembourg - and intends to continue its work as LPs or Family Offices, are able to: “thought leader” and “matchmaker” between talent and money.

Rajaa Mekouar-Schneider PRIVATE EQUITY IN LUXEMBOURG 5

Message from the Minister of Finance of Luxembourg

Private equity continues to grow in popularity as an asset class. Searching for yield in a low-interest rate environment and looking for more consistent returns, many institutional investors are increasing their allocations to alternative asset classes. Over the past five years, the industry has had to adapt to a regulatory and tax environment, driven by BEPS and regulations such as AIFMD in Europe, and has been impacted by Brexit.

Luxembourg did not wish for Brexit and regrets seeing the UK leave the European Union. However, for Luxembourg’s financial centre, the prospect of Brexit has so far also been a “real-live test” of the country’s attractiveness as a pan-European hub for financial services. More than half of the 60 firms relocating activities or strengthening existing operations in Luxembourg as a result of Brexit are from the asset management industry, including private equity firms and alternative fund managers.

In fact, Luxembourg continues to stand out as a highly stable, open but also reliable partner in the heart of the As the success of the Reserved Alternative Investment European Union and the euro area. Fund (RAIF) and the limited partnership regime have shown, the government can play a key role in Very few nations have such a long tradition of establishing a conducive environment for the growth of openness and stability and Luxembourg’s AAA rating the PE/VC and alternative fund industry. is a key asset for global financial institutions and asset managers as well as their investors, bolstering their The government is committed to continue developing confidence in Luxembourg. this important growth sector, and has identified it as a key priority in the coalition agreement. In a changing global tax environment, Luxembourg has proactively embraced the latest principles put At the European level, the strengthening and further forward by the OECD and G20, and is committed to completion of the European Single Market for financial maintaining a competitive tax regime within this new services as well as the European Capital Markets Union international landscape. This has been welcomed by will be beneficial for the development of Luxembourg’s financial players and institutional investors, who are PE/VC sector. The EU will need to continue breaking increasingly insisting on regulated onshore jurisdictions down regulatory as well as digital barriers in order to like Luxembourg. Today investors and financial players increase its attractiveness and compete globally with consider Luxembourg as a leading jurisdiction when the US and China, which are already home to the it comes to transparency and compliance but also for world’s tech and Fintech giants as well as the leading sustainability. VC firms.

While it is widely known as being home to the world’s Finally, I would like to underline that the strong support second largest fund industry and a prime location for of the LPEA and its 220 members have contributed international wealth management, Luxembourg has also greatly to the success of the Luxembourg PE/VC further consolidated its position as a leading European industry. I encourage them to continue in their efforts, hub for the PE/VC industry, having seen increased for which they have my full support. diversification of fund managers and specialisation. It is only by working together with the private sector The world’s top 19 Private Equity players today have that Luxembourg will be able to further strengthen its operations in Luxembourg and 9 out of 12 top PE role as a leading hub for innovative companies looking players have substantially reinforced their presence in to develop and grow their business all across the Luxembourg over the last couple of years. The whole European Single Market and beyond. sector now counts thousands of PE/VC professionals and represents EUR 400 billion of assets under management. H.E. Pierre Gramegna

6 LPEA 2020

1. EXECUTIVE SUMMARY

Luxembourg has become one of the distribution worldwide. With AIFMD leading jurisdictions worldwide and Luxembourg is able to leverage on the leading hub for setting up Private this unprecedented expertise. Equity and Venture Capital funds. Luxembourg can combine unique Sophisticated infrastructure of strengths that cannot be found service providers with a multilingual elsewhere: and technically skilled work-force.

The right structures – the large Established and proven concepts range of available structures ensures such as third part AIFMs and that all fund promoters will fi nd the outsourcing of back - and middle - suitable vehicle for their investors. offi ce functions. Funds can be set up as regulated or unregulated vehicles for all asset Luxembourg is a worldwide recog- classes with different corporate nised brand for investment which forms to choose from, as limited results from the combination of its partnerships or mutual funds. In history as a banking and funds cen- accordance with the type chosen, tre and an innovative approach that the tax status will vary accordingly. embraces fi nancial sustainability and Luxembourg is an onshore EU the adoption of fi nancial technology. jurisdiction, a prerequisite for many investors. In summary, Luxembourg provides an investment environment AIFM distribution capabilities driven by innovation and by the – following the introduction of ever - changing requirements of in- UCITS in 1988, Luxembourg turned vestors and fund managers. into the most recognised hub for PRIVATE EQUITY IN LUXEMBOURG 7

2. LUXEMBOURG – A CONDUCIVE ENVIRONMENT TO THE DEVELOPMENT OF PRIVATE EQUITY

Choosing the right location for Private Equity firms large number of support entities such as central ad- means taking into consideration many different fac- ministrators, domiciliary agents, law firms, auditors, tors. The following features are Luxembourg’s stren- consultants, depositaries and many more; it is an in- gths – and the combination of these strengths ma- dustry that continues to develop dynamically and is kes Luxembourg attractive to Private Equity. multilingual.

Political and economic stability Business-friendly environment The political stability of Luxembourg is marked by a Luxembourg has a unique system of social dialogue political culture of consensus where the traditional that involves regular meetings between the govern- parties co-exist within the context of broad agreement, employers’ representatives and unions, which ment on key issues. The business-friendly political is key to avoiding social conflicts and to reaching environment is conducive to welcoming Private consensus on important decisions regarding econo- Equity promoters and entrepreneurs. Attracting in- mic and social affairs. ternational players is considered paramount in building an efficient business framework and economic The government promotes a regular exchange with growth and has enabled Luxembourg to establish a associations representing the financial sector, organi- permanent and innovative business community. ses and takes part in economic missions abroad and creates a long-term dialogue with companies which With the UK exiting the EU in 2020, numerous pla- are critical to the sector. yers of the financial sector have already re-assessed their current set-up. A considerable number of Historic development AIFMs and management companies have decided Luxembourg is not only at the forefront in implemen- to set up an own entity or to appoint a third party ting new EU directives into national law, as was the AIFM in an EU jurisdiction, such as Luxembourg. case with UCITS in 1988 and AIFMD in 2013, but also Against that background, Luxembourg has become in creating new, innovative structures that respond to the distribution hub for an ever-increasing number of market demand. The SICAR and the SIF, two entities reputed PE houses, which may have previously had introduced in 2004 and 2007 respectively, were the these functions based in London. It is expected that first regulated PE fund structures with oversight from this trend will continue. a depositary. While many promoters shied away from this regulation, AIFMD introduced certain features that SICAR and SIF had already applied well before The strength of the Luxembourg financial servi- the arrival of the AIFMD. Similarly, the need for a li- ces industry mited partnership structure lead to the introduction Luxembourg is the largest financial centre for investment of the Luxembourg unincorporated Special Limited funds in Europe and the second largest worldwide. Lu- Partnership (“SCSp”) and the revamping of the exis- xembourg-domiciled investment funds are distribu- ting incorporated limited partnership in 2013, remo- ted in more than 70 countries: 62% of authorisations ving all inconvenient features inherent in other limi- for distribution granted to worldwide funds are allo- ted partnership structures existing in the market. In cated to Luxembourg funds1. Luxembourg has been line with AIFMD requirements, Luxembourg was one able to turn retail EU funds, i.e. UCITS funds, into a of the first financial centres to have a considerable brand that stands on its own, not only within Euro- number of regulated and highly qualified Alternative pe but worldwide. In view of the fact that more than Investment Fund Managers (“AIFM”) providing third 47,000 people are employed in the financial servi- party management services to PE funds. Last but ces industry which contributes around 26% of the not least, 2016 saw the introduction of the Reserved gross domestic product2 it is easy to understand Alternative Investment Fund (“RAIF”), a fund struc- how the financial industry and government are wor- ture with the legal and tax features of the well-esta- king closely and smoothly together to ensure conti- blished SICAR and SIF, without those being subject nued efficiency. Today Luxembourg hosts more than to direct regulation from the Luxembourg financial 265 authorised AIFMs and Management Companies supervisory authority but requiring the appointment and 600 registered AIFMs3. In addition, it hosts a of an AIFM, itself a regulated entity.

1 PwC/Lipper: Global Fund Distribution 2018 2 CSSF (March 2019 Newsletter) and Statec (Nov. 2018) 3 ALFI, December 2018 8 LPEA 2020

International distribution hub Skilled and multi-lingual workforce The AIFMD requires a European marketing passport The Luxembourg labour market offers a pool of for AIFs, similar to UCITS. While Luxembourg has highly skilled and multilingual resources. With more become the leading jurisdiction in the world for retail than 170 nationalities represented, its workforce fund cross-border distribution, it is currently building is truly international: almost 48% of residents on this experience and repeating this success story and more than 70% of the active population are for Alternative Investment Funds (“AIFs”). well-integrated foreigners. The Greater Region represents a natural extension of Luxembourg’s Proposed new EU legislation on cross-border domestic market and also provides a solid distribution of UCITS and AIFs workforce for Luxembourg’s business. Around In March 2018, the European Commission published 190,000 or 45% of the Luxembourg work force a proposal for a directive amending Directive 2009/65/ commute from neighbouring countries France, EC (“UCITS Directive”) and Directive 2011/61/ Germany and Belgium on a daily basis, contributing EU (“AIFMD”) as well as a proposal of a regulation to the skillset available in Luxembourg. Many people complementing the draft directive. These proposals in Luxembourg speak three or four languages have been submitted to the European Parliament (Luxembourgish, German, French, English, Committee on Economic and Monetary Affairs Portuguese, Italian, Spanish, etc.). This, combined (ECON) which ssued its amendment proposals in with the high level of professional qualifications December 2018. The purpose of these proposals held by staff has allowed Luxembourg to respond is to facilitate the cross-border distribution of UCITS to the requirements of multilingual and multicultural and AIF units and to better protect investors by (i) investors. harmonising the regulatory framework in relation to marketing communication to retail investors, (ii) Commitment to Europe detailing a definition and rules for pre-marketing of Luxembourg is also well known for its role within AIFs to professional investors (and by excluding the the European Union. As a founding member of ma- recourse to reverse solicitation in the case of pre- jor international organisations such as BENELUX, marketing), (iii) establishing notification procedures in the Council of Europe, the European Union, NATO, relation to changes to the relevant fund documentation OECD and the United Nations, Luxembourg has in- and in relation to the discontinuation of cross-border fluence that belies its physical size, especially within marketing and (iv) standardising the publication of Europe. It is host to many European Union institu- fees and charges regarding the notification of cross- tions amongst which are departments of the Com- border marketing. ESMA is mandated to develop mission, the Council and the Parliament, the Court of draft regulatory technical standards and draft Justice, the Court of Auditors and the Statistical Offi- implementing technical standards and to create a ce. Luxembourg also welcomes the headquarters of central database in respect of fees and charges of the European Investment Bank, the European Invest- national authorities and national legislation regarding ment Fund and the European Stability Mechanism. marketing. High quality living standards A highly innovative and dynamic market Luxembourg has one of the world’s highest per Alongside one of its main pillars, namely the financial capita gross domestic products and is one of the top services industry, the Luxembourg government has ranking countries in terms of Human Development, identified other major industries as the core sectors Quality of Life, Personal Safety and Corruption to be developed in Luxembourg over the coming Perceptions indices.4 years. Major efforts are made to attract innovative companies to set up their FinTech business in Luxembourg.

The Luxembourg government is investing heavily in attracting talent from outside Luxembourg and in leveraging on the expertise that existing specialists of the local financial industry bring about.

4 IMF, UNDP, OECD Better Life Index, Transparency International 2018 PRIVATE EQUITY IN LUXEMBOURG 9

3. LPEA GP SURVEY

Every other year the LPEA conducts a survey among One of the key results of the survey is the adoption of its PE and VC members operating in Luxembourg5. different legal structures. Over the years Luxembourg The background to the survey are the changes that has developed a complete legal toolbox to answer the the industry has been going though over the past different needs of GPs and investors. The answers three years such as: to the survey show significant diversity, something which will most certainly change in the future with the • Increase of administrative burdens through BEPS growing adoption of RAIF and SCSp instead of SPVs and AIFMD; and offshore structures. • Increasing substance requirements; • Impact of Brexit; • Improvement of Luxembourg’s reputation due to higher transparency regulations; Jurisdiction of Funds present in Luxembourg • Large PE firms having established offices in Luxembourg; • Wider adoption of RAIF and SCSp in detriment of SPVs and offshore structures. 1%

4% The profiles of the GPs differ widely; while there is 5% Luxembourg no dominant strategy it was noted that infrastructure 7% Channel Islands and buy-out strategies increased significantly. UK 8% US Key factors to choose Luxembourg were: 59% Cayman

16% 1. Legal and regulatory environment; Other European Countries 2. Political and tax stability; Other 3. Investor’s request; 4. Reputation; 5. Availability of skilled workers; 6. Cost.

