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  • microfinance

  • microfinance

  • Table of contents

    Introduction 5

    Main Luxembourg microfinance investment vehicles 7

    Overview 7

    Key features 9

    Legal forms 10

    Basics on principal legal forms 11

    Eligible investments 13

    Eligible investors 14

    (Prior) authorisation 15

    Fixed or variable share capital 16

    Financing 17

    Distributions to investors 18

    Redemptions of shares/units 19

    Asset valuation and publication requirements 20

    Supervision 21

    Basics on Luxembourg taxation - Taxation of the vehicle 22

    Basics on Luxembourg taxation - Taxation of the investors 24

  • 5

    Besides its long-standing position as European leader in the investment fund industry, Luxembourg has been increasingly appealing to the microfinance community in recent years.

    What is microfinance?

    A significant number of people in developing countries and economies in transition do not have any access to financial services. One of the principal objectives of microfinance and financial inclusion related initiatives is to create an all-inclusive financial sector in which the majority of the people will have access to financial services.

    Microfinance, which combines the profit-seeking motive with the priorities of social development, offers poor or low-income earning people access to basic financial services such as loans, micro-savings programs, money transfer services and micro-insurance to run their businesses, build assets and manage risks.

    These services are provided by microfinance institutions (MFIs), typically credit unions, credit cooperatives, non-governmental organisations and down-scaled commercial banks.

    Capital to support MFI activities was originally raised from government agencies, non-governmental organisations and philanthropic foundations. Increasingly, specific microfinance investment vehicles (MIVs) are created to allow for an effective combination of funds raised from institutional and retail investors. MIVs over the last ten years have become one of the main investment channels for microfinance. These MIVs operate as an intermediary between investors who wish to commit to microfinance and MFIs, thereby enhancing the ability of MFIs to access cross-border funding for their lending activities to micro-entrepreneurs.

    According to recent figures1, the MIVs market is growing quickly. As at 31 December 2008, 103 MIVs worldwide manage an estimated USD 6.6 billion in assets. As at 24 February 2010, 24 MIVs have been structured under Luxembourg legislation, representing USD 2.8 billion in assets.

    Total number of Microfinance Investment Vehicles

    - Worldwide (as of 31.12.2008) 103

    - Luxembourg (as of 24.02.2010) 24

    Assets under management

    - Worldwide USD 6.6 bn

    - Luxembourg USD 2.8 bn

    Sources: symbiotics.ch; CGAP 2009 MIV survey

    Along with MIVs, other investment structures combining social, responsible and sustainable values with financial objectives are playing an expanded role in the social impact financing industry and prove to be one of the drivers in the development of the financial markets of tomorrow.

    Introduction

    Worldwide Luxembourg

    Worldwide Luxembourg

    Total Number of MIVs

    Asset under Management

    1 Source: CGAP.

  • 6

    What are the advantages and the expertise offered today by Luxembourg in this area?

    Luxembourg as a financial centre offers a wide variety of fund structures adapted to value-driven financing. The attraction of Luxembourg fund structures results from a combination of factors which have contributed to its success as a premier international financial center: investor-friendly environment, responsiveness of the Luxembourg legislator to practitioners needs, political willingness, a highly skilled and multilingual community of professional service providers and long-experienced and flexible supervisory authorities.

    Its unique position as the worlds leading country of domicile for microfinance investment vehicles raises the Luxembourg financial center to the forefront of the social impact financing industry. Offering a full variety of fund structures ranging from undertakings for collective investment (UCIs) governed by Part II of the law of 20 December 2002 on undertakings for collective investment to specialised investment funds (SIFs) governed by the law of 13 February 2007 on specialised investment funds, or investment companies in risk capital (SICARs) governed by the law of 15 June 2004 relating to investment companies investing in risk capital, as well as securitisation vehicles under the law of 22 March 2002 relating to securitisation and unregulated SOPARFI (socit de participations financires), and strongly supported by the financial regulator and the Luxembourgish government, Luxembourg proves to be the perfect domicile for more and more innovative social impact financing projects including microfinance.

    This brochure aims at giving its readers an overview of the most common Luxembourg investment vehicles used in microfinance and social impact financing in a comparative perspective (Part II UCIs, SICAR, SIF, securitisation vehicles and SOPARFI). It does not address all legal and tax aspects in relation thereto and does not purport to set out all the opportunities offered by Luxembourg to the microfinance community.

    Introduction

  • 7

    Main Luxembourgmicrofinanceinvestment vehicles

    Overview

    Among the Luxembourg regulated investment vehicles subject to the supervision of the CSSF (Commission de Surveillance du Secteur Financier), the Luxembourg financial sector supervisory authority, four vehicles are of particular interest for the microfinance industry: the Part II UCIs, the SICAR, the SIF and the securitisation vehicle. In addition to regulated investment schemes, Luxembourg also offers the possibility to structure non regulated structures under the so-called SOPARFI regime. This type of company is available for microfinance investment programs which are limited to a restricted circle of investors.

    Part II UCIs SICAR SIF Securitisation vehicle

    SOPARFI

    In light of the general characteristics of microfinance investment funds, Part II of the law of 20 December 2002 on undertakings for collective investment (the 2002 Law) appears to be an appropriate legal framework. Indeed, this law affords sufficient flexibility as regards eligible investments and their limited liquidity and, at the same time, ensures protection of investors, mainly through the supervision performed by the CSSF and, last but not least, all in a favorable, substantially neutral, Luxembourg tax environment. Unless the 2002 Law specifically derogates therefrom, a Part II UCI is also subject to the Law of 1915 concerning commercial companies (the Law of 1915).

    However, the requirement for UCIs regulated by the 2002 Law to have a well-reputed promoter can represent an obstacle for microfinance investment funds.

    The SICAR was introduced by the Law of 15 June 2004 relating to the investment company in risk capital, as amended (the SICAR Law). Unless the SICAR Law specifically derogates therefrom, a SICAR is also subject to the Law of 1915.

    The SICAR Law is an appropriate legal framework if the proposed investments qualify as risk capital within the meaning of the law, which should generally be the case in relation to microfinance investments.

    Notwithstanding the fact that the term risk capital is defined in a broad manner by the SICAR Law, the proposed investments must meet the definition of risk capital to avoid potentially detrimental regulatory and tax consequences. For example, the question arises whether non-securitised loans to microfinance institutions of a certain size, remunerated by interest at a rate close to usual market rates, could be considered as risk capital investments within the meaning of the SICAR Law.

    The institutional investor fund which dates back to 1991 was replaced by the SIF with the Law of 13 February 2007 relating to specialised investment funds (the SIF Law). Unless the SIF Law specifically derogates therefrom, the SIF is also subject to the Law of 1915.

