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Private Equity

Luxembourg has long been recognised as an attractive jurisdiction for structuring private equity companies, private equity funds and private equity deals.

 

Many deals in venture capital, FinTech, infrastructure, BioTech, Blockchain, socially responsible investments, business angels,…  are happening  from Luxembourg.


Legal and tax environment


It is a particularly advantageous domicile thanks to its flexible legal and tax environment, with key benefits including:

  • No minimum capital for partnerships. The minimum capital for an S.A. (public limited company) or S.C.A. (partnership limited by shares) is EUR 30,000 (minimum of a quarter paid in) and for a S.à.r.l. (limited liability company) EUR 12,500 (fully paid in).

  • These amounts can be in non-euro currencies;

  • Investors can incorporate a company by contribution in cash or in kind. No capital duty applies on incorporation;

  • Limited partnership vehicles can be incorporated (SLP);

  • An external auditor valuation is mandatory only for an S.A./S.C.A. but not for a S.à.r.l. or for partnerships;

  • The vehicle's shares may be listed on the Luxembourg Stock Exchange or on any overseas stock exchange;

  • Capital premium may be used. Contributions need not necessarily come from an increase in capital or issuance of shares;

  • There is no specific debt/equity ratio.


Private equity structures


Luxembourg is home to thousands of holding companies that invest in the economy, people and private equity deals around the world in different sectors of the industry, such as finance, infrastructure, IT, asset management and the digital economy.

Investors, fund promoters, private equity firms and family offices that choose Luxembourg as a base for their private equity companies and investments can select from a variety of different structures suited to their needs.

The most popular structures include the SOPARFI (Sociétés de Participations Financières), SLP (special limited partnership), RAIF (reserved alternative investment fund), the SICAR (Sociétés d'Investissement à Capital-Risque) and the SIF (specialised investment fund).

 

Société de Participation Financière (SOPARFI)

 

The SOPARFI is a specialist vehicle for investing in private equity deals. It can acquire private equity investments in a tax efficient manner with minimal legal and administrative burden. It is the ideal Luxembourg vehicle for receiving funds and making investments, raising capital for investment, issuing bonds or debt securities, listing in Luxembourg, investing in intellectual property, and co-investing with other institutional investors or family offices. It is unregulated and can be incorporated within a week. It can issue various share classes and tracking shares.

 

Special Limited Partnership (SLP)


The SLP is a vehicle that specifically facilitates co-investment or partnership investment. It is tax transparent and has become one of the most flexible and sought after Luxembourg company structures for fund promoters.

The SLP is a form of company that can be incorporated (in Luxembourg) by one General Partner (GP) and at least one Limited Partner (LP – the investor). It can be setup as an Unregulated Alternative Investment Fund under the AIFMD, and its manager should not be regulated when its AUM does not exceeds €100m, or €500m for closed-end funds. The structure can be set up within a week and requires no prior regulatory approval, custodian, audit or prime broker.

 

Reserved Alternative Investment Fund (RAIF)


The RAIF is a new unregulated Alternative Investment Fund available to institutional or sophisticated investors with a minimum investment of €125,000. The RAIF shares many similarities with the Luxembourg SIF and SICAR funds (detailed below), and can be set up in a way that subjects it to the same tax regime. It can also be set up as a Special Limited Partnership or a SICAV, housing several different entities for different projects or strategies.

The RAIF framework has the same flexibility as the SIF and SICAR but can be established faster as it doesn’t need to be approved by the Commission de Surveillance du Secteur Financier (CSSF, the Luxembourg financial regulator). It can be set up within a week, subject to preparation of the required documentation.

The RAIF must be managed by an externally regulated Alternative Investment Fund Manager, who can be domiciled in Luxembourg or in any other EU member state, in order to ensure a sufficient level of protection and regulation for investors.

 

Société d'investissement en capital à risque (SICAR)


The SICAR is a regulated, fiscally efficient structure designed for private equity and venture capital investments in Luxembourg or abroad. Since 2004, SICARs have experienced extraordinary uptake, making Luxembourg a major centre for private equity. A SICAR will generally acquire risky assets to develop and sell.  It may adopt an open or closed ended structure and the minimum capital required will depend on the legal structure selected.

A SICAR may be incorporated in five different forms: an S.C.A., a private limited company (LTD/Société à Responsabilité Limitée), a public limited company (PLC/Société Anonyme), a limited partnership (SLP/SCS - Société en Commandite Simple) or a cooperative company organised as a public limited company (Coopsa - Société Cooperative organisée sous forme de Société Anonyme).

 

Specialised Investment Fund (SIF)

 

The SIF has been available since 2007 when a new law provided an additional vehicle specifically designed for qualified international investors. It enables institutions and other sophisticated investors to invest in a wide range of debt related instruments, distressed assets, funds and investment vehicles (including SICAVs, SIFs, SICARs), and is one of the key reasons Luxembourg has become such a popular destination for the structuring of private equity funds.

While there are no legal restrictions on the type of assets in which SIFs may invest, the investment policy must be approved by the CSSF. The regulator has established requirements regarding risk diversification, but these are less strict than for UCITS.



Debt issuance


Fund promoters also view Luxembourg as an attractive jurisdiction for debt issuance to support their activities, including private equity deals, venture capital, … In general, any interest paid by a Luxembourg company to its creditors does not suffer withholding taxes. It can be listed on any stock exchange. Many SOPARFIs are setup to raise capital via Luxembourg by issuing debt securities, with a fixed or variable yield.

One of the instruments which allows private equity companies to take full advantage of the taxation benefits available in Luxembourg is the (Convertible) Preferred Equity Certificate. PECs and CPECs are often used in structuring transactions for internationally-based investors, as they are treated as debt for Luxembourg tax purposes and the interest paid to holders of (C)PECs is not subject to withholding tax.



The future of private equity in Luxembourg 


Despite its relatively late start, Luxembourg is now catching up fast with off-shore fund centres. The number of alternative investment managers who now choose Luxembourg for their investments, or even as a permanent base, is increasing. Recent regulations and Brexit have made the residency of such private equity structure in Luxembourg particularly attractive for managers from a legal, regulatory and fiscal point of view, and more are likely to opt for its flexible tax and legal environment as the burden of compliance grows worldwide.

 

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