Hybrid Instrument

A range of instruments used by companies for financing purposes / debt issuance

PECs (Preferred Equity Certificates) and CPECs (Convertible Preferred Equity Certificates)

Luxembourg has become a major player in the European Private Equity market. One of the instruments which  allows companies to take full advantage of the taxation benefits available in Luxembourg is the Convertible Preference Equity Certificate.

CPECs are often used in structuring transactions for internationally-based investors, as they are often treated as debt for Luxembourg tax purposes, hence the interest (yield) paid to holders of CPECs would not be subject to withholding tax in Luxembourg. Under certain conditions, CPECs can also be redeemed or repurchased. If a company's investments are successful, the CPECs will be repurchased at a higher price. This would not be considered as a dividend and, as such, not be subject to Luxembourg withholding tax.

PECs and CPECs can be a good solution for assets like participations, portfolio placements, IP rights, receivables, etc. which ultimately need to be paid out to holders wishing to increase their benefit from the European participation exemption or double tax treaties.

 

Hybrid instruments and deduction of interests

In general, any interest paid by a Luxembourg company to one of its creditors is deductible from the taxable base of the company. If it pays interest relating to a loan taken out with a bank or any other creditor, it will be able to deduct the interest from its taxable base.

Here are different financial instruments generally used by companies:

 

Expert assistance from Creatrust

For expert accounting, legal and fiscal advice in relation to setting up your Special Purpose Vehicles contact Creatrust, a leading independent provider of corporate services to Luxembourg companies and clients from across the world.

Our in-house expertise can assist corporate clients explore a range of hybrid instruments suitable for a number of different types of assets. To request one of our highly informative brochures please click on the boxes to the right of this page.

 

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