Securitization Vehicles in Luxembourg

Securitization Vehicles in Luxembourg

Updated on Wednesday 14th February 2024

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If you want to open a securitization vehicle in Luxembourg, you can find all the necessary assistance from our team of consultants. We invite you to discover in this article the main characteristics of securitization vehicles, the legislation applicable to it and any other matters that can be important to foreign investors. 
 
Luxembourg is the main investment market in Europe chosen by local and foreign investors, as it offers a very stable market and a powerful legislation regulating the investment environment, being suitable for a variety of structures, such as the SIF in Luxembourg or the SICAR in Luxembourg. 
 
Businessmen interested in setting up a fund in Luxembourg should know that they can benefit from the securitization method, which represents a structured financing entity that can transfer financial assets from an originating company to a Special Purpose Vehicle (SPV).
 
The vehicle assumes financial risks by issuing transferable securities (such as shares or bonds). Foreign investors interested in securitization vehicles in Luxembourg can receive an in-depth presentation on the matter from our experts. 
 

Securitization Law in Luxembourg 

 
Securitization vehicles operate under the Securitization Law, which provides the legislative framework for their legal form, incorporation, minimum capital, taxation and other aspects related to the activity of a corporate entity. 
 
The following video offer more information on the securitization vehicles that can be registered in Luxembourg:
 

 
According to this legislation, a securitization vehicle can be set up as a company or as an investment fund. Investors interested in setting up a securitization vehicle as a company can incorporate it under the following types of companies: 
 
  1. public limited liability (PLC);
  2. limited liability company;
  3. partnership limited by shares;
  4. cooperative in the form of PLC. 
Investors who want to open a Luxembourg fund or to register a securitization vehicle in Luxembourg should observe the latest amendments of the laws applicable here – information concerning this can be, of course, given by our team of financial advisors. 
 
It must be noted that the legislation regulating securitization has been amended in 2022, by including new legal entities that can be used as business forms for the set up of SPVs. Thus, it must be noted that 2 other types of partnerships can be used for this purpose, outside the partnership limited by shares, mentioned above. 
 
The securitization law in Luxembourg also allows investors to start a SPV structure through a limited partnership or the special limited partnership. Our consultants can provide more details on the characteristics of these 2 entities and their advantages, as well as on the main tax obligations deriving from their incorporation. 
 
Securitization vehicles incorporated as a fund do not have a legal entity and require to be managed by a management company; our financial specialists can provide you with further details on the advantages provided by the above mentioned types of structures. 
 

What are the main updates of the securitization law in Luxembourg? 

 
Starting with 2022, those who want to open a securitization fund in Luxembourg benefit from a better and more modernized legislation. One of the main amendments of the law was the expansion of options regarding the legal entities that can be used for securitization purposes. 
 
In the list below, we invite you to discover some of the highlights of the updated law:
 
  • the securitization law in Luxembourg has been modernized so that it can better align with the Regulation (EU) 2017/2402 of 12 December 2017, implemented at a EU level;
  • the definition of securities has been broadened to include financial instruments, as defined by the Luxembourg law of 5 August 2005;
  • the new law has also clarified that the issuance of securities to the public “on a continuous basis” refers to any activities that involve more than 3 issues per year;
  • under the new legal obligations, a securitization vehicle in Luxembourg must make public its issuance of financial instruments if the issuance is not made to professional clients defined under the law of 5 April 1993 – Article 1 (5) and if the value of the financial instruments is below EUR 100,000. 
 
The matter mentioned above, regarding the issuance “on a continuous basis” of financial instruments is important, as this is one of the main factors that establishes if the securitization fund in Luxembourg needs to be authorized by the Supervision Commission of the Financial Sector (CSSF).  
 
The new legislation stipulates that the obligation to obtain an authorization from the institution is imposed solely to funds that develop their activities on a continuous basis, which, under the latest provisions, refers to minimum 3 issuance of securities per year, in the conditions mentioned earlier. 
 

Securitization vehicles established as funds in Luxembourg 

 
A securitization vehicle is not a legal entity; in order to be allowed to carry out activities in Luxembourg, the fund is required to be managed by a management company incorporated as commercial entity. 
 