    Compared to the SICAR Law and to other former regimes, the SIF regime grants a maximum flexibility in terms of legal form of the investment vehicle and of the eligible assets in which a microfinance investment vehicle may invest.

    As a general rule, the SIF Law does not provide for any limitation regarding the assets in which a SIF may invest. This allows microfinance managers to set up an investment strategy which combines all types of investments.

    On 22 March 2004 Luxembourg enacted a law on securitisation (the Securitisation Law).

    The Securitisation Law defines securitisation as being a transaction by which a securitisation vehicle acquires or assumes, directly or through another vehicle, the risks relating to claims, to other assets, to obligations or the activity of a third party by issuing securities the value or yield of which depends on such risks. The securities which are issued can either be debt instruments, equity instruments or hybrids, or even a combination thereof.

    Risks relating to all kinds of assets can be securitised as well as risks relating to obligations or liabilities assumed by third parties or relating to all or part of the activities of a third party.

    The Securitisation Law does not in any way restrict the means by which such risks can be taken on by the securitisation vehicle, subject only to appropriate disclosures to investors.

    The SOPARFI (socit de participations financires) is a commercial corporate vehicle not subject to the supervision of the CSSF. It is governed by the Law of 1915 and pertains to investments in qualifying financial participations.

    It is not subject to risk-spreading requirements nor is it restricted to any specific types of investments.

  • 8

    Overview

    Main Luxembourg microfinance investment vehicles

    Part II UCIs SICAR SIF Securitisation vehicle

    SOPARFI

    The SICAR Law allows investment managers and entrepreneurs without substantial financial resources to create, without the sponsoring of a sizeable financial institution, an investment vehicle for well-informed investors in a somewhat less demanding legal and regulatory framework than the one applicable to UCIs under the 2002 Law.

    Finally, the SICAR is not, as is the case for a Part II UCI, subject to the requirement to invest in accordance with the principle of risk spreading and may therefore constitute an appropriate investment vehicle if it is considered to invest in or provide funds to a limited number of microfinance institutions.

    In this respect, SIFs may be launched with investment strategies including microfinance.

    However, unlike SICARs, SIFs are subject to a limited risk-spreading requirement.

    The SIF offers a great deal of flexibility which makes it a very appealing microfinance investment vehicle.

    The Securitisation Law covers thus all types of securitisation transactions, in the broadest meaning of the term. The Securitisation Law gives to the concept of securitisation a very flexible scope so as to cover both traditional securitisation structures as well as the most innovative ones, including microfinance securitisation allowing notably to invest in or provide funds to microfinance institutions.

    Finally the Securitisation Law provides for a tax neutral treatment of securitisation transactions.

  • 9

    Key features

    Main Luxembourg microfinance investment vehicles

    Part II UCIs SICAR SIF Securitisation vehicle

    SOPARFI

    - Legal form: public companies limited by shares forms or con-tractual form (FCP);

    - Limited investment restrictions and risk-spreading require-ments;

    - No investor restrictions;

    - Prior authorisation of the CSSF;

    - Variable or fixed share capital with lightened requirements;

    - Flexible financing, distribution and exit policy;

    - Supervision by the CSSF, the indepen-dent auditor and the depositary;

    - Tax exempt status (+transparency for FCP).

    - Legal form: company or partnership forms only, no contractual form (FCP);

    - Investments in risk capital only, no risk-spreading require-ments;

    - Eligible investors only;

    - Prior authorisation of the CSSF;

    - Variable or fixed share capital with lightened requirements;

    - Flexible financing, distribution and exit policy;

    - Lightened accounting and publication require-ments;

    - Supervision by the CSSF, the indepen-dent auditor and the depositary;

    - Taxable status, but exemption on profits derived from risk capital securities and entitle-ment to double-tax treaty benefits (subject to recognition by the other contracting state).

    - Legal form: company, partnership or contrac-tual forms (FCP);

    - No investment restric-tions but risk-spreading requirement;

    - Eligible investors only;

    - Possible ex-post authorisation of the CSSF;

    - Variable or fixed share capital with lightened requirements;

    - Flexible financing, distribution and exit policy;

    - Lightened accounting and publication require-ments;

    - Supervision by the CSSF, the indepen-dent auditor and the depositary;

    - Tax exempt status and entitlement to certain double tax treaties.

    Basic structure:

    - Investors

    Issues of securities

    - Securisation vehicle

    Issue of loans

    - MFI

    - Unregulated or regulated vehicles if securities are offered on a continuous basis (more than 3 times a year and securities have denominations of less than EUR 125,000);

    - Assets may be ac-quired by or transferred from securitisation vehicle in one or more transactions or on a continuous basis;

    - Vehicle for securitisa-tion of any kind of assets or risks;

    - No restriction on under-lying assets;

    - No risk-diversification requirements.

    - Legal form: company or partnership forms only, no contractual form (FCP);

    - No investment restrictions and no risk-spreading requirements;

    - No investor restrictions;

    - No authorisation of the CSSF;

    - Fixed share capital with some possible flexibility;

    - Flexible financing policy;

    - Lightened accounting and publication requirements;

    - Supervision by an auditor in specific circumstances;

    - Taxable status, but conditional exemption of dividends, liquidation proceeds and capital gains derived from qualifying participations under the participation exemption, and entitlement to double tax treaty benefits.

    Advantages:

    - Allow an investment policy tailored to microfinance: non listed securities or debts in-struments, direct loans, borrowings;

    - Flexible investment restrictions;

    - No requirement for substance;

    - Open to retail and non retail investors.

    Advantages:

    - No requirement in rela-tion to the promoter; wide definition of au-thorised investment;

    - No risk-diversification rule;

    - No obligation to issue consolidated accounts;

    - Facilities in terms of remuneration for the investment manager;

    - Flexibility in terms of valuation of the assets;

    - Attractive tax regime.

    Advantages:

    - No requirement in rela-tion to the promoter; investment manager not subject to approval from the CSSF;

    - Lower role of the custodian and central administration agent;

    - More flexibility regard-ing the valuation of the assets;

    - No prior approval (ap-plication for approval to be filed with the CSSF within the month fol-lowing the constitution of the SIF).

    Advantages:

    - No promoter;

    - No risk-diversificationrequirements;

    - Fixed or variable share capital;

    - Unregulated vehicle if securities are not offered on a continu-ous basis (more than 3 times a year and securities have denomi-nations of less than EUR 125,000);

    - Costs: custody and central administration.

    Advantages:

    - No promoter;

    - No risk-spreading requirements;

    - No restriction in terms of investment scope and methods;

    - Fixed or variable share capital;

    - Unregulated vehicle.

    Disadvantages:

    - No European passport;

    - Promoter.

    Disadvantages:

    - No European passport;

    - Well-informed investors.

    Disadvantages:

    - No European passport;

    - Well-informed investors.

