VANDENBULKE. LUxEMBOURG INVESTMENT VEHICLES A PRACTICAL GUIDE SOPARFI / SICAR / SIF / SECURITISATION. new ways of thinking law in Luxembourg

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1 VANDENBULKE new ways of thinking law in Luxembourg LUxEMBOURG INVESTMENT VEHICLES A PRACTICAL GUIDE SOPARFI / SICAR / SIF / SECURITISATION

2 VANDENBULKE RATING OF LUXEMBOURG INVESTMENT VEHICLES The following investment vehicles are rated according to their appropriateness for different types of investment transactions. This rating is based on several criteria including the legal and management constraints, the type of assets invested, the tax regime or the exit strategies. Types of Investment objectives and transactions considered Real Estate: acquiring, directly or indirectly, and managing one or several real estate properties. Private Equity: Investment, directly or indirectly, in a limited number of companies with financial leverage and exit strategy. Portfolio Management: managing financial assets. Estate Planning: organising its assets for management and estate planning purposes. Other: any other relevant purposes for which the investment vehicle may be appropriate. *** ** Recommended Appropriate Convenient * 0 Inadequate SOPARFI SICAR SIF Securitisation SPV Real Estate *** ** *** * Private Equity *** *** ** * Portfolio Management * 0 *** 0 Estate Planning ** ** *** ** Other Commercial None Investment in any assets Investment in all types of risk Abbreviations CPA CSSF DTT Luxembourg Certified Public Accountant or Réviseur d Entreprises registered in Luxembourg Commission de Surveillance du Secteur Financier or Commission for Supervision of the Financial Sector (Luxembourg regulatory authority) Double Tax Treaty The updated list of Luxembourg DTT can be consulted on the website SCS SIF SICAR Société en Commandite Simple (Limited Partnership) Specialised Investment Fund Société d investissement en capital à risque (Investment Company in Risk Capital) NAV Net Asset Value SNC Société en Nom Collectif (Unlimited Partnership) SA Société Anonyme (Public Limited Liability Company) SOPARFI Société de Participations Financières PSF Luxembourg Professional of the Financial Sector UCI Undertaking for Collective Investment subject to the CSSF supervision SàRL Société à Responsabilité Limitée (Private Limited WHT Withholding Tax Liability Company) SCA Société en Commandite par Actions (Corporate Partnership Limited by Shares)

3 Salient features considered for VANDENBULKE s rating Other regulatory aspects Publication requirements Legal forms Taxation of the Investment Vehicle Refers to the type of assets an Investment Vehicle may invest into as well as the specific restrictions which may apply. Refers to the level of investor sophistication required for investments in the Investment Vehicle. Refers to the possibility for a vehicle to invest in a number of segregated portfolios of assets and liabilities. In this event, Luxembourg regulation provides for ring-fencing protection in the event of liquidation or bankruptcy. Refers only to the type of financing available (e.g. shares, notes, PECs, etc.) and the debt/capital ratio if any. requirements or restrictions dependent on the legal form of the Investment Vehicle (e.g. SA versus SàRL) are not addressed. Refers to the supervision by the CSSF, which usually implies an approval of the Investment Vehicle and its various features as well as certain reporting requirements to the CSSF (e.g. filing of the financial statements and issuance documents). Refers mainly to an intervention of a CPA beyond general corporate law provisions (e.g. for the valuation of assets) and to the requirement that other parties to the transaction be subject to regulatory supervision (e.g. the requirement that the depositary be a regulated entity). Refers to the method used to assess the value of the assets of the Investment Vehicle (e.g. at cost versus fair value). Refers to the obligation to make certain information available to the investors i.e. publication of financial report or a prospectus on the securities issued by the Investment Vehicle. Only obligations dependent upon the type of Investment Vehicle are considered irrespective of its corporate form (SàRL, SA). Refers to the corporate or unincorporated forms available to the Investment Vehicle. The most frequent corporate forms are the SA, the SCA and the SàRL as opposed to the partnership or common fund form (FCP). Fixed is the general principle under corporate law. The is variable when the amount of is equal to the net asset value of the company at all times. Under this regime, new shares can be issued at any time (in accordance with the articles of incorporation). Refers to taxes applicable to the Investment Vehicle: (1) income tax, (2) WHT on distributions, (3) subscription tax, (4) capital duty, (5) wealth tax and (6) VAT. Refers to taxes applicable to investors. Taxation is reviewed in respect of (i) Luxembourg resident investors and (ii) Luxembourg non-resident investors (corporations only). Specific Definitions EU Tax Directives Institutional Investors Professionnal Investors Qualifying Participation Well-Informed Investors The EC Parent-Subsidiary Directive, the EC Interest Royalty Directive and the EC Merger Directive. Entities managing for business purposes substantial amount of financial assets e.g. banks, insurance companies, pension funds, multinational industrial groups. Entities subject to authorisation or supervision to carry out their activities. Are also included entities reaching certain thresholds in terms of turnover, equity or staff. A shareholding (i) of at least 10% in the of a company subject at least to half of the Luxembourg corporate tax rate (ii) which has been held (or is commited to be held) for 12 months. Dividends received from or capital gains realized on this participation are tax exempt in Luxembourg. The 10% threshold can be substituted by a fixed amount ( 6 M for capital gains and 1.2 M for dividends). Investors who state in writing that they have sufficient knowledge and experience to understand and bear the risk of their investment and either (i) invest a minimum of 125,000 or (ii) produce an assessment made by a regulated financial institution that they have the expertise, experience and knowledge to appraise the risk of their investment.