Legal structures Other

Offshore (outside Luxembourg) Looking ahead, the industry’s 11% 3% main challenges are very 17% SPVs similar to those in other European 9% Corporate vehicle jurisdictions and concern SCS international tax and supervisory 12% SCSp authorities, transparency, global 10% 1% RAIF tax harmonization, increasing 11% 5% regulation, KYC/AML and Brexit. UCI Part II

21% SICAR

SIF

Source: LPEA GP Survey 2018

The complete LPEA GP Survey 2018 is available at www.lpea.lu.

5 The survey was conducted between January and March 2018 with 55 members without distinguishing between size and strategy. Input came from online questionnaires and interviews. 10 LPEA 2020

4. PRIVATE CAPITAL - LEGAL FRAMEWORK

Private Equity vehicles in Luxembourg The aforementioned structures may may either be (i) any standard commer- qualify as an alternative investment cial companies, i.e. non-regulated struc- fund (“AIF”)6 under the Luxembourg tures, or (ii) investment structures that are implementation of the AIFMD, i.e. supervised by the Luxembourg Commis- the Luxembourg law on alternative sion de surveillance du secteur fi nancier investment fund managers (“AIFM”) of (“CSSF”) and therefore regulated struc- 12 July 2013, as amended (the “AIFM tures. Law”). They would then potentially need to appoint an AIFM for the performance The specifi c (legal) features of all of of the respective AIF’s portfolio and these structures (non-regulated and risk management services within the regulated alike) are further explained in meaning of the AIFM Law. the next pages.

We have experienced Luxembourg as a very well established centre for Private Equity and investment management with the ability to attract well-qualifi ed and experienced staff.

Peter Veldman, Head of Fund Management, EQT Fund Management S.à r.l.

6 According to article 1 (39) of the AIFM law, an AIF is any collective investment undertaking, including investment compartments thereof, which: (a) raise capital from a number of investors, with a view to investing it in accordance with a defi ned investment policy for the benefi t of those investors; and (b) do not require authorisation pursuant to Article 5 of Directive 2009/65/EC; PRIVATE EQUITY IN LUXEMBOURG 11

As a global private investment firm, having a presence in Luxembourg has provided our firm and our portfolio companies a huge advantage in the market by giving us access to cutting edge research talent, a massive financial services infrastructure, growth capital and offers us a central stepping off point for the rest of Europe.

Ken Pentimonti, Principal, Paladin

4.1 NON-REGULATED COMPANIES AND PARTNERSHIPS

Any standard commercial As an ordinary company, the show that by April 2019, 2,707 company under the Luxembourg SOPARFI is not subject to any SCSp were active: while in total law of 10 August 1915 on risk-spreading requirements and 3,224 had been set up since its commercial companies (the may in principle invest in any introduction in July 2013, 517 “1915 Law”) can be used as a asset class. SOPARFIs are used had been deleted since 2013. Private Equity structuring vehicle to invest and manage financial On average 48 SCSp were set-up in Luxembourg. These vehicles participations in Luxembourg or per month, peaking in 2019 with may either be intermediate foreign companies. SOPARFIs more than 100 entities launched holding vehicles for an entity can also undertake commercial within one month. located abroad (typically a non- activities which are directly European Private Equity fund) or indirectly connected to the The SCSp in particular has or themselves be the investment management of their holdings seemingly substituted the former vehicle for the end investors including the debt servicing of vehicles of choice, the S.C.A. beneficial owners of the structure. their acquisitions. and the S.à r.l. While the principal reasons for choosing the legal To the extent that the corporate The Luxembourg law which form of a Luxembourg private object of the vehicle is limited to implemented the AIFMD equity structuring vehicle may the holding of participations in revamped and updated the often be driven by considerations other (asset holding) companies legal framework for limited of applicable foreign (tax) law, the (whether in Luxembourg or partnerships under the 1915 Law, increased structuring flexibility of abroad) the most common i.e. the société en commandite the SCS or the SCSp has added non-regulated Private Equity simple (SCS). In addition, the to its increased popularity. The structure in Luxembourg is the law implementing the AIFMD limited partnership agreement SOPARFI. SOPARFIs are ordinary also added another form of will define their operational rules commercial companies able to limited partnership under and fix its tax-transparent status take any corporate form available Luxembourg law, i.e. the société (under Luxembourg tax law and under the 1915 Law. In practice en commandite spéciale (SCSp), subject to appropriate structuring this will often be a private which, unlike the SCS, does under applicable foreign tax law, limited company, i.e. a société à not have legal personality itself. to the extent applicable). responsabilité limitée, S.à r.l., or Both vehicles have increasingly a simplified limited company, i.e. been used for structuring private a société par actions simplifiée, equity investments. Records of SAS. the Luxembourg trade register 12 LPEA 2020

Evolution SCSp market in Luxembourg

4500

38543935 4000 3745 35513652 33853458 32243297 3500 3126 29493019 28012871 3357 3000 2702 3284 2607 31053187 2521 3103 23622436 2929 2500 22092279 27762859 20772132 26182707 2517 24102471 2000 1731 2351 21712259 1466 2091 1945 2015 18151875 1500 1219 17021751 959 1485 1000 726 1301 1180 478 502 508 517 521 526 529 538 547 558 570 578 948 375 381 394 404 417 421 430 436 443 450 461 721 500 165 246 39 5 11 0

2015-072016-012016-072017-012017-072018-012018-022018-032018-042018-052018-062018-072018-082018-092018-102018-112018-122019-012019-022019-032019-042019-052019-062019-072019-082019-092019-102019-11

Dele�ons Registra�ons Ac�ve SCSp

Source: RCSL - Statistiques de dépôt, PwC analysis

On 14 July 2016, bill of law to SIFs or SICARs, RAIFs are AIFMD requirements in terms n°6929 on reserved alternative not subject to supervision of of (i) appointment of the RAIF’s investment funds (“RAIFs”) was the Luxembourg supervisory depositary, (ii) appointment of the adopted by the Luxembourg authority of the financial sector RAIF’s approved statutory auditor, Parliament. Its purpose was (the “CSSF”). (iii) minimum content of the RAIF’s to introduce a new type of annual report, (iv) valuation of the Luxembourg investment vehicle RAIFs are Luxembourg AIFs RAIF’s assets, and (v) investment that is reserved to Luxembourg governed by the Luxembourg and leverage rules regarding alternative investment funds law of 23 July 2016 on RAIFs (the certain types of assets. However, (“AIFs”) managed by an “RAIF Law”). in exchange for complying with authorised external alternative all the conditions laid down in the investment fund manager In addition, RAIFs adopting a AIFMD and provided that their (“AIFM”) within the meaning of corporate form are, unless it AIFM is fully licensed, RAIFs may Directive 2011/61/EU of 8 June is derogated therefrom by the benefit from the AIFMD passport 2011 on alternative investment RAIF Law, subject to the general under certain conditions in order fund managers (the “AIFMD”). provisions of the 1915 Law. More- to be marketed to professional over, as RAIFs qualify as AIFs investors (and retail investors if To a large extent, the RAIF managed by a duly authorised permitted by the relevant Member vehicle offers similar structuring AIFM subject to the full AIFMD States) in the EU. flexibilities as Luxembourg requirements, RAIFs will be specialised investment funds subject to the so-called “AIFMD (“SIFs”) or investment companies Product Rules” applicable to for risk capital investments them. These AIFMD Product Rules (“SICARs”). However, in contrast include, among others, specific PRIVATE EQUITY IN LUXEMBOURG 13

4.2 DIRECTLY REGULATED OR INDIRECTLY SUPERVISED STRUCTURES

The CSSF regulates SICARs and comprising a total amount of Advantages of starting off with SIFs. SIFs are regulated under EUR 578.6 billion were registered an unregulated fund are: the provisions of the law of 13 with the CSSF7. February 2007 on specialised • Quick set-up as no CSSF appro- investment funds (the “SIF Law”) SICAR val needed while SICARs are regulated SICARs are investment vehicles under the provisions of the designed specifically to suit • No depositary needed (cost amended law of 15 June 2004 the needs of Private Equity and savings) (the “SICAR Law”) on investment Venture Capital. SICARs allow companies for risk capital direct or indirect contributions of • Contractual relationship means investment. Both SICARs and assets to be made to entities in that parties have freedom to SIFs are registered on official lists view of their launch, development negotiate contractual contents, maintained by and accessible on or listing on a stock exchange. no regulation prescribes any the website of the CSSF. SIFs and rules. Note, however, that SICARs would typically also SIF the costs for setting up legal qualify as AIFs under the AIFM Law. SIFs were created to replace a documents is slightly higher than predecessor regime which was for a SCS/SCSp in the form of a Amidst an international regulatory no longer suitable. In particular, SIF, SICAR or RAIF as all details environment seeking to increase with Luxembourg starting to have to be defined individually transparency and oversight, the position itself as an alternative and negotiated with the signatory SICAR and the SIF are tried-and- funds domicile, the time was ripe parties. tested regulated Private Equity for a complete overhaul of the frameworks. The legal framework then existing legal and regulatory • When the unregulated SCS applicable to SICARs and SIFs framework. The SIF regime was or SCSp has reached a certain offers a combination of a flexible thus created in 2007 in order to volume and/or additional external and accessible regulatory infra- clearly establish Luxembourg fundraising is foreseen, it may structure with strong investor as an AIF domicile further be interesting to (i) convert the protection features. They can accommodating all alternative SCS/SCSp into a regulated SIF or only be subscribed to by “well- asset classes with hedge funds, SICAR (regulation on fund level) informed” investors (see the real estate funds and private and (ii) nominate an alternative Glossary for a more detailed equity funds in particular. investment fund manager definition). (AIFM) under the AIFMD regime Conversions between legal (regulation on the manager level) As of 31 August 2019, 255 regimes to benefit from the distribution SICARs comprising in total a The unregulated SCS and SCSp freedom in the EU under the volume of EUR 57.4 bil- can be converted into a regulated AIFMD regime. lion and 1,495 SIFs SIF or SICAR at any time.

Our international investors appreciate the stable and reliable regulatory and fiscal environment offered and sustained by Luxembourg authorities.

Diana Meyel, Partner, Cipio Partners GmbH

7 CSSF (October 2019 Newsletter) 14 LPEA 2020

4.3 FEATURES OF LUXEMBOURG PRIVATE EQUITY VEHICLES

RAIF SICAR EuVECA SIF Unregulated (indirectly supervised (CSSF (CSSF (CSSF regulated) vehicle via its AIFM) regulated) regulated)

AIF qualifi cation under the AIFM Law May qualify as an AIF under the AIFM Law[1] Eligible for (i) any AIF May qualify as mandatory which is a qualifying an AIF under Internal management under the AIFM Law possible venture capital the AIFM Law. Not admitted for de minimis AIFs fund, i.e. a collective Internal mana- Not admitted for internal manage- investment underta- gement under ment under the AIFM Law. king that intends to the AIFM Law invest at least 70% of possible its aggregate capital Choice of legal form: Corporate Choice of legal form: Corporate vehicles contributions and vehicles and common funds Corpo- and common funds Corporate vehicles: uncalled committed rate vehicles: • Public limited company (SA) capital in assets • Public limited company (SA) • Simplifi ed limited company (SAS) that are qualifi ed • Simplifi ed limited company (SAS) • Private limited company (S.à r.l.) investments under • Private limited company (S.à r.l.) • Corporate partnership limited by Regulation No. (EU) • Corporate partnership limited by shares (SCA) 345/2013 and (ii) shares (SCA) • Common limited partnership (SCS) which is managed by • Common limited partnership (SCS) • Special limited partnership (SCSp) a de minimis AIFM. • Special limited partnership (SCSp) The aforementioned corporate vehicles The aforementioned corporate will all qualify as investment companies vehicles will all qualify as investment with variable capital (société d’inves- Choice of legal form: only corporate vehicles corporate companies with variable capital tissement à capital variable-fonds vehicles: (société d’investissement à capital d’investissement spécialisé, SICAV-SIF/ • Public limited company (SA) variable-fonds d’investissement FIS), i.e. their capital will be allowed • Simplifi ed limited company (SAS) alternatif réservé, SICAV-RAIF), to increase or decrease freely without • Private limited company (S.à r.l.) i.e. their capital will be allowed to the need to convene a shareholders’ • Corporate partnership limited by shares (SCA) increase or decrease freely without meeting to that effect. • Common limited partnership (SCS) the need to convene a shareholders’ • Special limited partnership (SCSp) meeting to that effect.