    Disadvantages:

    - No European passport.

    Disadvantages:

    - No European passport;

    - Limited to a restricted number of investors (club);

    - No variable share capital available.

  • 10

    Legal forms

    Main Luxembourg microfinance investment vehicles

    The most common Luxembourg corporate forms used for investment funds specialising in microfinance are:

    The socit en commandite par actions (SCA) similar to a corporate partnership limited by shares; The socit anonyme (SA) similar to a public limited company; The socit anonyme (SA) with a supervisory board; The socit responsabilit limite (Srl) similar to a private limited company; The socit cooprative organise sous forme de socit anonyme (SCoSA); and The socit en commandite simple (SCS) similar to limited partnerships.

    The contractual form of the fonds commun de placement (FCP) or common fund may also be used as an alternative to the abovementioned corporate forms. However, only the 2002 Law and the SIF Law provides for such possibility.

    Part II UCIs SICAR SIF Securitisation vehicle

    SOPARFI

    Part II UCIs with vari-able capital (SICAV) may be set up as a:

    - SA

    The Part II UCIs with fixed capital may be set up as a:

    - SCA

    - SA

    - Srl

    Alternatively, a Part II UCI may be struc-tured as a FCP.

    The SICAR may be set up as a:

    - SCA

    - SA

    - Srl

    - SCS

    - SCoSA

    A SIF may be set up as a:

    - SCA

    - SA

    - Srl

    - SCoSA

    Alternatively, a SIF may be structured as a FCP.

    The securitisation vehicle may be set up as a:

    - SA

    - SCA

    - Srl

    Alternatively, the securitisation vehicle may be structured as a co-ownership fund or as a fund organ-ised on a fiduciary basis.

    The SOPARFI may be set up as a:

    - SCA

    - SA

    - Srl

    - SCS

    - Socit en nom collectif (SNC)

    - Socit civile

  • 11

    Basics on principal legal forms2

    Main Luxembourg microfinance investment vehicles

    SCA SA Srl FCP/Securitisation

    vehicle

    Key feature

    Particularly convenient for microfinance fund initiators who want to retain total control of the management.

    SA convenient as an alternative to the SCA for microfinance fund initiators who want to retain control of the management without incurring unlimited liability.

    Originally created for shareholders with a significant personal link among them (intuitu personae), as evidenced by spe-cific rules still in place although practice shows that this form is now used despite a lack of any sort of link among the investors.

    Undivided collection of assets, without legal personality unlike a company or partner-ship, managed by a Luxembourg manage-ment company on behalf of joint owners whose rights are represented by units. Allows for total control of the management. The management company may be set up notably as a SA, SCA or Srl.

    Shareholders/Partners/ Unitholders

    One or more unlimited shareholders and several limited shareholders (no upper limit).

    One or more limited shareholders (no up-per limit).

    One or more limited shareholders (no more than 40).

    Several limited unitholders (no upper limit) at the level of the FCP/securitisation vehicle.

    Liability

    Unlimited shareholders are indefinitely, jointly and severally liable (but may be incorporated as limited liability companies or partnerships). Limited shareholders are only liable up to the amount committed.

    Shareholders are only liable up to the amount committed.

    Shareholders are only liable up to the amount committed.

    Unitholders of the FCP/securitisation vehicle are only liable up to the amount committed.

    Contributions

    In cash or in kind: contributions in kind are subject to a valuation report from an independent auditor.

    In cash or in kind: contributions in kind are subject to a valu-ation report from an independent auditor.

    In cash or in kind: contributions in kind are not subject to a valuation report from an independent auditor.

    In cash or in kind: contributions in kind to the FCP/securi-tisation vehicle are subject to a valuation report from an inde-pendent auditor.

    2 Your contacts at Arendt and Medernach would be delighted to provide you with further information on these main legal forms as well as on other available legal forms the details of which are not set out herein.

  • 12

    Basics on principal legal forms

    3 This representation requirement is not applicable to the second meeting of shareholders which may be convened if it has not been fulfilled at the first meeting.

    Main Luxembourg microfinance investment vehicles

    SCA SA Srl FCP/Securitisation

    vehicle

    Transfers/listing of shares

    No statutory restric-tion on transfers.Listing possible.

    No statutory restric-tion on transfers.Listing possible.

    Transfers to non-shareholders are subject to the prior approval of the share-holders representing three-quarters of the share capital. Listing not allowed.

    No statutory restric-tion on transfers.Listing of units of FCP/securitisation vehicle possible.

    Management

    By the general partner. Unlimited shareholder(s) act as general partner(s) and cannot be dismissed without their own con-sent, unless otherwise provided by the ar-ticles of incorporation.

    One-tier SA: by a board of directors of three directors at least, if several share-holders.Two-tier SA: by a management board of two members at least, supervised by a supervisory board of three members at least, if several share-holders.

    By one or several managers.

    By the management company.

    Amendmentto articles of incorporation/to partnership agreement/management regulations

    By a quorum repre-senting at least half of the share capital and a two-third majority of shareholders3, includ-ing the general part-ner, in the presence of a Luxembourg notary.

    By a quorum repre-senting at least half of the share capital and a two-third majority of shareholders3, in the presence of a Luxem-bourg notary.

    By (i) a majority in number of the share-holders and (ii) such majority representing at least three-quarters of the share capital, in the presence of a Luxembourg notary.

    Management regulations of FCP/securitisation vehicle may be amended by the management company, unless otherwise specified in the management regulations. Unithold-ers of FCP/securitisa-tion vehicle may be entitled to exit in case of amendment.

    Taxtransparency

    Not tax transparent (but check-the-box eligible).

    Not tax transparent. Not tax transparent (but check-the-box eligible).

    Tax transparent.

    Marketability

    The SCA is exten-sively used and easy to market to potential investors.

    The SA is extensively used and is therefore very easy to market to potential investors.

    The FCP/securitisa-tion vehicle is very similar to the unit trust.

  • 13

    Eligible investments

    Main Luxembourg microfinance investment vehicles

    Part II UCIs Investment restrictionsRisk spreading

    A Part II UCI may invest maximum 10% of its assets in transferable securities not quoted on a stock exchange nor dealt in on an organised market offering comparable safeguards.Maximum 10% of its assets may be invested in securities issued in the same body;Maximum 10% of securities of the same kind issued by the same body which the Part II UCI may hold.Derogations to these rules can be granted by the CSSF on a case-by-case basis.

    SICAR

    Investments in risk capital only

    A SICAR shall invest its funds in securities representing risk capital. Investment in risk capital is defined in the SICAR Law as the direct or indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange. Two conditions shall be met: (i) the risk relating to the investments of the SICAR shall be high and (ii) the SICAR shall aim at contributing to the development of the entities in which it invests. The exit strategy of the SICAR is also another important factor as it shall aim at exiting its investments after a certain number of years (to be assessed on a case-by-case basis).