4 SOPARFI or Société de Participations Financières or Holding Company Other regulatory aspects Publication requirements Legal form Taxation of the Investment Vehicle Financial participations in other undertakings. It may be used for real estate and trade purposes as well. No investment restrictions and no risk-spreading requirements. No restrictions. Investors do not need to be sophisticated. No, SOPARFIs cannot be set up as umbrella structures. However, they can issue tracking shares reflecting the performance of their different investment programs/strategies. A SOPARFI may be financed through a wide variety of equity, debt and hybrid instruments. It can also leverage its investments by borrowings. It must comply with a 85/15 debt-to-capital ratio with the view to avoid adverse tax consequences. These consequences may be mitigated through adequate structuring. No. None. Assets are valued at cost and no reevaluation at fair market value is required. Assets value may be written down if a loss is foreseeable and durable. The publication of a prospectus is not required, unless for listing or public offering purposes. A SOPARFI may be exempted from drafting consolidated financial statements on a case-by-case basis. A SOPARFI may be set up as SA, SCA, SàRL, SCS, SNC or civil company. Only fixed is possible. New shares can be issued by a decision of the General Meeting of Shareholders or by decision of the Board (if provided by the articles of a SA or SCA). Shares can be issued at any value and partly paid-in (up to 25% for a SA and a SCA but fully paid-in for a SàRL). The redemption of shares beyond 10% of the is authorized. > Income tax The standard corporate tax rate applies. Dividends and capital gains derived from Qualifying Participations are exempted. > WHT on distribution to investors > Subscription tax None. > Capital duty None. There is no WHT on royalties, interests or liquidation proceeds paid by the SOPARFI. Dividends are subject to a 15% WHT, unless the beneficiary holds a Qualifying Participation in the SOPARFI. Reduced rates are available under DTTs. > Wealth tax 0.5% on the net assets computed as of 1 January. However, under certain conditions, exemptions or reductions of wealth tax are available for a Qualifying Participation or by creating a dedicated accounting reserve. > VAT A SOPARFI qualifies as a taxable person for VAT purposes in respect of its activities other than passive shareholdings. > DTT and SOPARFIs fully benefit from the Luxembourg DTT network and the EU Tax Directives (without restrictions). EU Directives > Luxembourg resident investors (Corporations only) > Luxembourg nonresident investors Dividends received are generally 50% exempt. Interest and capital gains are taxable at the standard corporate tax rate. Full tax exemption may be available for Qualifying Participations. In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of DTTs limits however any taxation in Luxembourg.

