Securitisation is a financing process by which an entity transfers illiquid assets or risks to a securitization vehicle (“SV”) in exchange for cash. The SV finances the assets’ acquisition by issuing transferable securities (shares, bonds or other securities) on the risks of the underlying assets.
The amended Luxembourg law of March 22, 2004, concerning securitization, provides one of the most advantageous, adaptable, and effective legal and tax frameworks for Specialized Vehicles (SVs) in Europe:
SVs can be established either as (i) securitization funds, lacking legal personality and managed by a management company, or (ii) commercial companies (S.A., S.C.A., S.à r.l., or SCoSA). The creation of compartments, each representing a distinct portfolio of assets and liabilities with varied investment/distribution rules, is permissible. These compartments can be liquidated independently, providing comprehensive protection against creditors of other compartments.
Notably, SVs are not subject to regulation by the Luxembourg supervisory authority of the financial sector (CSSF), except in cases where they issue securities to the public on a continuous basis (i.e., more than three issuances per year). Regulated SVs are obligated to assign custody of their liquid assets to a custodian bank based in Luxembourg.
Additionally, the annual accounts and financial statements of SVs must undergo auditing by one or more independent auditors (réviseurs d’entreprises agréés).
Maintains tax transparency, exempt from corporate income tax, wealth taxes, and subscription tax (taxe d’abonnement); incurs no withholding tax on distributed income; although, does not enjoy the advantages of double tax treaties negotiated by Luxembourg.
Subject to full taxation but enjoy a special tax regime allowing unlimited deduction of commitments towards investors (dividends, interest, etc.), effectively reducing the taxable basis to zero; obligated to a minimum corporate income tax of EUR 3,210; incurs a fixed registration tax of EUR 75 upon incorporation; eligible for benefits under EU Directives and double tax treaties negotiated by Luxembourg