    No risk-spreading requirementAbsent the risk-spreading requirement, a SICAR may limit its investment in one target entity or one specific area.

    Fund of funds investments possibleA SICAR may invest in other investment vehicle(s), provided that it still complies with the investment in risk capital requirement.

    SIF

    No investment restrictions

    A SIF is not subject to any restriction relating to the sector in which it invests its funds. A SIF may therefore focus its investments on microfinance. It may also combine investment in microfinance and in listed companies or derivatives for example.

    Risk-spreading requirement

    A SIF shall nevertheless aim at spreading the risks of its investments. If investing in private equity, a SIF shall therefore target several entities. The fulfillment of this requirement is assessed on a case-by-case basis.

    Fund of funds possibleA SIF may invest in other investment vehicle(s), provided that such SIF still complies with the risk-spreading requirement.

    Securitisation vehicle

    Investment in risks

    A securitisation vehicle shall invest in any type of risk, in the widest sense, be it relating to claims, or to other assets, or to obligations assumed by third parties or inherent to all or part of the activities of third parties.In practice, as far as microfinance is concerned, a securitisation vehicle will usually be used in the frame of collateralised loans obligationss (i.e. to purchase/grant loans to MFIs).

    SOPARFI No restrictions

    The SOPARFIs sole corporate purpose is to hold and manage financial participations in other undertakings. Apart from that, no investment restrictions or risk-spreading requirement applies to a SOPARFI (see however the tax section below).

  • 14

    Eligible investors

    Main Luxembourg microfinance investment vehicles

    Part II UCIs No restrictionThe Part II UCIs regime does not impose any restrictions on the eligibility of investors; therefore investors do not necessarily need to be sophisticated.

    SICAR/SIF

    Three categories of eligible investors

    Only sophisticated investors may invest in a SICAR or a SIF. The three categories of eligible investors of a SICAR or SIF are identical: institutional investors, professional investors or well-informed investors.

    1. Institutional investors

    Institutional investors may be defined as firms and organisations, the purpose of which leads them to the management of substantial funds and assets like e.g. banks and other professionals of the financial sector, insurance and reinsurance undertakings, social security institutions, pension funds, large industrial and financial groups and dedicated structures set up by those entities.

    2. Professional investors

    Professional investors are the entities which are required to be authorised or regulated in order to operate in the financial markets like e.g. credit institutions, insurance companies and commodity derivatives dealers, among others. Large undertakings which meet two of the following size criteria on a company basis qualify as professional investors: (i) balance sheet total of EUR 20,000,000; (ii) net turnover of EUR 40,000,000; and (iii) own funds of EUR 2,000,000. The category of professional investors also includes some state or international bodies or institutions and other institutional investors, the main activity of which is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.

    3. Well-informed investors

    Well-informed investors are those who, although not qualifying as institutional or professional investors, may evidence that they are sufficiently sophisticated to understand and bear the risks associated with the nature of investments of the SICAR or the SIF. In addition to confirming in writing that he/she/it adheres to the status of well-informed investor, such an investor shall invest minimum of EUR 125,000 in the SICAR or the SIF, or obtain an assessment made by one of the financial sector entities listed by the SICAR Law or the SIF Law, which certifies the investors expertise and knowledge in adequately appraising an investment in risk capital in case of a SICAR, or in a SIF.

    4. Persons to whom the eligibilty conditions do not apply

    - Any director of a SICAR or a SIF;- Any other person that takes part in the management of

    a SICAR or a SIF.

    Securitisation vehicle

    No restrictionThe Securitisation Law does not impose any restrictions on the eligibility of investors.

    SOPARFI No restrictionThe SOPARFI regime does not impose any restrictions on the eligibility of investors; therefore investors do not necessarily need to be sophisticated.

  • 15

    (Prior) authorisation

    Main Luxembourg microfinance investment vehicles

    Part II UCIs Prior authorisation

    Part II UCIs are subject to prior authorisation from the CSSF, the Luxembourg financial sector supervisory authority.

    Once authorised, the Part II UCI is registered on the official list of UCIs.

    SICAR/SIF

    Prior authorisation

    SICAR are subject to prior authorisation from the CSSF, the Luxembourg financial sector supervisory authority. Once authorised, the SICAR is registered on the official list of SICARs.

    Items subject to authorisationfor both SICAR and SIF

    Such authorisation is granted only if (i) the CSSF approves the constitutive documents (issue document/placement memorandum, articles of incorporation/partnership agreement), the directors or managers, the choice of the depositary and of the auditor of the SICAR or the SIF, and the agreements with the service providers, and (ii) the SICAR or the SIF can demonstrate that its head office (administration centrale) is located in Luxembourg.

    Directors or managers of a SICAR or a SIF are the members of the statutory organ of the SICAR or the SIF (or of the management company of the SIF structured as a FCP). They shall be of sufficiently good repute and have sufficient experience for performing their functions.

    Possible ex-post authorisation under certain conditions, except for the management company of a FCP

    A SIF may start its activities without prior authorisation from the CSSF, provided that the application for the authorisation is made to the CSSF within the month following the setting-up of the SIF. A SIF may therefore be launched very quickly.

    If structured as a FCP, the management company of the SIF must be authorised by the CSSF before the SIF starts its activities.

    Once authorised, the SIF is registered on the official list of SIFs.

    Securitisation vehicle

    No prior authorisation unless exception applicable

    No prior authorisation required, unless the securitisation vehicle plans to issue securities to the public on a continuous basis.

    SOPARFI No authorisation at allSOPARFIs are not subject to any prior authorisation from the CSSF, the Luxembourg financial sector supervisory authority. They may therefore be set up very quickly.

  • 16

    Fixed or variable share capital

    Main Luxembourg microfinance investment vehicles

    Part II UCIs

    Variable share capital possible

    A Part II UCI set up as a SA may have a variable share capital, i.e. a share capital the amount of which is equal to the net asset value of the company at all times.

    A Part II UCI with variable share capital as well as structured as a FCP can issue new shares/units in accordance with the conditions and procedures set forth in its articles of incorporation/management regulations.

    Net asset value share issue priceNew shares of a SICAV may be issued on the basis of the net asset value per share.

    Payment of sharesEach of the shares/units of a Part II UCI must be fully paid up.

    SICAR/SIF

    Variable share capital possible

    A SICAR or SIF set up as a SA, SCA, Srl, SCS and SCoSA may have a variable share capital, i.e. a share capital the amount of which is equal to the net asset value of the company at all times.

    A SICAR or SIF with variable share capital, as well as a SIF structured as a FCP can issue new shares/units in accordance with the conditions and procedures set forth in its articles of incorporation/management regulations.