5 SICAR or Société d Investissement en Capital à Risque or Investment Company in Risk Capital Other regulatory aspects Publication requirements Legal form Taxation of the Investment Vehicle Only investments in risk capital securities are permitted, i.e. the direct and indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange. Characteristics of the investments include (i) a high risk (ii) the development of the targeted investee and (iii) a clear exit strategy. Investments in real estate and other investment vehicles are allowed provided they meet the risk capital requirements. Riskspreading is not required (investment in one sole target allowed). Only sophisticated investors may invest in a SICAR i.e. (i) Institutional investors, (ii) Professional investors and (iii) Well-Informed investors. A SICAR may be set up as an umbrella structure with independent compartments. SICARs may be financed through a wide variety of equity, debt and hybrid instruments. The subscribed share capital must reach 1 million within 12 months of the CSSF authorisation. Yes, SICARs must be authorised by the CSSF before they start their activities. Process review includes mainly approval of the constitutional documents (prospectus/pm, articles of incorporation/partnership agreement), directors/managers, choice of depositary and CPA, and SICAR service providers agreements. SICARs remain subject to light CSSF regulation until liquidation. The depositary bank must be a Luxembourg credit institution and the central administrator a PSF. Annual financial statements must be audited by a CPA who can be required by the CSSF, under certain circumstances, to specific reporting. Assets are valued at their fair value. A prospectus must be made available to investors enabling them to make an informed assessment of the investment. No specific lay-out or minimum content applies. The NAV must be made available at least twice a year to investors who request it. The SA, SCA and SàRL corporate forms and the SCS contractual form may be used. The FCP form is not allowed. The may be fixed or variable. Each share must be paid-in up to at least 5% (with the exception of SICARs set-up under the SCS form). > Income tax The standard corporate tax rate applies, but all profits derived from risk capital securities (dividends, capital gains, interests as well as profits derived from cash funds to be invested in risk capital) are exempted. > WHT on distribution No WHT on dividends or liquidation proceeds. No WHT on interest payments, except in limited cases under the to investors EU Savings Directive. > Subscription tax None. > Capital duty None. > Wealth tax Exempt. > VAT Qualifies as taxable person for VAT purposes. The provision of management and administration services to SICARs may be VAT exempted. > DTT and In principle, SICARs benefit from the Luxembourg DTT network and the EU Tax Directives. EU Directives > Luxembourg resident investors (Corporations only) > Luxembourg nonresident investors Dividends received are generally 50% exempt. Interest and capital gains are taxable at the standard corporate tax rate. Full tax exemption may be available for Qualifying Participations. In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of DTTs limits however any taxation in Luxembourg.

6 SIF or Specialised Investment Fund Other regulatory aspects Publication requirements Legal form Taxation of the Investment Vehicle > Income tax Exempt. > WHT on distribution to investors No restrictions. Hence it may invest in real estate, private equity, derivatives, listed companies or other investment vehicles (fund of fund structure) or any combination thereof. A SIF must aim at spreading its risk either directly or indirectly (in principle, investment in same securities of same issuer cannot exceed 30% of the SIF s assets). Derogations can be granted by the CSSF on a case-by-case basis and after CSSF assessment. Only sophisticated investors may invest in a SIF i.e. (i) Institutional investors, (ii) Professional investors and (iii) Well-Informed investors. A SIF may be set up as an umbrella structure with segregated portfolios of assets and liabilities. SIFs may be financed through a wide variety of equity, debt and hybrid instruments. The subscribed must reach 1.25 million within 12 months of CSSF authorisation. Yes. A SIF must be authorised by the CSSF. However, the application for such authorisation can be made within one month after its establishment. Process review includes mainly approval of the constitutional documents (prospectus/pm, articles of incorporation/partnership agreement), directors/managers, choice of depositary and CPA, and FIS service providers agreements. Neither the investment manager nor the promoter of the SIF is subject to CSSF approval. SIFs remain subject to a light CSSF supervision until liquidation. The depositary bank must be a Luxembourg credit institution and the central administrator a PSF. Annual financial statements must be audited by a CPA who can be required by the CSSF, under certain circumstances, to specific reporting. In principle, assets are valued at their fair value, unless otherwise provided in the articles of incorporation or the management regulations. A prospectus must be made available to investors enabling them to make an informed assessment of their investment. No specific lay-out or minimum content applies. The NAV must be made available to investors once a year. Corporate forms (usually SA, SCA or SàRL) and contractual forms (SCS, SNC, civil company) are available. The SIF may be structured as a FCP. A SIF may be set up either with a fixed or variable. Each share must be paid-in up to at least 5% (with the exception of SIFs set-up under the following forms: SCS, SNC or civil company). No WHT on dividends or on liquidation proceeds. No WHT on interest payments, except in limited cases when the SIF is structured as a FCP. > Subscription tax 0.01% p.a. calculated on the NAV of the SIF or its compartment/sub-fund. Exemptions are available in limited cases. > Capital duty None. > Wealth tax Exempt. > VAT SIFs qualify as taxable persons for VAT purposes. The provision of management and administration services to SIFs may be exempted. > DTT and SIFs benefit partially from the Luxembourg DTT network but do not benefit from the EU Tax Directives. EU Directives > Luxembourg Dividends and capital gains are taxed as ordinary income. Interests are generally taxed as ordinary income. resident investors (Corporations only) > Luxembourg nonresident investors In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of some DTTs may limit any taxation.