Contractual form or commonfund: Contractual form or commonfund: fonds commun de placement- fonds commun de placement-fonds -fonds d’investissement alternatif d’investissement spécialisé (FCP-SIF) réservé (FCP-RAIF)

Tax Treatment Tax Treatment Tax Treatment Transparent: Transparent: Transparent: • Common fund (FCP-RAIF) • Common fund (FCS-SIF) • Common limited partnership (SCS) • Common limited partnership (SCS) • Common limited partnership (SCS) • Special limited partnership (SCSp) • Special limited partnership (SCSp) • Special limited partnership (SCSp) Not transparent (taxable vehicle in Not transparent (taxable vehicle in Not transparent (all vehicles in Luxembourg): Luxembourg): principle taxable in Luxembourg): All corporate vehicles (see above). All corporate forms (see above) All corporate vehicles (see above).

All these corporate vehicles are All these corporate vehicles are otherwise fully taxable in Luxem- otherwise fully taxable in Luxembourg. bourg (unless they opt for the special tax status outlined in the next box below similar to the SIF and SICAR regimes only available to RAIFs).

SIF regime for RAIF respecting SIF regime, i.e. vehicles respecting the principle of risk spreading the principle of risk spreading (mutatis mutandis CSSF Circular (CSSF Circular 07/309): 07/309): Annual subscription tax (taxe Annual subscription tax (taxe d’abonnement) at a rate of 0.01%. d’abonnement) at a rate of 0.01%. Some SIFs are exempted from the Some RAIFs are exempted from subscription tax. the subscription tax. SIFs are not subject to any RAIFs are not subject to any Luxembourg taxes on capital gains Luxembourg taxes on capital or income. gains or income. The corporate vehicles may in The vehicle should in principle principle benefi t from certain benefi t from certain double tax double tax treaties. treaties. PRIVATE EQUITY IN LUXEMBOURG 15

RAIF SIF SICAR EuVECA Unregulated (indirectly supervised (CSSF regulated) (CSSF regulated) (CSSF regulated) vehicle via its AIFM)

SICAR regime for RAIF SICAR regime for funds investing in risk capital investing in risk capital (mutatis mutandis CSSF (CSSF Circular 06/241): Circular 06/241): Subject to income tax Subject to income tax in in Luxembourg, but any Luxembourg, but any income income arising from arising from securities held by securities held by the the SICAR does not constitute SICAR does not constitute taxable income. taxable income. May benefi t from certain May benefi t from certain double tax treaties. double tax treaties. Capital gains realised by non- Capital gains realised -Luxembourg residents are by non-Luxembourg not subject to tax in Luxem- residents are not subject bourg. Dividend and interest to tax in Luxembourg. payments made are exempt Dividend and interest pay- from withholding tax. ments made are exempt from withholding tax.

Duration Unlimited or limited period of time

Form of participation

(Registered) shares or units (FCP-FIS/SIF or FCP-RAIF): ordinary, preference, benefi ciary (the latter not for SIFs)* Partnership interests or capital accounts (for SCS and SCSp)

Redeemable Voting and non-voting (only voting for SIF) bonds and/or notes.

* issuance of registered shares of any vehicle recommended in order to ensure proper monitoring of eligible investors (i.e. professional investors to the extent vehicle qualifi es as an AIF).

Listing In principle possible

Redemption In principle possible

Capital calls/Distributions Capital calls and distributions to investors are subject to the rules provided in the constitutive documents Flexibility on issue price Preferential rights may be limited or cancelled

Permissible asset classes Permissible asset Restricted asset classes Restricted asset Permissible asset Any kind of asset class. classes Investment in risk classes classes asset classes as set out capital (according to Investment in at least Any kind of asset in SIF Law (as amended defi nition of 70% of its monies in class. by RAIF Law). “risk capital” in CSSF qualifying investments Circular 06/241). according to rules set out in Regulation (EU) No. 345/2013, as amended.

Risk spreading: Risk spreading: No risk diversifi cation No risk diversifi ca- No risk diversifi cation Risk diversifi cation require- Risk diversifi cation requirement. tion requirement, but requirement. ment (mutatis mutandis CSSF requirement minimum of 70% in- Circular 07/309) (as contained in CSSF vestment in qualifying Circular 07/309). investments and up to If SICAR investment policy, no 30% in other assets need for risk diversifi cation. according to rules set out in Regulation (EU) No. 345/2013, as amended.

Compartments/Sub-funds Compartments/Sub-funds Possible. Compartments/Sub- Compartments/Sub- Possible. -funds not possible. -funds not possible. 16 LPEA 2020

RAIF SIF SICAR EuVECA Unregulated (indirectly supervised (CSSF regulated) (CSSF regulated) (CSSF regulated) vehicle via its AIFM)

Capital: Capital: Capital: Capital: Fixed or variable Fixed or variable Fixed or variable Fixed or variable EUR or foreign currency EUR or foreign currency EUR or foreign currency EUR or foreign currency equivalent. equivalent. equivalent. equivalent. Minimum of EUR 12,000 for S.à r.l. and Minimum of EUR 1,250,000 Minimum of EUR Minimum of EUR EUR 31,000 for SA/SCA at incorporation only (including share premium), 1,250,000 (including 1,000,000 (including Shares must be paid up to 25% for SA/SCA and to be reached within share premium), to be share premium) to be 100% for a S.à r.l. 12 months of formation reached within 12 months reached within 12 months No such restriction for SCS or SCSp as RAIF. of authorisation provided of authorisation, provided Contribution in kind and/or in cash permissible. Minimum of EUR 12,000 at incorporation. at incorporation. Commitment or subscription based model. for S.à r.l. and EUR 30,000 Minimum of EUR 12,000 Minimum of EUR 12,000 for SA/SCA. for S.à r.l. and EUR for S.à r.l. and EUR Partly paid shares must 30,000 for SA/SCA 30,000 for SA/SCA. be paid up to at least 5% Partly paid shares must Shares must be paid up No restriction for SCS/ SCSp be paid up to at least 5% to at least 5%. Contribution in kind and/or No such restriction for No such restriction for in cash permissible. SCS/SCSp. SCS or SCSp. Commitment or subscription Contribution in kind and/ Contribution in kind and/ based model. or in cash permissible. or in cash permissible Commitment or subscrip- Commitment or subscription based model. tion based model.

Management bodies: Management bodies: Management bodies: Board of directors, Board of directors, manager(s) or managing Board of directors, manager(s) or managing GP manager(s) or managing GP - general partner – depending on corporate form – depending on corporate form depending on corporate form Approval of board members by the CSSF. No approval requirements for board members No approval requirements for by the CSSF. board members by the CSSF.

Supervisory reporting: An- Supervisory reporting: Supervisory reporting: Supervisory reporting: Supervisory reporting: nual audited report due six Monthly reporting. Semi-annual reporting. In principle, annual Not applicable months after year end. Annual audited report Annual audited report audited report due (as long as no AIF AIFM supervised by respon- due six months after due six months after six months after year or AIFM nomination). sible authority to report on year end. year end. end (at least for CSSF Otherwise reporting RAIFs it externally manages. and for investors only rules of AIFM Law upon request, unless apply. required already by the corporate vehicle itself).

Filing requirements with Filing requirements with Filing requirements with Filing requirements Filing requirements trade register. trade register: trade register. with trade register. with trade register. Within seven months after Within seven months Within seven months Within seven months Within seven months year end, annual accounts after year end, audited after year end, audited after year end, audi- after year end, annual have to be fi led. annual accounts and annual accounts have ted annual accounts accounts have to be RAIF List appendix have to be to be fi led. have to be fi led. fi led. RAIF will have to be registe- fi led. red on RAIF list kept by RCS

Depositary: Depositary: Depositary: Depositary: Luxembourg depositary Luxembourg depositary required (regardless of AIF Not required but audi- Not required unless required for RAIF qualifi cation) tor required to check the relevant entity if assets of EuVECA qualifi es as an AIF, are properly recorded which is not a de as its assets. minimis AIF.

Publication of PRIIPs KID? A PRIIPs KID has to be published for any investment vehicle which is also offered to retail investors. A vehicle exclusively offered to professional investors does not have to prepare such a PRIIPs KID. The latter vehicle will have to justify to the CSSF that it is not under the obligation to prepare a PRIIPs KID or rather indeed only sold to professional investors.

Administrator Administrator to be appointed unless own infrastructure

Auditor Auditor Auditor Independent approved Independent approved Luxembourg auditor required. Independent Luxembourg auditor required. Luxembourg auditor in certain circumstances only (see section 5.1 of this brochure for further details). PRIVATE EQUITY IN LUXEMBOURG 17

5. PRIVATE DEBT

Private Debt has steadily grown funds 52% were structured as the rest is predominantly divided in Luxembourg over the past open-ended funds. among the US, the Middle East years with funds offering an and the Asia Pacific region. alternative to bank lending, The initiators or promoters of thereby contributing to the Debt Funds in Luxembourg are Reportly wise, 41% produce financing of businesses in all to a large extent of European quarterly NAVs, report fair value European countries(8)(9). origin: 83% come from the EU, (42%) and use Lux GAAP (60%), 16% from North America and 1% the latter being linked with 61% In line with all structures covered from Central and South America. not consolidating their assets. in section 4.3, loan funds can use the same fund structures, i.e: Out of all regulated and semi- regulated funds, almost 50% had - RAIFs; a maturity of up to eight years, - SICARs; 33% were evergreen funds and - SIFs; only 11% had maturities between - Regulated Part II funds; and nine and twelve years. - Securitisation vehicles. Investment strategies centre around three main loan strategies: Regulated and indirectly senior loans (35%), high yield regulated funds bonds (22%) and direct lending In absolute terms, EUR 65 billion (18%). were invested in Luxembourg loan funds of which EUR 49 billion LPs are predominantly institutio- in regulated or semi-regulated nal investors, constituting 65% of funds. Out of the EUR 49 billion, all investors, followed by HNWI 75% were invested in SIFs, 13% (14%) and Private Banks (8%). in RAIFs, 11% in Part II funds and The majority of all investors are 1% only in SICARs. Of all loan domiciled in the EU, i.e. 47% and

Having moved to Luxembourg after 15 years in London as a GP/LP, I am pleasantly surprised by the quality of the ecosystem to actually operate in PE from here. And this is not just to domicile a PE fund… whether it is investor access, international travel connections or financial talent Luxembourg is a very solid base. I am convinced more and more PE teams will come here, which will further strengthen Luxembourg as a PE hub.

Rajaa Mekouar Schneider, Head of Private Equity for a Luxembourg Single Family Office and CEO of LPEA

8 Source: Loan fund survey 2018 issued by KPMG in cooperation with ALFI. 9 Only regulated and indirectly regulated funds are included. 18 LPEA 2020

6. THE LUXEMBOURG TAX ENVIRONMENT

One of the key factors in favour Taxation of Luxembourg PE of an SCA will equally not be of Private Equity operations vehicles subject to net wealth tax. Dividend in Luxembourg remains its The Luxembourg tax environment distributions will also not be subject tax environment. A stable tax is extremely beneficial for Private to Luxembourg taxation at source. framework, a highly competitive Equity structures, both regulated social security system (for and unregulated. The SIF: companies, employers and SIFs, whether organised as a employees) and the lowest VAT The SOPARFI: limited partnership or a corporate rate in Europe greatly contribute As a standard commercial partnership limited by shares, are to making Luxembourg one company subject to normal not subject to any Luxembourg of Europe’s most attractive corporate taxation and not subject taxes on capital gains or income; jurisdictions for Private Equity to a specific regulatory regime, the sole tax due is a subscription operations and investments. Of the SOPARFI benefits from tax of 0.01% based on the quarterly key importance remains, however, Luxembourg’s extensive network net asset value. SIFs in corporate the double tax treaty network that of double-taxation treaties and form can moreover claim access to Luxembourg has built up over from the EU Parent-Subsidiary certain double tax treaties. many years. Directive. Despite being a fully taxable company, the SOPARFI The RAIF: Luxembourg’s Double Tax allows for tailor-made structuring In principle, RAIFs will be subject Treaty Network providing, under certain conditions, to the same tax regime as SIFs Luxembourg has bilateral tax for a full exemption for dividends (see above). However, optionally, treaties with all EU Member States and capital gains upon exit. RAIFs investing in risk capital can (except Cyprus) and with a number opt for the SICAR regime (see of other countries (including almost The SICAR: above). all OECD Member States). This SICARs can be created using network of tax treaties is constantly different corporate forms. Highlights of Luxembourg’s Tax being expanded. Framework for Private Equity - SICARs in the form of a limited • Effective carried interest structu- SICARs and SOPARFIs as partnership (SCS): ring; Luxembourg taxable companies The SICAR, organised in the form • Extensive double tax treaty net- are, from a Luxembourg of an SCS, is tax transparent and work; perspective, entitled to treaty thus not subject to corporate, • Legal basis for provision of tax benefits and therefore benefit from municipal business and net wealth confirmations; double tax treaties concluded tax. Income and gains received or • Lowest VAT rate in the EU (17% between Luxembourg and third realised are thus not subject to tax currently), VAT exemption on countries. in the hands of the SICAR. Income management services rendered to and gains may furthermore be RAIFs, SIFs and SICARs and free The application of tax treaties paid to investors without any trade zone for valuable goods; to SIFs in a corporate form is Luxembourg source taxation. • Competitive effective tax rates to be assessed on a case-by- and low social security charges for case basis depending on the - SICARs in the form of a corporate individuals. wording of the treaty provisions partnership limited by shares and their interpretation by the (SCA): relevant foreign authorities. Fiscally The SICAR, organised as an SCA, transparent SIFs and RAIFs is a fully taxable company; income themselves may generally not from transferable securities is benefit from treaty provisions due however exempt under specific to their tax transparency. conditions; the SICAR in the form PRIVATE EQUITY IN LUXEMBOURG 19