    Net asset value share issue price

    New shares of a SICAR or SIF may be issued on the basis of the net asset value per share or any other value, according to the method set forth in its articles of incorporation/management regulations.

    5% paid-up sharesEach of the shares of a SICAR or SIF must be paid up up to at least 5%.

    Securitisation vehicle

    Fixed share capitalIn principle, a securitisation vehicle has a fixed share capital.

    SOPARFI

    Only fixed share capital, but authorised share capital possible

    The share capital of a SOPARFI must be fixed to an amount set forth in the articles of incorporation/partnership agreement. As a result, any issue of new shares is subject to the formalities, quorum and majority requirements applicable to amendments of the articles of incorporation/partnership agreement (see above). However, a SOPARFI set up as a SA or SCA may provide for an authorised share capital whereby the shareholders delegate to the management their power to increase the share capital within certain limits.

    Nominal or par value share issue price

    New shares of a SOPARFI are usually issued at (and cannot be issued below) the nominal value, if any, or par value of existing shares, possibly with a share premium.

    Payment of shares requirements depending on legal form

    Each of the shares of a SA or SCA must be paid up to at least 25%. Each of the shares of a Srl must be entirely paid up. No requirement applies to the payment of shares in a SCS, SNC or socit civile.

  • 17

    Financing

    Main Luxembourg microfinance investment vehicles

    Part II UCIs

    Minimum share capital/net assets

    In addition to the minimum share capital requirements upon incorporation, the subscribed share capital of any Part II UCI shall reach EUR 1 million and the subscribed share capital of any Part II UCI, increased by the share premium, shall reach EUR 1.25 million no later than 6 months following the authorisation of the CSSF. By the same timeframe, the net assets of Part II UCIs structured as a FCP shall reach EUR 1.25 million.

    IPO and umbrella structure possibleThe securities of a Part II UCI may be publicly traded.

    A Part II UCI may be set up as an umbrella structure with segregated portfolios of assets and liabilities.

    SICAR/SIF

    Minimum EUR 1m for SICARs and 1.25m for SIFs after one year

    In addition to the minimum share capital requirements upon incorporation, the subscribed share capital, increased by the share premium of any SICAR shall reach EUR 1 million no later than 12 months following the authorisation of the CSSF. The subscribed share capital of any SIF, increased by the share premium, shall reach EUR 1.25 million no later than 12 months following the authorisation of the CSSF. By the same timeframe, the net assets of a SIF structured as a FCP shall reach EUR 1.25 million.

    IPO conceivable SICARs and SIF umbrella structure possible

    Public trading of securities of SICARs and SIFs under the form of a SA or a SCA is conceivable provided that the requirements relating to eligible investors are fulfilled.

    A SIF and a SICAR may be set up as an umbrella structure with segregated portfolios of assets and liabilities per investment program.

    Securitisation vehicle

    Minimum share capital amount depending on legal form

    At incorporation, a SA or a SCA must have a minimum share capital of EUR 31,000, while a Srls minimum share capital is EUR 12,500. No other minimum share capital amount is required beyond the incorporation of a SA, SCA or Srl.

    Issuance of transferable securitiesLoans possible under conditions

    The securitisation vehicle must be financed through the issue of transferable securities whose value or yield depends on the risks securitised.

    The securitisation vehicle could however on a transitory basis be financed through loans in order to pre-finance the transaction if required (warehousing).

    The securitisation vehicle would also be allowed to receive long-term financing should such loans be received in addition to the issue of transferable securities and be limited and incidental.

    IPO and multiplecompartments possible

    The securities of a securitisation vehicle under the form of a SA may be publicly traded.

    A securtisation vehicle may be set up as a multiple compartments structure with segregated assets and liabilities.

    SOPARFI

    Minimum share capital amount

    The share capital of a SOPARFI must be fixed to an amount set forth in the articles of incorporation/partnership agreement. As a result, any issue of new shares is subject to the formalities, quorum and majority requirements applicable to amendments of the articles of incorporation/partnership agreement. However, a SOPARFI set up as a SA or SCA may provide for an authorised share capital whereby the shareholders delegate to the management their power to increase the share capital within certain limits.

    IPO possibleNew shares of a SOPARFI are usually issued at (and cannot be issued below) the nominal value, if any, or par value of existing shares, possibly with a share premium.

    Tracking shares possible

    Each of the shares of a SA or SCA must be paid up to at least 25%. Each of the shares of a Srl must be entirely paid up. No requirement applies to the payment of shares in a SCS, SNC or socit civile.

  • 18

    Distributions to investors

    Main Luxembourg microfinance investment vehicles

    Part II UCIs

    No statutory reserve Part II UCIs are not required to set up a statutory reserve.

    Statutory formalities applicable to distributions

    Distributions by way of annual dividends in a Part II UCI set up as a company are subject to the approval of the shareholders.

    Distributions by way of interim dividends throughout the year are possible in a Part II UCI set up as a SA if certain formalities are fulfilled.

    Distributions in a Part II UCI with variable capital may only be made to the extent that the minimum share capital threshold of EUR 1.25m is respected. Distributions in a Part II UCI with fixed capital may only be made to the extent that it has distributable profits.

    Distributions in a Part II UCI structured as a FCP are not subject to any restriction other than those set forth in the management regulations, provided that the minimum net assets threshold of EUR 1.25m is respected.

    SICAR/SIF

    No statutory formality applicable to distributions by a SICAR

    Distributions by way of annual dividends and interim dividends throughout the year in a SICAR are not subject to any restrictions other than those set forth in its articles of incorporation.

    Distributions may only be made to the extent that the minimum share capital threshold of EUR 1m is respected.

    No statutory reserveSICARs and SIFs with variable capital are not required to set up a statutory reserve.

    Soft statutory formalities applicable to distributions by SIF with variable capital or by FCP SIF

    Distributions by way of annual dividends in a SIF set up as a company or a partnership are subject to the approval of the shareholders/partners.

    Distributions by way of interim dividends throughout the year in a SIF with variable capital are not subject to any restrictions other than those set forth in its articles of incorporation, and are only possible in a SIF with fixed capital set up as a SA or SCA if certain formalities are fulfilled.

    Distributions in a SIF with variable capital may only be made to the extent that the minimum share capital threshold of EUR 1.25m is respected. Distributions in a SIF with fixed capital may only be made to the extent that the SIF has distributable profits.

    Distributions in a SIF structured as a FCP are not subject to any restriction other than those set forth in the management regulations, provided that the minimum net assets threshold of EUR 1.25m is respected.

    Securitisation vehicle

    Distributions possible to initial investors

    The object of a securitisation vehicle is not to make profits, as such, any amount received by the securitisation vehicle will be paid as interest/dividend to its investors.