7 Securitisation Vehicle Other regulatory aspects Publication requirements Legal form Any financial assets, claims, securities, real estate, insurance contracts and more generally any type of risk. No restrictions. Taxation of the Investment Vehicle Yes. The law allows creating independent compartments or sub-funds with ring-fencing characteristics. A securitisation vehicle may be financed through a wide variety of equity, debt and hybrid instruments. It can also leverage its investments by borrowings. No. Unless the vehicle issues securities (i) to the public (ii) more than 3 times a year. If either condition is not fulfilled, the vehicle is not subject to CSSF supervision. The financial statements must be audited by a CPA. If the securitisation vehicle is CSSF regulated, the CPA must be approved by the CSSF. Assets may be valued at their mark-to-market value or probable realisation value. In addition, the securitisation companies (as opposed to securitisation funds) may value their assets in accordance with the lower of cost or market principle. No obligations specifically related to the qualification as securitisation vehicle. Securitisation vehicles usually take a corporate form (most used are the SA, SCA and SàRL). Securitisation funds may be set up either as a co-ownership or as a fiduciary property structure. Only fixed is possible. Shares can be issued at any value and partly paid-in (up to 25% for a SA and a SCA but fully paid-in for a SàRL). Capital increases of securitisation corporations are made pursuant to general corporate law provisions, including the authorised capital technique. > Income tax The securitisation vehicle is fully taxable at the standard corporate tax rate. However, any commitments to shareholders or creditors are tax deductible. An appropriate structuring and financing planning allows avoiding any taxation. > WHT on distribution None, except in limited cases under the EU Savings Directive. to investors > Subscription tax None. > Capital duty None. > Wealth tax None. > VAT The management and administration services provided to the securitisation vehicle are exempted from VAT. > DTT and EU Directives > Luxembourg resident investors (Corporations only) > Luxembourg nonresident investors Securitisation vehicles benefit, in principle, from the Luxembourg DTT network and the EU Tax Directives (with some restrictions). Interests are taxed as ordinary income. Dividends qualify as interest income and are taxed as ordinary income. Capital gains realized by a resident company holding a Qualifying Participation in a securitisation vehicle do not benefit from the specific regime of participation exemption (Affiliation privilege). However, these capital gains may be generally exempted pursuant to general principles of tax law. In principle, profits are not taxable, except (A) with respect to capital gains and liquidation proceeds, when the shareholding is (i) at least 10% and (ii) held for less than 6 months or (B) with respect to profits realised by a Luxembourg permanent establishment or representative. The application of some DTTs may limit any taxation in Luxembourg.

8 VANDENBULKE new ways of thinking law in Luxembourg 35 avenue Monterey L-2163 Luxembourg Tel: Fax: Disclaimer: This brochure has been prepared for general guidance only and is not intended to give specific advice nor is intended to be comprehensive. No representation or warranty is given to the accuracy and completeness of the information contained in this publication. The firm does not accept nor assume any liability for loss occasioned to any person acting or refraining to act in reliance of the information contained in this publication. For further information, please contact our lawyers.