6.1 DIRECT TAXATION OF CORPORATIONS

Luxembourg companies are nancing of participations or real municipality where companies subject to the following taxes estate. Following the example of have their registered office. For • Income taxes at a combined other European countries, the Lu- companies operating in the city rate of 24.94% in Luxembourg xembourg direct tax authorities of Luxembourg, the rate is 6.75%. city in 2019, including municipal have clarified the tax treatment A deduction of EUR 17,500 applies business tax. of Luxembourg group financing to the municipal business tax base • Annual net worth tax levied at companies. Besides appropriate for entities liable to corporate a rate of 0.5% on the company’s operational infrastructure, the re- income tax (EUR 40,000 for other worldwide net worth on 1 January levant guidance provides that the businesses). Municipal business up to a value of EUR 500 million, equity of the financing company tax is cumulative with corporate and 0.05% on any amount in should be sufficient for the func- tax and is non-deductible. excess, subject to certain adjust- tions it performs, the assets used ments (e.g. qualifying sharehol- and the risks it assumes. Net wealth tax dings). A minimum flat net worth Net wealth tax is levied at a rate of tax of EUR 4,815 applies to most Capital gains taxation for 0.5% (or 0.05% when the net worth holding and financing companies non-residents exceeds EUR 500 million) on the which have a low or negative net If a non-resident shareholder company’s worldwide net worth worth. is resident (for tax purposes) on 1 January of each year. Quali- in a country that has a double fying shareholdings under the par- Taxation for Luxembourg enti- tax treaty with Luxembourg, the ticipation exemption regime net of ties treaty will generally allocate the allocable debt (allocable debt that Corporate income tax applies right to tax to the country of re- exceeds the value of the sharehol- to all tax resident corporations sidence of the relevant sharehol- ding is deductible against other and to Luxembourg permanent der. In the event that no such assets) are excluded from the ta- establishments of foreign corpo- double tax treaty exists or can be xable base. Luxembourg corpora- rations. Partnerships, other than applied, capital gains on the sale te income tax is creditable to the those limited by shares, are re- of shares in a Luxembourg com- net worth tax provided certain con- garded as tax transparent for Lu- pany are subject to tax in Luxem- ditions are met. xembourg tax purposes and are bourg only if the non-resident therefore not subject to corporate shareholder has held a substan- Withholding taxes income tax and net worth tax at tial interest in the Luxembourg A withholding tax of 15% is levied their own level. Income distribu- company and the transfer occurs on dividend payments (17.65% if ted by such entities will be con- within six months of the acquisi- the dividend tax is not charged sidered, from a Luxembourg tax tion or in the event of a transfer to the shareholder) unless an point of view, as flowing through after six months, the nonresident applicable tax treaty provides the entity and are thus allocated individual shareholder has been for a lower rate or the Luxem- directly to investors. a Luxembourg resident taxpayer bourg participation exemption for more than 15 years and has regime reduces withholding tax Resident taxpayers are liable to become a non-Luxembourg tax- to 0%. Liquidation proceeds are tax on their worldwide income, payer less than five years before not subject to withholding tax. unless income is exempt under the disposal takes place. For this Arm’s length fixed or floating rate the provisions of applicable tax purpose, a substantial interest interest payments are generally treaties or specific domestic tax exists if a shareholder, either alo- not subject to withholding tax. law. There is a possibility of ob- ne or together with certain close Interest paid on certain profit taining tax credits for foreign ta- relatives, has held a sharehol- sharing bonds and profit sharing xes paid. Non-resident taxpayers ding of more than 10% in a Lu- interest paid on loans is subject are liable to tax on their Luxem- xembourg company at any time to 15% withholding tax unless bourg-sourced income only, e.g. during the five year period prece- a lower tax treaty rate applies. income realised by and allocable ding the transfer. Royalty payments are not subject to a Luxembourg permanent es- to withholding tax provided tablishment. Municipal business tax they are not connected with Municipal business tax varies non-resident artists’ performan- Thin capitalisation rules gene- from 6% to 12% (levied on inco- ces and sportsmen’s activities in rally require a debt to equity ra- me of businesses operating in Luxembourg. tio of 85:15 in the context of fi- Luxembourg), depending on the 20 LPEA 2020

Automatic Exchange of Infor- institutions that do not comply Registration duty and transfer mation with their CRS obligations may taxes On 28 March 2014, Luxembourg be subject to local penalties (no A fixed registration duty of EUR entered into an intergovernmen- withholding tax penalty system). 75 is due upon incorporation tal agreement (“Luxembourg and modification of the articles IGA”) with the United States of Value Added Tax (“VAT”) of association of a Luxembourg America with respect to the US The Luxembourg VAT standard company or upon transfer of the Foreign Account Tax Compliance rate of 17% is the lowest in the statutory seat or place of central Act (“FATCA”), which was imple- EU, compared with an average administration of a company to mented into Luxembourg law by of 21% in the other EU Member Luxembourg. the law of 24 July 2015 (“FATCA states. The Luxembourg VAT re- Law”). Under the Luxembourg gime furthermore exempts from Transfer taxes on the sale of local IGA and FATCA Law, Luxembourg VAT management services pro- real estate amount to 7% or 10%. financial institutions (including vided to investment funds. Sin- in certain cases SICARs, SIFs, ce July 2013, the exemption has Tax treatment of carried inte- RAIFs or SOPARFIs) are requi- been available for all alternative rest red to provide certain information investment funds covered by the In the law transposing the AIFM about their US account holders to law of 12 July 2013 transposing directive, a regime for the taxa- the Luxembourg tax authorities, the AIFMD, including unregu- tion of carried interest from AIFs which will share that information lated funds. This exemption is was also introduced. with the Internal Revenue Ser- applicable on portfolio mana- vice (“IRS”) on an annual basis. gement, advisory services and The share of profits derived from Luxembourg financial institutions administrative services. Due to an AIF and paid to AIFM emplo- that do not comply with their FAT- this exemption and the low VAT yees is treated as ordinary in- CA obligations risk being subject rate, the VAT burden of SICAR, come and is thus subject to the to a 30% US withholding tax on SIF and other alternative invest- highest marginal rate of tax for their US source income in addi- ment funds is very limited. This the recipient (42% for 2019) on tion to local penalties. exemption is however not avai- global income. However, if the lable to SOPARFIs unless they employee satisfies certain con- Largely inspired by FATCA, the qualify as an AIF. Assuming their ditions, the carried interest would OECD has developed a glo- activity is limited to the owner- be taxable at one quarter of the bal standard for the automatic ship of shares, SOPARFIs are not global tax rate. The conditions to exchange of financial account obliged to register for VAT except be fulfilled are: information, the Common Re- in the unlikely case they acquire porting Standard (“CRS”). The goods from abroad. They cannot 1. The recipient was neither resi- CRS has been implemented at recover the VAT incurred on their dent in Luxembourg nor subject European Union level through the costs. to Luxembourg tax on his/her Directive on Administrative Coo- professional income during the peration (Directive 2014/107/UE), Luxembourg has no “use and five preceding years transposed into Luxembourg law enjoyment” rule obliging, as in by the law of 18 December 2015 some Member States, holding 2. The recipient becomes a Lu- (“CRS Law”). Under the CRS Law, companies, which are not VAT ta- xembourg tax resident Luxembourg financial institutions xable persons, to self-assess the (including in certain cases SI- local VAT on services received 3. No advance payments were CARs, SIFs, RAIFs or SOPARFIs) from non-EU service providers received by the recipient are required to collect certain in- without allowing the deduction of formation about their account hol- this VAT. 4. The entitlement to carried in- ders that are fiscally resident in a terest is conditional on the inves- EU Member State or in a country A Freeport, operational since tors having priority in recovering with which Luxembourg has a tax September 2014, in the vicinity their initial investment. information sharing agreement, of Luxembourg airport, benefits and to report this information to from the VAT-free zone regime on The individual can benefit from the Luxembourg tax authorities. transactions in valuable goods, this tax treatment for up to ten The Luxembourg tax authorities including their storage. Certain years after having started his/her will thereafter automatically ex- types of investment funds (i.e. professional activity in Luxem- change the information with the passion funds, investing into art bourg. foreign tax authorities on an an- and other collectibles) may take nual basis. Luxembourg financial advantage of the Freeport. PRIVATE EQUITY IN LUXEMBOURG 21

The beneficial tax rates do not investment and financing struc- 4. The introduction of a apply to capital gains realised tures typically used by Private consistently worded general anti- on the sale of interests in the AIF, Equity. There may be an effect on abuse rule (GAAR) across the which are subject to standard ca- the businesses into which Priva- EU’s Member States. pital gains rules. te Equity Funds invest, however the primary areas, for example Member States are required Implications of OECD BEPS deduction of interest expense to implement the provisions of In February 2013, the Organiza- and transfer pricing, had alrea- ATAD II into domestic legislation tion for Economic Development dy been the subject of focus by such that the provisions have (OECD) issued a report entitled many of the key larger econo- effect from 1 January 2020. “Addressing Base Erosion and mies. It will therefore be impor- This directive includes rules to Profit Shifting” (“BEPS”), followed tant to regularly review existing further expand the anti-hybrid by an action plan with 15 actions structures to ensure they are not rules contained in ATAD I so as in July 2013 (“Action Plan”). The adversely affected by tax law to cover situations involving third BEPS project is supported by the changes implemented as a result countries, and also covers not G20 and is not limited to OECD of the BEPS project. only financing instruments, but member countries only, but also also hybrid entities. The directive includes a number of developing EU Anti-tax avoidance directives also includes provisions relating countries. The Action Plan is in- The EU issued two anti-tax avoi- to tax residency mismatches tended to prevent taxpayers ope- dance directives (known as which result in a double deduction rating internationally from shifting ATAD I and II) in response to the for the same item of expense, profits to low- or no-tax jurisdic- OECD’s BEPS project. Luxem- and mismatches regarding tions and thereby reducing their bourg introduced its transposi- the recognition of permanent tax base. While BEPS was not tion law in December 2018, with establishments by the country aimed at the fund sector, many the provisions having effect from of residence of a company and of the actions and recommenda- 1 January 2019. In broad terms the country where the permanent tions will likely have an impact on ATAD I, and Luxembourg’s trans- establishment is regarded as private equity and venture capital position law, include provisions in being situated by the first country funds and/or their portfolio com- respect of the following areas: (but not the second country). panies. The recommendations include rules to deal with hybrid 1. The limitation of the deductibi- The measures introduced by the instruments and entities, a re- lity for tax purposes of interest in two directives are not specifically view of harmful tax practices of certain circumstances. targeted at private equity Member States and associated business, however, the content countries, a framework for man- 2. Rules in respect of controlled of the directives are very likely datory spontaneous information foreign companies (known as to have an impact, to a lesser or exchange on tax rulings covering CFCs), which broadly speaking greater degree depending on certain regimes, rules against seek to counter the use of low the circumstances, potentially treaty abuse as well as an update tax jurisdictions for the earning on the entire ownership chain in of transfer pricing rules for intan- of passive income, unless such a private equity owned business. gible assets. In addition, groups arrangements have a genuine would be required to draw up a business purpose and do not “country-by-country-report” that have the purpose of reducing or is to be made available to tax avoiding taxation of such passive authorities and should allow tax income. authorities to get a more global view on a group’s worldwide ope- 3. Rules to counter the use of rations, also functioning as a risk hybrid financing instruments assessment tool. between EU companies, where such a hybrid financing instrument Many countries have started to results in a tax deductible consider or are already imple- expense in one jurisdiction, but menting some of the solutions where the corresponding item suggested by the OECD. Many of income is not subject to tax in of the recommendations are pri- the recipient jurisdiction due to marily targeted at multinationals a different legal characterisation seeking to minimise their tax bur- of the item of income from the den, rather than through-bound jurisdiction of the payee. 22 LPEA 2020

6.2 MISCELLANEOUS CHARGES AND FEES

Chamber of Commerce Fee the correct NACE code in order multi-compartment structures the All Luxembourg commercial com- to benefit from this cap. charge varies according to the panies are subject to an annual number of compartments: contribution (cotisation) ranging CSSF Fees 1-5 compartments: EUR 8,000 from 0.02% to 0.025% based on Prudential oversight comes at a 6-20 compartments: EUR 15,000 the relevant taxpayer’s profit ge- cost to the entities supervised. 21-50 compartments: EUR 24,000 nerated in the penultimate fiscal Authorisation: EUR 4,000 for sin- More than 50 compartments: year before the relevant contribu- gle-compartment structures and EUR 35,000. tion generating year. This contri- EUR 8,000 for multi-compart- bution is capped at EUR 3,000 for ment structures. Annual fee: for The annual fee for SICARs is fixed SOPARFIs, however the company single-compartment structures at EUR 4,000 (single compartment) in question must be coded with EUR 4,000. In case of SIFs, for and EUR 8,000 (multi-compartment).