    However, should the securitisation vehicle make some profits, those will be distributed to its shareholders.

    SOPARFI

    10% statutory reserveA SOPARFI set up as a SA, SCA or Srl shall allocate 5% of its annual net profits to a statutory non-distributable reserve until such reserve amounts to 10% of its share capital.

    Statutory formalities applicable to distributions depending on legal form

    Distributions by way of annual dividends in a SOPARFI are subject to the approval of the shareholders/partners.

    Distributions by way of interim dividends throughout the year are possible in a SOPARFI set up as a SA, SCA or Srl if certain formalities are fulfilled.

    Distributions may only be made within the limit of the distributable profits, the statutory definition of which depends on the legal form adopted by the SOPARFI.

  • 19

    Redemptions of shares/units

    Main Luxembourg microfinance investment vehicles

    Part II UCIs Share redemptions

    Redemptions of shares of a Part II UCI with variable capital are not subject to any restrictions other than those set forth in their articles of incorporation provided the minimum share capital of EUR 1.25m is respected.

    Redemptions of units of a Part II UCI structured as a FCP are not subject to any restrictions other than those set forth in its management regulations, provided that the EUR 1.25m threshold is respected if the redeemed units are cancelled.

    Redemptions of shares of a Part II UCI with fixed capital are subject to restrictions, which therefore depend on the legal form of the Part II UCIs with fixed capital.

    SICAR/SIF Share redemptions

    Redemptions of shares of a SICAR or SIF with variable capital are not subject to any restrictions other than those set forth in their articles of incorporation, provided that the minimum share capital threshold of EUR 1m in case of a SICAR or of EUR 1.25m in case of a SIF is respected if the redeemed shares are cancelled by way of a capital reduction.

    Redemptions of units of a SIF structured as a FCP are not subject to any restrictions other than those set forth in its management regulations, provided that the EUR 1.25m threshold is respected if the redeemed units are cancelled.

    Redemptions of shares of a SIF with fixed capital are subject to restrictions, which therefore depend on the legal form of the SIF with fixed capital.

    Securitisation vehicle

    Transferable securities redemptions

    The redemption of the notes issued by the securitisation vehicle is not subject to particular restrictions.

    Such redemption shall be done in accordance with the terms and conditions of the notes.

    The redemption of shares is subject to restrictions, and therefore depends on the legal form of the securitisation vehicle.

    SOPARFIStatutory requirements applicable to share redemptions depending on legal form

    As a matter of principle, shares of a SOPARFI set up as a SA or SCA may not be redeemed without shareholders approval. Shares may be redeemed, and not cancelled, by way of a capital reduction if (i) they comply with specific restrictions (i.e. among others, only fully paid-up shares can be redeemed without exceeding 10% of the subscribed capital) or (ii) they qualify as preferred redeemable shares as such shares are issued in accordance with the legally imposed terms and conditions to be set forth in the articles of incorporation of the company. Shares may also be redeemed and cancelled by way of a capital reduction, or partial liquidation, under certain conditions (i.e. among other restrictions, approval of the shareholders under the requirements applicable to amendments of the articles of incorporation and protective measures in favour of creditors).

    Shares of a SOPARFI set up as a Srl may only be redeemed if they are immediately cancelled by way of a capital reduction approved by the shareholders under the requirements applicable to amendments of the articles of incorporation.

    Shares of a SOPARFI set up as a SCS, SNC or socit civile may only be redeemed with the approval of all the partners, unless otherwise provided by the partnership agreement, and cancelled by way of a capital reduction.

  • 20

    Asset valuation and publication requirements

    Main Luxembourg microfinance investment vehicles

    Part II UCIs

    Fair value asset valuation

    The valuation of the assets of the Part II UCIs shall be based, in the case of officially listed securities, on the last known stock exchange quotation, unless such quotation is not representative. For securities not so listed and for securities which are so listed, but for which the latest quotation is not representative, the valuation shall be based on the probable realisation value, estimated with care and in good faith.

    Prospectus and financial statements requirements

    Part II UCIs are required to publish a prospectus but are not required to publish a simplified prospectus. They are required to publish non audited semi-annual reports (within two months from the end of the period to which they relate) and audited annual reports (within four months from the end of the period to which they relate).

    SICAR/SIF

    Fair value asset valuationThe assets of a SICAR shall be valued on the basis of the fair value in accordance with the articles of incorporation of the SICAR.

    Low prospectus requirements

    SICARs shall publish a prospectus. SIFs shall publish an issue document. There is no requirement in terms of minimum content or specific layout, other than the requirement to include the information necessary for investors to be able to make an informed assessment of the investment proposed to them and of the risks attached thereto. Essential elements of the prospectus/issue document shall be up to date when new securities are issued only; to new investors in case of a SIF.

    Low financial statements requirements

    SICARs and SIFs shall issue an annual report for each financial year within 6 months from the end of the financial year to which it relates. They are not required to publish semi-annual reports.

    Fair value asset valuation

    Unless otherwise provided for in its articles of incorporation/management regulations, the assets of a SIF shall be valued on the basis of the fair value in accordance with its articles of incorporation/management regulations.

    Securitisation vehicle

    Asset valuation The valuation of the assets of the securitisation vehicle is not subject to any specific rule.

    No prospectus requirements in principle

    The securitisation vehicle is not required to publish a prospectus, except when it falls under the application of the Law of 10 July 2005 on prospectus for transferable securities.

    Financial statements requirements The securitisation vehicle shall publish its financial statements annually.

    SOPARFI

    Asset valuation at cost

    The assets of a SOPARFI shall be valued at cost. They shall or may be written down depending on whether it is foreseeable that the loss in value is durable or not. They may not be written up.

    No prospectus and low financial statements requirements

    SOPARFIs are not required to publish a prospectus.

    SOPARFIs set up as a SA, SCA and Srl shall issue and submit to the shareholders for approval an annual report for each financial year within 6 months from the end of the financial year to which it relates. SOPARFIs set up as SCS, SNC and socit civile are not subject to reporting requirements.

    SOPARFIs are not required to publish semi-annual reports and may be exempt from having to prepare consolidated financial statements, provided that the necessary conditions are met.

  • 21

    Supervision

    Main Luxembourg microfinance investment vehicles

    Part II UCIsCSSF Depositary

    Part II UCIs are submitted to permanent supervision of the CSSF and are required to entrust the custody of their assets with a depositary qualifying as a credit institution located in Luxembourg.

    Supervision by auditors The operations and the annual financial statements shall be supervised by one or more auditor(s).

    SICAR/SIF

    Permanent supervision by the CSSF

    SICARs and SIFs remain subject to the permanent supervision of the CSSF until their liquidation.

    Any amendment to their constitutive documents (issue document/placement memorandum, articles of incorporation/partnership agreement), any appointment of new directors or managers and any change of the management company (of a SIF structured as a FCP) or their depositary is subject to prior approval of the CSSF.