According to the Securitization Law, a securitization fund has to specify in its management regulations that it complies with the provisions of the above mentioned legislation in order to qualify as a securitization fund. 
 
The fund can be established as a co-ownership or a trust, which can be further categorized in sub-funds. 
 
A securitization fund does not have to submit a minimum capital; the directors of the management company managing the fund are required to have a business experience relevant for the function. 
 
An important aspect is the accounting procedures for a securitization fund are done under the Investment Law 2010; the fund is not liable to paying the corporate income tax or municipal business tax; another relevant aspect is that a securitization fund is not required to pay a subscription tax, as it is exempted from this tax, although it is applicable to other types of investment funds. 
 
If you need further information on the securitization funds in Luxembourg, please address our financial agents for assistance on this matter. 
 
We also invite you to address to our consultants if you need information on other types of funds that can be incorporated here. You can also obtain information regarding the taxation system applicable to investment funds (it is different than in the case of corporate entities). 
 
Our team can help you register any type of fund following the standard registration steps, including the SIF in Luxembourg. 
 
In most of the cases, the registration steps are similar for the majority of the funds. For instance, the rules that are applied for the SIF are also applied for the SICAR in Luxembourg. 
 
Both structures must obtain an approval from the CSSF, the main institution in charge with the issuance of licenses, permits and approvals for investment funds and investment fund managers. 
 

Taxation of a securitisation vehicle 

 
Taxation of securitization vehicles is done in accordance with the legal structure chosen by the investor. If the vehicle has been incorporated as a company, then the local authorities will impose the corporate tax, which is currently charged at a rate of 24.94%.
 
The corporate tax is comprised of 3 different taxes – the corporate income tax, charged at a rate of 17%, the solidarity surcharge, charged at a rate of 7% and the municipal business tax, charged at a rate of 6.75%. 
 
Therefore, if you will open an investment fund in Luxembourg registered under a corporate entity, the fund will be required to pay this tax. But the overall tax system imposed to the investment fund can also be greatly influenced by the type of fund, as different legislations can apply. 
 
For instance, private equity in Luxembourg can be taxed following a different tax system than the one applicable to a SICAR in Luxembourg and so on. If you will opt to register a securitization vehicle in Luxembourg as a partnership, please mind that the corporate tax will not apply – a partnership will, however, be charged with the municipal business tax. 
 
Such companies can also be the beneficiaries of the provisions stipulated in the agreements for the avoidance of double taxation. If you need further information on the securitization vehicles in Luxembourg, please address our financial experts, who can provide you with advice and assistance on this matter. 
 
If you need further advice on the securitization vehicles available here, our team remains at your service. You can refer to our consultants if you need to be represented in the procedure of setting up a SIF in Luxembourg, a type of vehicle address to qualified investors. 
 

Other types of structures available in Luxembourg 

 
Our consultants can present the documents you need for the registration, the capital requirements, the conditions the investors must fulfill, etc. The same service can be offered if you are interested in the steps imposed for the registration of a SICAR in Luxembourg. 
 
This structure is regulated by the Law of 15 June 2004. The law states the fund must be approved by the CSSF, based on the incorporation documents submitted by the investors. We can present the main matters which have to be mentioned in the incorporation papers. 
 
Further on, you are also invited to address our team if you need details concerning the minimum conditions to fulfill when you want to register a SOPARFI in Luxembourg. 
 
This structure is governed by the corporate law as well, given that the fund must be incorporated under one of 5 company types allowed by the national regulations (the fund is entitled to benefit from the provisions of the double tax treaties signed here). 
 
Our financial advisors can assist you in the formalities of registering any type of fund that is regulated under the financial law. You can rely on us for information on the RAIF in Luxembourg. One of the main advantages of this type of fund is that the registration formalities can be completed much faster compared to other funds, as it does not need approval from CSSF. 
 
Please contact us for additional information on other structures, such as the SIF in Luxembourg or on any other matter concerning the registration of a securitization vehicle in Luxembourg.