6.3 PERSONAL TAXATION Luxembourg has some of the lo- 40% and is assessed on the basis Inheritance/Gift tax west effective taxes and social of the taxpayers’ family status. This Inheritance tax is due on the value security charges for individuals tax rate is itself increased by an of all property inherited from a among EU Member States. employment fund contribution of Luxembourg resident whereas 7% or 9% (depending on the family transfer tax is due on the value of Social security status and level of income) resul- real property located in Luxem- Social security contributions ting in a top marginal rate of 42%. bourg that is inherited from a non- are computed on the annual resident. Where the heir is a direct gross remuneration capped at In principle personal tax is asses- descendant or a spouse with chil- EUR 124,266. Self-employed per- sed on the basis of an annual tax dren, there is in principle no inheri- sons are subject to a 23% rate on return that must be lodged by tax- tance tax liability. Gift tax rates vary their gross professional income, payers. A withholding tax is levied according to the degree of kinship also capped at EUR 124,266. on employment income (progressi- between the donor and the donee, ve withholding tax scale) and direc- ranging from 1.8% to 14.4%. In addition, employees and self- tors’ fees (20% flat withholding un- employed persons are subject to der conditions). Withholding taxes Summary of tax-related features: a 1.4% dependency contribution on employment income and direc- • Attractive effective tax rates; (assurance dépendance) asses- tor’s fees are creditable against the • Broad participation exemption sed on their annual gross profes- taxpayer’s final income tax liability. regime; sional income (uncapped). This • Significant exemptions from dependency contribution applies A special regime for highly skilled withholding tax on dividends; to all income (and not only to em- workers (“HSWs”), who are secon- • No withholding tax on interest, ployment or self-employed income) ded to a Luxembourg undertaking royalties and liquidation proceeds; in the hands of taxpayers who are belonging to an international group • No capital / stamp duties on the subject to the Luxembourg manda- or are recruited from abroad by sale of shares in a Luxembourg tory State social security regime. a Luxembourg undertaking, has company; been applicable since 1 January • Use of international exchange of Income tax 2011. This special regime consists information standards; Resident taxpayers are subject – subject to certain conditions – of • Extensive double tax treaty net- to income tax on their worldwide an exemption from Luxembourg work; income. Non-resident taxpayers personal income tax on certain • Transfer pricing and thin capita- are only subject to income tax on expenses and allowances paid to lisation adhering to international Luxembourg-sourced income. Ta- or on behalf of HSWs due to their standards; xable income is assessed on the expatriation. However these ex- • Advance tax clearance system; basis of total income less exemp- penses and allowances remain tax • Specific tax regimes for invest- tions, deductible expenses and deductible costs for the Luxem- ment funds, securitisation activi- allowances. The law provides for bourg undertaking. ties, risk capital and reinsurance; many exemptions and deductions • Competitive personal income especially for families with children. Net wealth tax tax regime and low social security Income tax is progressive with ra- There is no net wealth tax for indi- contributions for employers and tes between 0% and a maximum viduals. employees. PRIVATE EQUITY IN LUXEMBOURG 23

6.4 STRUCTURING BY MEANS OF LUXEMBOURG VEHICLES

The following examples illustrate In the case of an FCP-SIF, an Investors can invest either how PE investments could SCS or an SCSp, each qualifying directly into the Luxembourg be structured via a variety of as a tax transparent vehicle, the vehicle or indirectly via an Luxembourg vehicles, including use of intermediate companies is additional Luxembourg-based or options to locate the PE fund usually recommended to benefit non-Luxembourg-based feeder itself in Luxembourg. from double tax treaties and vehicle. national law implementing EU Luxembourg structures typically directives (such as the directive The following charts are consist of either a SOPARFI, on the participation exemption) examples of typical Luxembourg RAIF, SCSp, SICAR or SIF or a that only companies can benefit Private Equity structures and do combination of the latter two with from, unlike an FCP-SIF or tax- not purport to be or should not be one or more SOPARFIs. transparent companies such as interpreted to be legal advice: the SCS or the SCSp.

SLP / SICAR

Feeder 1 Feeder 2 Carry Vehicle

LUXEMBOURG GP SLP - SICAR Delegation of portfolio management and risk management Sub 1 Sub 2 Sub 3 AIFM risk management

Lux 1 Lux 2 Lux 3 Sub-delegation of portfolio management

Inv 1 Inv 2 Inv 3 investment manager

Example 1: Traditional investment via a Luxembourg SOPARFI. The financing structure respects the thin capitalisation rule of 85:15 debt/equity ratio. Any reference to B2B financing must be eliminated as this implies conduit financing structures.

Feeder 1 Feeder 2 Carry Vehicle

LUXEMBOURG GP SLP Delegation of Corporate SICAR portfolio management and risk management

AIFM risk Sub 1 Sub 2 Sub 3 management

Sub-delegation of Lux 1 Lux 2 Lux 3 portfolio management

investment Inv 1 Inv 2 Inv 3 manager

Example 2: Intransparent / corporate form 24 LPEA 2020

Luxembourg has clearly become increasingly important for the PE industry in Europe and beyond. Luxembourg has managed to offer an appropriate and stable environment to structure funds, operations and transactions. Investors are also familiar and comfortable with the local environment.

Dörte Höppner, COO, Riverside Europe

7. ACCOUNTING FRAMEWORK FOR LUXEMBOURG PE VEHICLES

Accounting standards and whereas consolidated annual cost less durable impairment audit requirements accounts (whether legally with the recognition only of With the exception of the required – see below – or unrealised losses and not Contractual Joint Venture (“SNC”), contractually required – for of unrealised gains in the the Partnership limited by Shares example through the raising profit and loss accounts of a (whose annual turnover does not of external financing) are company. In recent years, with exceed EUR 100,000 ex-VAT and frequently prepared under IFRS the creation of vehicles such as whose partners with unlimited as adopted by the EU. Through the SICAR and the SIF and with liability are not all limited liability its international exposure, the harmonisation derived from companies) as well as the Special Luxembourg service providers recent EU accounting directives, Limited Partnership, companies have in most cases significant the possibility of using fair value can choose any accounting experience in the application of in the financial statements of framework. All Luxembourg IFRS. Luxembourg companies has vehicles may choose to adopt been introduced. Depending Luxembourg Generally Accepted Note that while most companies upon the corporate structure and Accounting Principles (“Lux are required to prepare annual nature of a private equity vehicle, GAAP”) or International Financial accounts there are specific size different valuation principles are Reporting Standards (“IFRS”) as thresholds that will determine if thus allowed. adopted by the EU. In addition, an audit by an approved statu- with specific approval from the tory auditor under International Companies adopting IFRS as an local Accounting Standards Standards on Auditing (“ISA”) is accounting framework have to Board a company may use required by law. apply valuation policies depen- any alternative internationally ding on the type of instruments accepted accounting framework Valuation Rules being valued. Under Lux GAAP such as US GAAP. In practice, As a general rule, Luxembourg there is a certain level of additio- the standalone annual accounts accounting rules have always nal flexibility and possible choi- of Luxembourg Private Equity been a primarily prudence- ces as outlined in the following vehicles are very frequently focused framework permitting table: prepared under Lux GAAP the booking of investments at PRIVATE EQUITY IN LUXEMBOURG 25

Type of vehicle / Regulatory Valuation under Lux GAAP framework

The valuation rules to follow can be freely determined in the partnership Unregulated agreement. In practice these rules will follow internationally recognised SCS and SCSp principles for determining fair value (see below).

Valuation rules are governed by the Law of 19 December 2002, as amended.

There are two valuation options: Other unregulated a) Acquisition cost/principal less any durable impairment vehicles b) Fair Value.

The choice of which method to use rests with the management of the company. As a general rule, companies tend to adopt option a).

SICARs, SIFs, RAIFs may freely determine their valuation methodology, while the legal default position remains a valuation at fair value. Generally the SICAR, SIF, RAIF constitutive documents of the relevant SICAR, SIF, RAIF (i.e. its Offering Memorandum (“OM”), and / or its Partnership Agreement or Article/By-laws) will contain more detailed explanations with regard to the applicable valuation.

The International Private Equity and Venture Capital Guidelines dated December 2018 are typically used as a reference basis for calculating the fair value of private equity type investments.

Mangrove’s activity, both on the investor as well as the portfolio level, is highly international. Luxembourg is all set to provide the instruments you need to set up international investment projects – since the home market is small, everything is geared to accommodate the legal, fiscal and regulatory requirements to invest both in Europe and overseas. Concerning fund formation and management you can achieve all you need towards your investors here in Luxembourg and there are no structural disadvantages. In addition the Government is keen to diversify the economy and open for exchange with GPs.

Hans-Jürgen Schmitz, co-Founder, Mangrove Capital Partners 26 LPEA 2020

Unregulated Vehicles - Financial Holding exemption: 1. The company is subject to the no consolidation is required if 1915 Law and is held by one or Principles: Luxembourg law re- the parent company has not in- more well-informed investor(s); quires that limited liability com- tervened in the management of panies, as well as the SNC and the subsidiary, has not exercised 2. The company’s exclusive cor- the SCS whose (general) partner its voting rights in respect of the porate object is to invest in risk (associé commandité) with unli- appointment of the management capital, which is defined as di- mited liability are typically limited within the current and the last five rect or indirect contribution of liability companies that control years, has not granted loans to funds to one or several entities another company (i.e. the SNC or the subsidiary and, if the condi- in view of their launch, develop- SCS, etc.) and thus prepare and tions were met, has received an ment and their listing on a stock publish consolidated financial exemption granted by the Luxem- exchange. These investments statements. SCSp are generally bourg authorities. This exemption are held with the intention to sell not required to produce conso- is quite rare in practice. them at a profit; lidated financial statements. If consolidated annual accounts • Exclusions 3. An ex-ante exit strategy has are required, most companies to- Specific investments may be ex- been formally defined and do- day ensure that their preparation cluded from the consolidation cumented in writing, communi- is actually done in Luxembourg, requirement if they meet one of cated to investors, and it is part either internally or through spe- five possible exclusions as set of the investment policy, implying cialised service providers. out by the 1915 Law. These are: the intention to divest on a mid- immateriality, severe restrictions -term basis (generally three to Consolidation exemptions are or disproportionate costs on eight years); foreseen in the following cases: obtaining financial information, subsequent resale or diverging 4. The company’s objective is • Exemptions activities. to provide its investors with the - Sub-group exemption: any benefit of the results of the parent company which is also a However, in these cases, the management of its investments in subsidiary undertaking of a pa- consolidated accounts will still return for the risk which they incur; rent undertaking may be exemp- have to be published in Luxem- ted from the obligation to draw bourg according to the local re- 5. If the investments are not up consolidated accounts and a quirements and the notes to the carried at fair value on the face of consolidated annual report under annual accounts of the excluded the balance sheet, the fair value certain conditions. The parent company must disclose the name is disclosed in the notes to the undertaking might be governed and registered office of the pa- financial statements; by the law of a Member State of rent undertaking and the exemp- the EU or not, but different condition from the obligation to draw 6. Any event, guarantee or uncer- tions apply. This exemption is not up consolidated accounts and a tainty that might have a signifi- applicable if the Luxembourg consolidated annual report. cant impact on the entity’s ability parent company has its securi- to continue as a going concern, ties (shares and/or bonds) listed Specific application of the “sub- on its cash-flow situation, on its on an EU regulated market. sequent resale” exclusion for available liquidities or on its sol- private equity holding vehicles: vency has to be disclosed ade- - Threshold exemption: con- In December 2009, the Lu- quately in the notes to the annual solidation is not required for xembourg Ministry of Justice, accounts. consolidated groups which do through the Accounting Stan- not exceed the following me- dards Board, issued a recom- trics: balance sheet total: EUR mendation relating to the “sub- 17.5m / total turnover: EUR 35m sequent resale” exclusion that / total employees: 250. However, allows private equity companies the ”threshold exemption” is not (for which all their subsidiaries applicable if the relevant com- are held for subsequent resale) pany has its securities (shares not to present consolidated fi- and/or bonds) listed on an EU re- nancial statements if six condi- gulated market. tions are fulfilled: PRIVATE EQUITY IN LUXEMBOURG 27