    DepositaryA depositary located in Luxembourg and qualifying as a credit institution shall be entrusted with the custody of the assets of SICARs and SIFs.

    Audit

    A Luxembourg independent auditor shall audit the accounting information contained in the annual reports of SICARs and SIFs. The auditors report and qualifications, if any, shall be included in full in the annual report of SICARs and SIFs. In addition, the auditor has some duties of notification to, and of extensive supervision at the request of, the CSSF in certain circumstances.

    Securitisation vehicle

    CSSF supervision for authorised vehicles

    Securitisation vehicles are submitted to the supervision of the CSSF when they require the authorisation of the CSSF to exercise their activities. Such authorisation is required if the securitisation vehicle issues securities to the public on a continuous basis.

    The CSSF ruled that a securitisation undertaking is deemed to issue securities on a continuous basis should it issue securities to the public more than three times a year.

    The CSSF established the following criteria for the notion of issue to the public:

    - Issue to professional clients (as defined under annex 2 of directive 2004/39/EC (MIFID)) are not considered as to be to the public;

    - Transferable securities having a value of at least EUR 125,000 are deemed not to be issued to the public;

    - Transferable securities listed are not automatically deemed issued to the public;

    - Transferable securities privately placed are not issued to the public, however transferable securities initially privately placed to be secondary sold to the public are deemed to be issued to the public.

    Audit

    The accounts of a securitisation company are audited by one or more independent auditors appointed, as the case may be, by the management body of the securitisation company or by the management company of the securitisation fund.

    The independent auditors of an authorised securitisation company must be authorised by the CSSF.

    SOPARFI

    No CSSF supervision, no depositarySOPARFIs are not submitted to the supervision of the CSSF and are not required to entrust the custody of their assets with a depositary.

    SA, SCA and Srl are subject to supervision by auditors

    However, the operations and the annual financial statements shall be supervised by one or more statutory auditor(s) in a SA, a supervisory board in a SCA and one or more statutory auditor(s) in a Srl, unless the Srl has less than 25 shareholders. No statutory auditor is required in SOPARFIs set up as SCS, SNC or socit civile.

    In addition, an independent auditor shall be appointed and replace the statutory auditor(s) in a SOPARFI set up as a SA, SCA or Srl if certain thresholds (on total balance sheet, turnover and/or number of employees) are exceeded.

  • 22

    Basics on Luxembourg taxation - Taxation of the vehicle

    Main Luxembourg microfinance investment vehicles

    Income taxes(corporate income tax, municipal business tax and a contribution to the unemployment fund)

    Withholding tax on distributions to investors

    Subscription tax

    Part II UCIs

    Exempt. No withholding tax on payments of dividends, liquidation proceeds and interest, except in limited cases when the Part II UCI is structured as a FCP.

    Subject to a subscription tax (0.05% per annum calculated on the net asset value) payable on a quarterly basis. Reduced or exempt in certain cases.No withholding tax on liquidation proceeds.No withholding tax on interest payments, except in limited cases.In particular Part II UCIs or individual compartments thereof (i) the investment policy of which provides for an investment of at least 50% of their assets in microfinance institutions within the meaning of the Grand-Ducal regulation of 14 July 2010 or (ii) that benefit from the microfinance label from the Luxembourg Fund Labelling Agency, are exempted from subscription tax.

    SICAR

    Subject to income taxes, but exemption on profits derived from risk capital securities and funds to be invested within 12 months in risk capital securities.

    No withholding tax on dividend distributions and on liquidation proceeds.No withholding tax on interest payments, except in limited cases.

    None.

    SIF

    Exempt. No withholding tax on payments of dividends, liquidation proceeds and interest, except in limited cases when the SIF is structured as a FCP.

    Subject to a subscription tax (0.01% per annum calculated on the net asset value) payable on a quarterly basis. Exempt in certain cases.In particular SIFs or individual compartments thereof (i) the investment policy of which provides for an investment of at least 50% of their assets in microfinance institutions within the meaning of the Grand-Ducal regulation of 14 July 2010 or (ii) that benefit from the microfinance label from the Luxembourg Fund Labelling Agency, are exempted from subscription tax.

    Securitisa-tion vehicle

    Securitisation companies: Subject to income taxes, but any commitments (including e.g. interests, dividends, etc) of a securitisation company towards investors and creditors are considered as fully tax deductible business expenses. In practice, they will thus not realise any taxable profits and hence will not actually pay income tax as any income or gain is normally offset by a tax-deductible expense.

    Securitisation funds: Exempt.

    No withholding tax on payments of dividends, liquidation proceeds and interest, except in limited cases for interest payments within the scope of the EU Savings Directive or made to Luxembourg resident individuals.

    None.

    SOPARFI

    SA, SCA, Srl: subject to income taxes, but exemption under certain conditions for dividends, liquidation proceeds and capital gains derived from qualifying participations in portfolio company(ies).

    SCS, SNC: subject to municipal business tax but exemption under certain conditions for dividends, liquidation proceeds and capital gains derived from qualifying participations in portfolio company(ies).

    SA, SCA, Srl: dividend distributions, as a general rule, are subject to a 15% withholding tax, but possible exemption on distributions made to qualifying parent companies and reduced tax-treaty rates available.

    SCS, SNC: exempt.

    None.

  • 23

    Basics on Luxembourg taxation - Taxation of the vehicle

    Main Luxembourg microfinance investment vehicles

    Registration duty Wealth tax VAT

    Part II UCIs

    A flat registration duty of EUR 75 is levied on:- The registration of the

    incorporation of the Part II UCI;- The amendment to the articles of

    incorporation of the Part II UCI.

    Exempt. Qualifies as a taxable person for VAT purposes. However, the provision of management services to a Part II UCI may be exempted.

    SICAR

    A flat registration duty of EUR 75 is levied on:- The registration of the

    incorporation of the SICAR;- The amendment to the articles of

    incorporation of the SICAR.

    Exempt. Exempt. Qualifies as a taxable person for VAT purposes. However, the provision of management services to SICARs may be exempted.

    SIF

    A flat registration duty of EUR 75 is levied on:- The registration of the

    incorporation of the SIF;- The amendment to the articles of

    incorporation of the SIF.

    Exempt. Qualifies as a taxable person for VAT purposes. However, the provision of management services to SIFs may be exempted.

    Securitisation vehicle

    A flat registration duty of EUR 75 is levied on:- The registration of the

    incorporation of the securitisation vehicle;

    - The amendment to the articles of incorporation of the securitisation vehicle.

    Exempt. Qualifies as a taxable person for VAT purposes. However, the provision of management services to securitisation vehicles may be exempted.