• IFRS 10 Consolidated Finan- funds solely for returns from capi- vate Equity investment(s) is (are) cial Statements tal appreciation, investment inco- managed from Luxembourg. IFRS 10 specifies the require- me or both; and ments for preparing consolida- Regulated Vehicles (SICARs ted financial statements for those 3. measures and evaluates the and SIFs, RAIFs) subsidiaries that the relevant en- performance of substantially all tity controls. An entity is not requi- of its investments on a fair value The SICAR, the SIF and the RAIF red to consolidate its subsidiaries basis. are specifically exempted by law if it qualifies as an “investment from the consolidation require- entity”. An investment entity is de- An investment entity is however ment. fined as an entity that: required to account for its investments at fair value through profit Profit Repatriation 1. obtains funds from one or or loss. more investors for the purpose Through the use of appropriate of providing those investor(s) It is important to note that the de- financial instruments and an ade- with investment management termination as to whether a com- quate regulated or non-regulated services; pany is in scope of the investment structure, the tax charge levied entity exemption under IFRS 10 is on profit repatriation can be mi- 2. commits to its investor(s) that a significant judgement and will nimised both at investment level its business purpose is to invest be impacted by the way the Pri- and investor level.

(RAIF)-SICAR (RAIF)-SIF SOPARFI (unregulated) (regulated / indirectly regulated) (regulated / indirectly regulated)

Distribution of dividends (*) Distribution of dividends (*) Distribution of dividends

Not subject to specific restrictions Not subject to specific restrictions ex- For SA, SAS, SCA and S.à r.l. except compliance with minimal cept compliance with minimal capital subject to the requirements of the capital requirements and limitations requirements and limitations provided 1915 Law. provided for in the articles of incor- for in the articles of incorporation. poration/management regulations.

Withholding tax on Withholding tax on Withholding tax on distributions distributions distributions

Distributions, whether paid to Distributions, whether paid to Except for specific situations, no resident or non-resident investors, resident or non-resident investors, withholding tax should apply to are not subject to withholding tax in are not subject to withholding tax in liquidation proceeds or interest Luxembourg. Luxembourg. payments. Dividend payments are subject to 15% withholding tax (exemptions are available under certain conditions).

Non-resident capital gains taxation Non-residents are not subject to capital gains tax in Luxembourg.

(*) For vehicles with variable capital, the Luxembourg manager should pay attention to the qualification of distributions between return of capital and income. This analysis should take into account the specific tax situation of the investors in the various countries in which they are tax residents. In the light of ATAD I and II the above table might be affected in future. 28 LPEA 2020

8. THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)

On 11 November 2010 the not only in terms of political, eco- • Luxembourg funds that are European Parliament adopted nomic and fiscal stability, infras- managed by non-EU fund mana- the Alternative Investment Fund tructure and manpower but also gers, for as long as NPPRs have Managers Directive (“AIFMD”). constitutes a legacy of more than not been phased out and depen- The AIFMD came into force in 20 years of being the world’s se- ding on the decision of each indi- July 2011 and had to be imple- cond largest, most mature and vidual EU country; and mented by 22 July 2013 in all Eu- sophisticated fund domicile. ropean Member States. • managers of some closed-en- When the regulated Luxembourg ded AIFs existing at the final date The AIFMD creates a regulatory Private Equity structures, the SI- of transposition may benefit from framework that primarily affects CAR and the SIF, were introdu- grandfathering clauses, namely: managers of alternative invest- ced in 2004 and 2007 respecti- 1. managers of closed-ended AIFs ment funds, as well as alternative vely, they displayed many of the “which do not make any additional investment funds (AIFs) that inclu- features that became a standard investments” after mid-2013; des private equity funds based in feature under AIFMD, i.e. they the EU and, in specific circum- already had the highest compa- 2. managers of fully subscri- stances, managers and invest- tibility standards compared to bed closed-ended AIFs whi- ment entities established outside other existing vehicles for Priva- ch had their final close prior to the EU. te Equity. Light and pragmatic July 2011 and have a maximum supervision, stringent custody life that requires them to be li- The AIFMD introduces, amongst requirements and sophisticated quidated by mid-2016 at the others, a marketing passport (the reporting represent the recog- latest, with certain exceptions “Passport”) permitting the offer nised standards in Luxembourg that need to be respected; or placement of qualifying AIFs which service providers are fami- in all EU Member States without liar with. Last, but not least, the • small and mid-sized AIFMs additional authorisation or regis- Passport represents the ultimate falling below the de minimis thre- tration requirements and which benefit of the AIFMD, a concept sholds of either EUR 100 million is intended to fully replace, after Luxembourg is not only familiar or EUR 500 million (leveraged a transitional period still in place with but for which the country is and non-leveraged respectively); for non-EU AIFMs or non-EU AIFs, recognised worldwide. the fragmented national private • Luxembourg SOPARFIs*; and placement regimes that currently The introduction through the law existing within some EU Member of 12 July 2013 of the SCSp pro- • Luxembourg securitisation vehi- States. vides for an attractive revamping cles*. of limited partnerships. While many see AIFMD as a burden, as it has increased costs for AIFMD Passport versus *on a case-by-case basis managers, the Passport is equally National Private Placement seen as an opportunity that will Regimes. make AIFs and Private Equity in While the distribution of certain particular a more widely accessible AIFs in the EU is still subject to and attractive asset class. While various national private place- the UCITS passport, introduced in ment regimes (“NPPR”), the intro- 1988, revolutionised the European duction of the Passport will ena- fund market and put Luxembourg ble a non-EU AIFM to market a at the forefront, Luxembourg is now Luxembourg AIF to professional determined to provide the same investors in any Member State opportunities to Private Equity without an additional authorisa- players under AIFMD. tion or registration obligation. The AIFMD requires a precise Luxembourg is a unique place for mapping exercise in order to de- Private Equity and provides Priva- termine its scope of application. te Equity houses with advantages The AIFMD thus applies to: PRIVATE EQUITY IN LUXEMBOURG 29

9. THE REGULATIONS ON EUROPEAN VENTURE CAPITAL FUNDS (EuVECA)

The regulation of the EU Parlia- king qualifying as an EU AIF un- EU Commission delegated Acts ment and the Council of 17 April der the AIFM Directive and esta- for EuVECA 2013 on European venture capi- blished in an EU member state. On 3 February 2015, ESMA pu- tal funds (EuVECA) entered into It is also subject to some invest- blished the final report contai- force on 15 May 2013, although ment restrictions. ning its technical advice to the the majority of its articles applied EU Commission on the delegated from 22 July, the same date as Generally, it must invest at least acts to be adopted in relation to the AIFM Directive. 70% of its aggregate capital the EuVECA Regulation (2015/ contributions and uncalled com- ESMA/227). The objective of the Regulation mitted capital in qualifying in- is to create an optional legislative vestments as they are defined in framework tailored to the needs the Regulation. ESMAs Q&A on the EuVECA of the managers to make it easier Regulation for them to raise funds across the • Conditions to be complied with On 26 March 2014, ESMA publi- EU. The EuVECA label was intro- by the investors: The fund may shed a Q&A (updated from time duced together with an EU pass- only be offered to certain eligible to time) on the application of the port to allow EuVECA managers investors. EuVECA regulation. The ques- to market their funds across the tions covered relate to the ma- EU and to grow while using a • Conditions in relation to the nagement of EuVECA by AIFMs, single set of rules, provided that depositary: the Regulation does registration and the management they comply with certain quali- not contain any provision impo- and marketing of AIFs by EuVECA fying requirements. sing a depositary on EuVECA managers. funds. With regards to the Regulation, several characteristics can be • Connection to the AIFM Di- extracted and summarised as rective: The Regulation is in follows: certain respects complemen- tary to the AIFM Directive as • Optional regime: The mana- it offers a Passport to small ger can decide whether or not AIFMs. Thus, acquiring the Pass- he wants to comply with the port via the EuVECA Regulation Regulation in order to make use seems less burdensome than the of the status and benefit from the need for small AIFs to opt in to EU passport regime. compliance with the entire AIFM Directive. • Conditions to be complied with by the manager: The ma- • Connection to the UCITS Direc- nager must be registered by the tive: The managers may additio- competent authority of its home nally manage UCITS for which Member State; in Luxembourg, they need to comply with the the CSSF. Established in one of UCITS Directive. the EU Member States, the manager also needs to comply with EU Commission Technical Stan- the condition to have total assets dards for EuVECAs under management below the The EU Commission Regulation of EUR 500 million threshold laid 3 June 2014, which entered into down in the AIFM Directive. force on 7 June 2014, lays down implementing technical standards • Conditions to be complied with with regard to the format of the by the fund: The fund must be notification according to Article a collective investment underta- 16(1) of the Regulation. 30 LPEA 2020

10. REGIME FOR EUROPEAN LONG-TERM INVESTMENT FUNDS (ELTIF)

The ELTIF Regulation (2015/760) (iii) Prohibited activities: Pursuant be possible as of the day follow- of the EU Parliament and Coun- to the ELTIFs Regulation, an ing the date defining the end of cil of 29 April 2015 on European ELTIF is not authorised to under- life of the ELTIF. To protect retail long-term investment funds (the take certain activities, such as the investors, however, the ELTIFs “ELTIFs Regulation”) was publi- short-selling of assets. Regulation provides for redemp- shed in the Official journal on 19 tion rules that would enable an May 2015.The ELTIFs Regulation (iv) Cash borrowing: An ELTIF may ELTIF which has enough liquid came into force on 8 June 2015 borrow cash, but its borrowing assets to organise, under certain and has been applicable since 9 is subject to strict conditions conditions, the possibility for re- December 2015. such as appropriately disclosing demption before the end of life of the borrowing in its prospectus. the ELTIF. The ELTIFs Regulation created a legislative framework for long- (v) Investment policies and (viii) Distributions: In order to com- -term EU funds which only invest restrictions: In general, an ELTIF is pensate the lack of early redem- in businesses that need money required to invest at least 70% of ption possibilities, the ELTIFs to be committed for long periods its capital in ELTIF eligible assets, Regulation contemplates favou- of time. Furthermore it also aims and the remaining 30% can be ring the provision of steady inco- at increasing the non-bank finan- invested in UCITS eligible assets me to investors. In particular, an cing available for companies that by a date no later than five years ELTIF may regularly distribute to are investing in the real economy or half the life of the ELTIF. In addi- investors the proceeds generated within the EU. tion to this 30% / 70% ratio, diver- by the assets contained in its port- sification requirements and con- folio as well as the capital apprecia- With this objective, the optional centration limits still apply under tion realised after the disposal of ELTIF regime can be conside- certain conditions. Also, the ELTIFs an asset, as long as such income red as some kind of hybrid bet- Regulation provides that where an is not required for future commit- ween the institutional AIF product ELTIF comprises more than one ments of the ELTIF. and the retail UCITS and PRIIP investment compartment, each products. By definition, ELTIFs compartment shall be regarded (ix) Disposal of the assets: Each are EU AIFs that are managed by as a separate ELTIF for the purpo- ELTIF shall adopt an itemised authorised EU AIFMs in accor- ses of the investment policies and schedule for the orderly disposal dance with the AIFM Directive, restrictions. of its assets in order to redeem in- meaning that they need to comply vestors after the end of life of the with both the AIFM Directive and (vi) Target Investors: Inves- ELTIF and shall disclose this to the the ELTIFs Regulation. tors targeted by ELTIFs in- competent authority of the ELTIF clude both professional and at the latest one year before that The main characteristics of the retail investors within the mea- date. ELTIFs Regulation are summari- ning of the MIFID. Marketing sed below. of units or shares to retail in- (x) Transparency requirements: vestors is subject to specific The ELTIFs Regulation contains (i) Authorisation: The ELTIF disclosure requirements. In addi- various transparency rules where designation shall be reserved tion, the manager of an ELTIF ELTIFs are being advertised to only for EU AIFs, or compart- shall only be able to market the investors, in particular the prior ments of EU AIFs, that are mar- units or shares of that ELTIF to publication of a prospectus, in- keted in the EU by an authorised retail investors provided that ad- cluding the constituent docu- EU AIFM. As a result, both ELTIFs ditional specific requirements ments attached as an integral part and their managers will be sub- in relation to the facilities or the thereof, and, in the case of mar- ject to the AIFM Directive rules. internal process for the assess- keting to retail investors, the ment of the ELTIF are fulfilled. publication of a KID pursuant (ii) Eligible assets: The ELTIF to the PRIP KID Regulation will will only be authorised to invest (vii) Redemption and Secondary be required before the ELTIF is in limited categories of eligible Market: Due to the illiquid nature marketed. investment assets as referred to in of an ELTIF’s assets, redemption Article 9 of the ELTIFs Regulation. to investors shall in principle only PRIVATE EQUITY IN LUXEMBOURG 31

(xi) ESMA Consultation on RTS circumstances in which the life of developed. (Regulatory Technical Stan- a European long-term investment The RTS set out in this final report dards): On 8 June 2016 ESMA pu- fund (“ELTIF”) is considered have been submitted to the Eu- blished draft regulatory technical sufficient in length, the criteria ropean Commission for endorse- standards to be adopted under to be used for certain elements ment. From the date of submis- the ELTIFs Regulation in order to of the itemised schedule for the sion the European Commission determine the expected criteria orderly disposal of the ELTIF should take a decision on whe- for establishing the circumstan- assets, costs disclosure and ther to endorse the RTS within ces in which the use of finan- the facilities available to retail three months. cial derivative instruments solely investors. This final report con- serves hedging purposes, the tains the RTS that ESMA has

11. PRIVATE EQUITY SERVICES PROVISION

The dense network of recognised Today, the vast majority of Private Monitoring function and highly professional service Equity administrators offer the full providers is a major component range of central administration As Private Equity fund assets are of the success of Luxembourg. services, including domiciliation, usually not physically safeguar- administration, accounting, tax fi- ded by the depositary itself, the ling and company secretarial ser- depositary usually focuses on its Context and overview vices to AIF, including their con- oversight duties. In such cases trolled special purpose vehicles the scope of the supervision and The Luxembourg Private Equity located in Luxembourg or abroad. oversight function of the deposi- fund administration sector ba- tary implies: sically falls into two categories: large international administrators Depositary services • handling of the legal documen- servicing all fund ranges, inclu- Under AIFMD, funds generally tation relating to the transactions ding Private Equity funds, as well need to appoint a depositary, carried out; as independent local and inter- though exceptions do exist. Depo- • compliance monitoring of the national specialist Private Equity sitary services for regulated Private cash and securities flows linked administrators. The former cate- Equity structures comprise the fol- to transactions; gory usually consists of the local lowing two specific components: • control of any single transaction banks and branches of interna- the safekeeping and the monito- including settlement; tional banks, usually offering cus- ring of the structure’s assets. • implementation of an internal tody banking and administrative verification check list and escala- services as well as a large range The depositary services for funds tion procedure; of other banking services. investing in financial instruments, • monitoring of subscriptions and Management services, such i.e. UCITS funds, are only perfor- redemptions; and as AIF Management, are often med by credit institutions or in- • valuation duties. provided only for the bank’s own vestment firms. The AIFMD Law range of funds. permits certain closed-ended The latter category consists of AIFs to appoint as depositary Safekeeping of assets administrators that have their ori- non-banking institutions provided gins in Luxembourg, traditionally the relevant AIF and assimilated Following a steep learning curve servicing corporate vehicles but structures generally do not invest after the introduction of the SICAR having expanded into servicing in assets that must be held in cus- in 2004, Luxembourg based de- PE funds, as well as administra- tody (i.e. financial instruments). positaries are today very well tors that have set up branches This depositary function is only positioned to perform these legal in Luxembourg. Of this second open to qualifying PSFs serving duties under the AIFMD. category, several have obtained as professional depositaries of depositary and/or AIFM licences assets other than financial instru- The know-how of Luxembourg- to complement their range of ments. Funds need to appoint a based depositary institutions in services. depositary in the country of do- providing a full range of custo- micile of the fund. mised services for Private Equity 32 LPEA 2020

structures is nowadays widely agent, may also offer, among Banking services recognised. others, the following services: Luxembourg banks offer cash The services cover all investment • processing of payments linked management services, treasury, and divestment processes, such to the underlying investments; foreign exchange management, as: • collection of interest income bridge financing and manage- and dividends from underlying ment of escrow accounts to their • follow-up of board approval investments; Private Equity clients. process as well as the collection • processing of corporate events of underlying agreements and on underlying investments; For funds using the services of documentation relating to the • liaison with local correspon- a depositary without a banking transactions; dents, lawyers, notaries and licence, the fund needs to open • supervision and monitoring of others service providers; its accounts with a local banking investments and divestments; • recording of documentation institution. • asset registration in the name of and data back-up; the vehicle under the supervision • collateral management servi- of the depositary; ces; Legal, tax and audit services • compliance checks with the in- • tax reclaim management servi- vestment policy as described in ces (withholding tax treaties); Luxembourg avails itself of sig- the private placement memoran- • collection of subscription pro- nificant expertise in legal and tax dum/offering memorandum. ceeds; matters through numerous local • payment of redemption amounts; and international law firms, tax In addition, the depositary, in and advisers and audit firms expe- its role as paying agent or in • execution of dividend payments rienced in Private Equity structu- cooperation with the transfer to investors. ring and servicing.

For most European investors, Luxembourg vehicles are the new ‘gold standard’. The quality of service providers in general, large international contin- gent from all over Europe and excellence of the financial services industry also add tremendous benefit to funds in Luxembourg.

Raphael Cwajgenbaum, Vice-President - Private Funds Advisory at Moelis & Company PRIVATE EQUITY IN LUXEMBOURG 33

12. HOW TO SET UP A PRIVATE EQUITY FUND IN LUXEMBOURG

The table below provides an It particularly focuses on those Each project obviously being overview of the most relevant issues that are specific to Luxem- individual, the table purports to steps in setting up a Private bourg. provide general guidelines only. Equity structure in Luxembourg.

Activities outside Phases Activities in Luxembourg Comments Luxembourg

Domicile of Investors Domicile of Investors Countries of target companies: Countries of target companies: • Choice of fund jurisdiction • Choice of fund jurisdiction Analysis • Choice of other jurisdictions required in • Choice of other jurisdictions efficient tax structuring required in efficient tax struc- • Choice of legal/tax advisors turing • Choice of legal/tax advisers

Definition of Legal and Tax Structure Depositary only for RAIF, SICAR Prepara- Preparation of the term sheet. and SIF, auditor tion Selection of all service providers (Central depending on administrator, AIFM, depositary, auditor). certain criteria.

Preparation of Legal Documentation Only for regulated SICAR and Preparation of application file to the CSSF: SIF. • PPM • Subscription Agreement All legal do- • Articles of Association of all companies cumentation • CVs of all directors/ managers and filing with Pre- • Certificate of good standing the CSSF can -Filing • Service provider agreements be done in En- • CSSF “information request for authorisa- glish, German tion” questionnaire or French. • Risk Management and Conflict of Interest Procedures Client Acceptance Procedure (Transfer Agent and GP).

Filing Final presentation of documen- Only for SICAR Filing tation to Limited Partners. and SIF. Final fundraising stage.

Approval of the File Signature of subscription Only for SICAR agreements. and SIF. Incorporation of the company. Registration of the company on the Lu- First capital call. xembourg Trade and Companies Register (RCS) and publication of the Deed of Implemen- Incorporation in the Mémorial (RESA) tation and registration of the data concerning beneficial owners with the Register of Beneficial Owners (RBE)10.

Setting up of funds with service providers.

10 The law of 13 January 2019 has implemented the new transparency measures organised by EU directive 2015/849 on the presentation of the use of the financial term for the purposes of money laundering and terrorist financial (the “AML directive”) 34 LPEA 2020

APPENDIX

Appendix 1: Double Tax Treaty Network

Appendix 2: Glossary

Appendix 3: Useful References

Appendix 4: LPEA Members PRIVATE EQUITY IN LUXEMBOURG 35

APPENDIX 1: DOUBLE TAX TREATY NETWORK

Luxembourg has an extensive Chana ** Oman ** double tax treaty network which Greece Pakistan ** includes 83 tax treaties that are Guernsey * Panama * in force, of which many under the Hong Kong * Poland * 26-5 of the OECD model (*) are Hungary * Portugal * in the list below. There are also Iceland * Qatar * 20 tax treaties and four protocols India * Romania * pending (**). Indonesia Russia * Albania ** Ireland * San Marino * Andorra * Isle of Man * Saudi Arabia * Argentina ** Israel Senegal * Armenia * Italy * Serbia * Austria * Japan * Seychelles * Azerbeijan Jersey * Singapore * Bahrain * Kazakhstan * Slovakia * ** Barbados * Kosovo * ** Slovenia * Belgium * Kuwait ** South Africa ** Botswana * ** Kyrgyzstan ** South Korea * Brazil Laos * Spain * Brunei * Latvia Sri Lanka * Bulgaria Lebanon ** Sweden * Cape Verde ** Lechtenstein * Switzerland * Canada * Lithuania * Syria ** Chile * ** Macedonia * Taiwan * China Malaysia Tajikistan * Croatia * Mali ** Thailand Cyprus * Malta * Trinidad & Tobago Czech Republic * Mauritius * Tunisia * Denmark * Mexico * Turkey * Egypt ** Moldavia Ukraine * Estonia * Monaco * United Arab Emirates * Ethiopia ** Mongolia United Kingdom * ** Finland * Morocco United States of America ** France * ** Netherlands * Uruguay * Georgia New Zealand ** Uzbekistan * ** Germany * Norway * Vietnam

APPENDIX 2: GLOSSARY

AIF Alternative Investment Fund as defined in the AIFMD Law

Directive 2011/61/EU of the European Parliament and of the Council of 8 June 20111 on Alternative AIFMD Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

AIFMD Law The Law of 12 July 2013 implementing Directive 2011/61/EU into Luxembourg law.

Written notice to Limited Partners requesting them to make a capital contribution to the fund vehicle (within Capital Call the limits of their subscription commitment) in order to permit the fund vehicle to pay for its investments or to pay expenses.

Carried interest or carry is a share of the profits of the fund vehicle that is paid to the general partner and/or the investment manager/adviser in excess of the amount that the general partner/manager/adviser con- Carried Interest tributes to the fund vehicle. In order to receive carried interest, the fund vehicle must first return all capital contributed by the investors, and, in certain cases, the fund must also return a previously agreed-upon rate of return (the “hurdle rate” or “preferred return”) to investors.

Commission de Surveillance du Secteur Financier, the Luxembourg supervisory authority of the financial CSSF services sector.

European Securities and Markets Authority, the independent EU authority set up to enhance investors’ ESMA protection and promote stable and orderly financial markets. 36 LPEA 2020

Fonds Commun de Placement, an undivided co-ownership of assets or proprietorship managed by a FCP management company.

The general partner of either a corporate partnership limited by shares (SCA), a common limited partner- GP ship (SCS) or a special limited partnership (SCSp). The managing general partner is normally jointly and severally liable with the partnership for any liabilities which may not be satisfied out of partnership assets.

AIFMD Law The Law of 12 July 2013 implementing Directive 2011/61/EU into Luxembourg law.

IFRS International Financial Reporting Standards.

1915 Law Law of 10 August 1915 on commercial companies, as amended.

The limited partner, typically an investor or limited shareholder in a fund vehicle; limited partners enjoy LP limited liability (i.e., up to the amount invested or committed for investment).

LPEA Luxembourg Private Equity and Venture Capital Association.

Luxembourg Generally Accepted Accounting Principles. Lux GAAP Most frequently used accounting framework in Luxembourg for PE vehicles.

Professionnel du Secteur Financier; a professional of the financial services sector; each PSF is subject to PSF prior authorisation by and the ongoing prudential supervision of the CSSF.

Reserved Alternative Investment Fund, a fund structure with legal and tax features of the well-established RAIF SICAR and SIF, without those being subject to direct regulation.

RCS Registre de Commerce et des Sociétés; the Luxembourg register of commerce and companies.

SA Société Anonyme; public limited liability company.

SAS Société par actions simplifiée;a simplified limited liability company.

S.à r.l. Société à Responsabilité Limité; a private limited liability company.