    SOPARFI

    A flat registration duty of EUR 75 is levied on:- The registration of the

    incorporation of the SOPARFI;- The amendment to the articles of

    incorporation of the SOPARFI.

    Subject to wealth tax at a rate of 0.5% on the adjusted net asset value of the company but: (i) exemption under certain conditions for qualifying participations in portfolio company(ies), and (ii) possibility to avoid/reduce net worth tax by creating a dedicated reserve equal to five times the net worth tax to save and maintained during the 5 following tax years.

    Qualifies as a taxable person for VAT purposes in respect of its activities other than passive shareholdings.

  • 24

    Basics on Luxembourg taxation - Taxation of the investors

    Main Luxembourg microfinance investment vehicles

    Taxation of Luxembourg resident investors Taxation of Luxembourg non-resident investors

    Part II UCIs

    Income derived from the Part II UCI constitutes as a rule taxable income or profit.

    Capital gains and liquidation proceeds derived therefrom are as a general rule exempt in the hands of a Luxembourg resident investor acting in the course of the management of his private wealth if derived from a non-substantial shareholding (10% max.) held for at least 6 months.

    Capital gains and liquidation proceeds derived by a Luxembourg resident investor acting in the course of the management of his private wealth from a substantial shareholding (more than 10%) held for at least 6 months are taxable at half global rate.

    Profits are not taxable, except for (i) capital gains and liquidation proceeds derived from a substantial shareholding (more than 10%) in a Part II UCI established as a corporate entity within the first 6 months4, (ii) in limited circumstance under the EU Savings Directive for a Part II UCI established as a FCP, or (iii) if the profits are realised by a Luxembourg permanent establishment or permanent representative.

    SICAR

    Dividends are gene-rally 50% exempt. Full exemption is possible in the hands of a qualifying parent company under the participation exemption.Interest is generally taxable as ordinary income, unless the final withholding tax of 10% applies in the case of individuals acting within the course of the management of their private wealth.

    Capital gains and liquidation proceeds are exempt in the hands of a Luxembourg resident investor acting in the course of the management of his private wealth if derived from a non-substantial shareholding (10% max.) held for at least 6 months.

    Capital gains and liquidation proceeds derived by a Luxembourg resident investor acting in the course of the management of his private wealth from a substantial shareholding (more than 10%) held for at least 6 months are taxable at half global rate. Full exemption of capital gains and liquidation proceeds is possible in the hands of a qualifying company under the participation exemption.

    Profits are not taxable unless realised by a Luxembourg permanent establishment or permanent representative.

    SIF

    Income derived from the SIF constitutes as a rule taxable income or profit.

    Capital gains and liquidation proceeds derived therefrom are as a general rule exempt in the hands of a Luxembourg resident investor acting in the course of the management of his private wealth if derived from a non-substantial shareholding (10% max.) held for at least 6 months.

    Capital gains and liquidation proceeds derived by a Luxembourg resident investor acting in the course of the management of his private wealth from a substantial shareholding (more than 10%) held for at least 6 months are taxable at half global rate.

    Profits are not taxable, except for (i) capital gains and liquidation proceeds derived from a substantial shareholding (more than 10%) in a SIF established as a corporate entity within the first 6 months, (ii) in limited circumstance under the EU Savings Directive for a SIF established as a FCP, or (iii) if the profits are realised by a Luxembourg permanent establishment or permanent representative.

    4 Except to be abolished according to the bill n6170 of 6 August 2010 as from 1 January 2011.

  • 25

    Basics on Luxembourg taxation - Taxation of the investors

    Main Luxembourg microfinance investment vehicles

    Taxation of Luxembourg resident investors Taxation of Luxembourg non-resident investors

    Securitisation vehicle

    Income derived from a securitisation vehicle constitutes as a rule taxable income or profit.

    Capital gains and liquidation proceeds are exempt in the hands of a Luxembourg resident investor acting in the course of the management of his private wealth if derived from a non-substantial shareholding (10% max.) held for at least 6 months.

    Capital gains and liquidation proceeds derived by a Luxembourg resident investor acting in the course of the management of his private wealth from a substantial shareholding (more than 10%) held for at least 6 months are taxable at half global rate.

    Profits are not taxable, except for (i) capital gains and liquidation proceeds derived from a substantial shareholding (more than 10%) in a securitisation company within the first 6 months, (ii) in limited circumstance under the EU Savings Directive for a securitisation fund, or (iii) if the profits are realised by a Luxembourg permanent establishment or permanent representative.

    SOPARFI

    Dividends are generally 50% exempt. Full exemption is possible in the hands of a qualifying parent company under the participation exemption. Interest is generally taxable as ordinary income, unless the final withholding tax of 10% applies in the case of individuals acting within the course of the management of their private wealth.

    Capital gains and liquidation proceeds are exempt in the hands of a Luxembourg resident investor acting in the course of the management of his private wealth if derived from a non-substantial shareholding (10% max.) held for at least 6 months. Capital gains and liquidation proceeds derived by a Luxembourg resident investor acting in the course of the management of his private wealth from a substantial shareholding (more than 10%) held for at least 6 months are taxable at half of the global rate. Full exemption of capital gains and liquidation proceeds is possible in the hands of a qualifying company under the participation exemption.

    Profits are not taxable, except for capital gains and liquidation proceeds derived from a substantial shareholding (more than 10%) within the first 6 months or if profits are realised by a Luxembourg permanent establishment or permanent representative.

  • Isabelle Lebbe, PartnerInvestment FundsTel: (352) 40 78 78 510

    Fax: (352) 40 78 04 656

    Email: isabelle.lebbe@arendt.com

    Ari Gudmannsson, PartnerBank Lending, Structured FinanceTel: (352) 40 78 78 397

    Fax: (352) 40 78 04 639

    Email: ari.gudmannsson@arendt.com

    Anne Contreras, PartnerInvestment FundsTel: (352) 40 78 78 640

    Fax: (352) 40 78 04 616

    Email: anne.contreras@arendt.com

    Eric Fort, PartnerTel: (352) 40 78 78 306

    Fax: (352) 40 78 04 633

    Email: eric.fort@arendt.com

    Thierry Lesage, PartnerTel: (352) 40 78 78 328

    Fax: (352) 40 78 04 657

    Email: thierry.lesage@arendt.com

    Bruno Gasparotto, PrincipalTel: (352) 40 78 78 909

    Fax: (352) 40 78 04 811

    Email: bruno.gasparotto@arendt.com

    Alain Goebel, PartnerTel: (352) 40 78 78 512

    Fax: (352) 40 78 04 635

    Email: alain.goebel@arendt.com

    www.arendt.com Arendt & Medernach 2010

    Arendt & Medernachmicrofinance team

    Our Microfinance Team is supported by our Tax Team:

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    11/2010

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