SCA Société en Commandite par Actions; a corporate partnership limited by shares.

SCS Société en Commandite Simple; a common limited partnership.

Société en Commandite Spéciale; a special limited partnership without legal personality introduced into SCSp/SLP Luxembourg law by the AIFMD Law.

SICAR Société d’Investissement en Capital à Risque; an investment company investing in risk capital only.

SICAV Société d’Investissement à Capital Variable; an investment company with variable capital.

Specialised Investment Fund; a collective investment scheme governed by the law of 13 February 2007 on SICAV specialised investment funds, as amended.

SIF Société d’Investissement à Capital Variable; an investment company with variable capital.

Société de Partipation Financière; a mere marketing acronym used to designate an ordinary commercial SOPARFI company governed by the 1915 Law and which is used as a vehicle for holding participations in Luxem- bourg or foreign companies or other instruments.

Subscription Also: Taxe d’Abonnement; a tax of one basis point assessed on the net asset value and payable by certain Tax collective investment schemes only.

Undertakings for Collective Investments; collective investment schemes governed by the law of 17 Decem- UCI ber 2010 relating to undertakings for collective investment, as amended.

Undertaking for Collective Investments in Transferable Securities; collective investment schemes organised in accordance with Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 UCITS on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

VAT Value Added Tax.

Well-informed investors are: • Institutional investors Well-informed • Professional investors • Any other investor who declares in writing that he/she/it is an informed investor, and either invests a investors minimum of EUR 125,000 or benefits from an appraisal from a bank, an investment firm or a management company certifying that he/she/it has the appropriate expertise, experience and knowledge to adequately understand the investment made in the relevant collective investment scheme. PRIVATE EQUITY IN LUXEMBOURG 37

APPENDIX 3: USEFUL REFERENCES

• Luxembourg Private Equity & Venture Capital Association - LPEA: www.lpea.lu

• Invest Europe: www.investeurope.eu

• Association of the Luxembourg Fund Industry - ALFI: www.alfi.lu

• Luxembourg for Finance, the agency for the development of the financial services industry: www.lff.lu

• Regulator of the Luxembourg Financial services industry - CSSF (Commission de Surveillance du Secteur Financier): www.cssf.lu

• EU Regulator of Securities and Markets – ESMA: www.esma.europa.eu

• List of PSF: www.cssf.lu/surveillance/psf

• List of registered SICARs: www.cssf.lu/surveillance/vgi/sicar

• List of registered SIFs: www.cssf.lu/surveillance/vgi/fis

• List of registered AIFMs: www.cssf.lu/surveillance/vgi/gfia-aifm

• Questionnaire of the CSSF for applications for SICARs: www.cssf.lu/surveillance/vgi/sicar

• Q&A of the CSSF concerning SICARs: www.cssf.lu/surveillance/vgi/sicar/questionsreponses

• Questionnaire of the CSSF for applications for any other vehicle regulated by the CSSF (OPC/FIS): www.cssf.lu/documentation/formulaires/

• List of double tax treaties: www.impotsdirects.public.lu/conventions/conv_vig/index.html

• Law of 1915: www.legilux.public.lu/leg/textescoordonnes/guides/law_commercial_companies

• Law of 12 July 2013 implementing the AIFMD: www.legilux.public.lu/leg/a/archives/2013/0119/index.html

• Law of 28 July 2014 on the immobilisation of bearer shares: www.legilux.public.lu/leg/a/archives/2014/0161/ index.html

• EuVECA Regulation No. 345/2013: www.eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:115:0001:0017:EN:PDF

• EuSEF Regulation No. 346/2013 of 22 July 2013: www.eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:115:0018:0038:EN:PDF

• Grand-Ducal Decrees of 21December 2017 and 1 March 2019 on CSSF fees: http://legilux.public.lu/eli/etat/leg/rgd/2019/03/01/a110/jo http://legilux.public.lu/eli/etat/leg/rgd/2017/12/21/a1121/jo

• Circular CSSF 18/698 of 23 August 2018: Authorisation and organisation of investment fund managers incorporated under Luxembourg law: https://www.cssf.lu/en/supervision/financial-crime/aml-ctf/circulars/ 38 LPEA 2020

APPENDIX 4: LPEA MEMBERS LPEA membership as of January 1st, 2020 (Total: 250)

Investment Firms (129) HgCapital (Luxembourg) S.à r.l. 3i Investments (Luxembourg) S.A. HLD Associés Europe 2be.lu Investments SCS ICG Luxembourg S.àr.l. AC Nordic Investments S.àr.l. IDI Emerging Markets AI Global Investments CY & S.C.A. IK Investment Partners Luxembourg S.à r.l. Allegro S.àr.l. Ilavska Vuillermoz Capital S.àr.l. Allianz Capital Partners GmbH Luxembourg Branch ImmoFinRE Alpha Private Equity Fund Mgnt. Cy. International Advisory Services Company S.A. Amethis Investment Fund Manager S.A. Investindustrial S.A. (Bi-Invest Advisors S.A.) AMI (Luxembourg) Kharis Capital Aquasourca S.A. Kredietrust Luxembourg S.A. Argos Wityu Partners S.A. Lemanik Asset Management Astorg Asset Management S.àr.l. L-GAM Advisers S.àr.l. Bain Capital Luxembourg S.à.r.l. Loizelle S.A. Bamboo Finance S.A. Lone Star Capital Investments S.à r.l. BC Partners Luxempart S.A. BIL Manage Invest S.A. Mangrove Capital Partners Bioqube Ventures Mantra Management S.àr.l. BIP Capital Partners S.A. Marguerite Adviser S.A. BlackRock Mercer Private Markets (Luxembourg) S.àr.l. Blackstone Europe Fund Management S.àr.l. Monitor Clipper Partners Bock Capital Investors S.àr.l. Montagu Luxembourg S.àr.l. Bridgepoint Services S.àr.l. MPEP Luxembourg Management S.àr.l. CA Indosuez Neuberger Berman AIFM S.àr.l. Canna Luxembourg S.àr.l. New Angle Capital CapDecisif Management SAS NNS Luxembourg S.àr.l. CapMan Plc Norbert Becker Castik Capital S.àr.l. Nordcap S.àr.l. Castlelake LP Nordea Investment Funds S.A. Centerbridge Partners Norvestor Capital Partners (GP) S.àr.l. Cinven Luxembourg S.à r.l. Oakley Capital Holdings S.àr.l. Cipio Partners S.à r.l. Oaktree Luxembourg CoopSA CIR International S.A. Odysseus Alternative Ventures Cofima S.A. Odyssey Impact Investments S.àr.l. Coller Capital OneLife Compagnie Fiduciaire La Luxembourgeoise S.A. Oraxys CORDET Capital Partners LLP PAI Partners CPP Investment Board Europe S.àr.l. Paladin Europe Capital Management SCS Creon Capital S.àr.l. Partners Group (Luxembourg) S.A. Cube Infrastructure Managers Pergam S.A. CVC Capital Partners (Luxembourg) Permira Luxembourg S.à r.l. Davy Investment Fund Services POST Capital S.A. De Tiger Capital S.àrl. Private Equity International S.A. EDIFY S.A. Q Group S.àr.l. Encevo Radian Investment Management Enki Capital Luxembourg GP Riverside EQT Management S.à r.l. Royalton Partners S.A. Equinox S.A. Schroder Investment Management (Europe) S.A. Ergon Capital Management S.A. Sienna Capital S.àr.l. Eurazeo Funds Management Luxembourg Sofina Private Equity SCA, SICAR European Investment Fund StepStone Expon Capital SwanCap Investment Management SA Fexson Capital S.àr.l. Sweetwood Ventures GP S.àr.l. FGB Invest S.A. The Carlyle Group Lux S.à.r.l. Fieldpoint Time Partners Five Arrows Managers TJ Capital I S.àr.l. Fuchs Asset Management S.A. TPG Capital Luxembourg S.à r.l. Full Circle Capital Trilantic Capital Partners LP Inc. G4Partners SAS Triton GBL Verwaltung S.A. Trois I S.A. Genii Capital S.A. Turenne Capital Partenaires H.I.G. Global Holdings S.àr.l. Vedihold S.A. Halisol General Partner S.A. VIY Managers

** Abroad PRIVATE EQUITY IN LUXEMBOURG 39

Warburg Pincus S.à r.l. Hogan Lovells (Luxembourg) LLP Wert Investment Holdings S.àr.l . HSBC France, Luxembourg Branch Winvest Conseil S.A. ING Luxembourg S.A. WRM Capita Asset Management S.àr.l. Intertrust (Luxembourg) S.àr.l. IPCONCEPT (Luxemburg) S.A. Private Equity Services Providers (112) IQ-EQ (SGG S.A.) ABN AMRO BANK (Luxembourg) S.A. J.P. Morgan Bank Luxembourg S.A. AKD Luxembourg S.àr.l. JTC (Luxembourg) S.A. Allen & Overy Luxembourg KBL European Private Bankers S.A. Alter Domus KPMG Amicorp Luxembourg S.A. Label R Corp Apex Fund Services Limited, Luxembourg Branch Link Asset Services (before Capita Fiduciary SA) (Ipes) Linklaters LLP Arendt & Medernach S.A. LIS S.A. Arendt Regulatory & Consulting S.A. Loyens & Loeff Ashurst LLP, Luxembourg Branch LRI Invest S.A. Astris S.àr.l. LTCO – The Luxembourg Tax Compliance Office Atoz S.A. Luther Law Firm Augentius (Luxembourg) S.A. Maples and Calder (Luxembourg) S.àr.l. AVEGA S.àr.l. Mazars Luxembourg SA Aztec Financial Services (Luxembourg) S.A. MDO Management Company S.A. Baker & McKenzie Luxembourg Molitor Avocats à la Cour Banque de Luxembourg Nomura Bank (Luxembourg) S.A. Banque et Caisse d’Epargne de l’Etat, Luxembourg Northern Trust Luxembourg Management S.A. (BCEE) Norton Rose Fulbright SCS BDO Tax and Accounting Ober Law Firm S.àr.l. BGL BNP Paribas S.A. Ocorian Luxembourg S.àr.l. BIL Luxembourg Ogier BNP Paribas Securities Services Pandomus Bonn & Schmitt PricewaterhouseCoopers Bonn Steichen & Partners Quilvest Luxembourg Services S.A. Brown Brothers Harriman (Luxembourg) S.C.A. RBC Investor Services S.A. Caceis Bank Luxembourg RBS International Carne Group RDT Dr. Dautel Steuerberatungsgesellschaft mbH & Casa4funds S.A. Co. KG CBP Quilvest S.A. RFA Centralis S.A. RSM Tax & Accounting Luxembourg S.àr.l. Citco Luxembourg Sanne Group (Luxembourg) S.A. Clément & Avocats Selectra Management Company S.A. Clifford Chance Simmons & Simmons Luxembourg LLP CM Law (Collin Marechal S.àr.l.) Société Européenne de Banque - Intesa SanPaolo CMS Luxembourg Société Générale Bank & Trust Credit Suisse Fund Services SS&C GlobeOp (Luxembourg) S.àr.l. Crestbridge S.A. State Street (Alternative Investment Solutions) Dechert (Luxembourg) LLP Stibbe Avocats Deloitte S.A. TMF Luxembourg S.A. Dentons Trustmoore Luxembourg S.A. DLA Piper TS & P S.A.S. DMS Governance United International Management S.A. EASE S.A. ValuePartners S.A. Edmond de Rothschild Asset Management (Luxem- Van Campen Liem Luxembourg bourg) Vandenbulke EFA Vistra Luxembourg S.àr.l Elvinger Hoss Prussen VP Bank (Luxembourg) S.A. Ernst & Young Wildgen S.A. Estera (Luxembourg) S.àr.l. Etude Loesch Affiliate Independent Directors (5) Eversheds Sutherland (Luxembourg) LLP André Birget Fiduciaire Jean-Marc Faber Charles Muller FIDUPAR S.A. Eryn Zander Fieldfisher (Luxembourg) LLP Jens W. Beyrich FundRock Management Company S.A. Raymond Schadeck Goodwin Procter (Luxembourg) Grant Thornton Tax & Accounting Other Affiliates (4) GSK Luxembourg S.A. François Masquelier Halsey Group S.àr.l. Shanu Sherwani Hauck & Aufhäuser (Oppenheim Asset Management Karin Schintgen Services) Olivier Dorier PRIVATE EQUITY IN

Luxembourg Private Equity & Venture Capital Association LUXEMBOURG Your guide to set up and manage your Private Equity and 12, rue Erasme | L-1468 Luxembourg Venture Capital funds in Luxembourg Grand-Duché de Luxembourg Tel. (+352) 28 68 19 602 | www.lpea.lu