Luxembourg Investment Vehicles UCITS - Lextray · The DTA network only applies to UCITS set-up in the form of SICAV/ SICAF and to certain double tax treaties, within the extent that

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April 2017

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LuxembourgInvestment Vehicles UCITS

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On a preliminary basis and for the sake of clarity, the details shared, are of a general nature and shall not be intended as a fully comprehensive tax/legal advice but rather as a preliminary overview. Although we attempt to provide you with precise and timely updates, there can be no guarantee that the information shared is accurate as of the date it is received or it will continue to be accurate in the future. If you wish to have a more specific advice on the same or on different matters, LEXTRAY is at your disposal, to provide you with any advice you may require in connection with the above.

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> THE LUXEMBOURG ENVIRONMENT Luxembourg is the world’s second largest investment funds domicile, and is the prime location for the pan-European and global distribution of investment funds under the UCITS brand. Initially designed as a glo-bal retail funds hub under the sole UCITS brand, Luxembourg has gra-dually opened up to the alternative asset classes, offering personalised structuring solutions through specialized investment vehicles. Structuring flexibility, investor protection and tax efficiency are the cru-cial elements that have inter alia helped to convince the investors, to shift their operations and investments to Luxembourg.

In addition to such a fund-friendly environment, the constant work of the legislator to promote Luxembourg as a fully-regulated on shore lo-cation (see its stringent any money-laundering regulation) has greatly contributed to its business appeal.

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UCITS can be set up as a single fund or as an umbrella fund consisting of multiple compartments, each with a different investment policy. The fund and compartments respectively may have an unlimited number of share classes, depending on the needs of the investors.Under certain conditions, cross-investments between sub-funds are allowed, generally, in terms of substance and supervision. The strong regulation of UCITS and the resulting high level of investor protection have made them popular with supervisory authorities and retail inve-stors all over the world. The UCITS brand and, particularly, Luxem-bourg UCITS have a large market share in a number of Asian and Latin American countries. For this reason, an increasing number of fund ma-nagers create UCITS for global distribution. The Luxembourg financial center is the uncontested leader in this field.

> LEGAL FRAMEWORKUCITS are governed by the Luxembourg Law of 17 December 2010 (the “2010 Law”), as amended.

> AUTHORISATION AND SUPERVISIONThe supervisory authority is the Luxembourg “Commission de Surveil-lance du Secteur Financier” (“CSSF”).UCITS must be authorized by the CSSF before commencing its activity.

Luxembourg Investment Vehicles / UCITS

> UCITS: THE VEHICLE IN A NUTSHELLThe purpose of this brochure is to provide you with a bird’s eyes view of the legal framework, investment policies as well as the reporting and taxation particularities of the Undertakings for Collective Investment in Transferable Securities (“UCITS”), as established for by the Luxem-bourg Law of 17 December 2010, Part I.

We hope that you find it useful and that it meets your expectations.

The term UCITS traces back its roots to EU Directive 85/611/CE of 20 December 1985 (the “Directive”). The aim of the Directive was to createa single European market for retail investment funds, while ensuring, at the same time, a high level of investor protection.Luxembourg, as the first country to implement the UCITS Directive, attracted a large number of promoters of Swiss and American origin who continue to use Luxembourg as a gateway to the European market. The provisions of the Directive refer to collective investment schemes (UCI) that invest in securities quoted on a recognized stock exchange. UCITS are designed for retail investors, and benefit from the Europe-an Passport, enabling them to be freely marketable throughout the EU countries with a minimum of formalities. Those funds are open-ended and must comply with stringent requirements set by the EU legislator in terms of eligibility of assets, risk-spreading requirements, and, more

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Luxembourg Investment Vehicles / UCITS

> STRUCTURAL AND LEGAL ASPECT

1. LEGAL FORMSUCITS can be of contractual type or of corporate type. The UCITS of contractual type is organized in the form of a fond commun de placement (“FCP”) so as mutual fund established by contract (not a corporate en-tity) managed by a management company (société de gestion) located in Luxembourg.The UCITS of corporate type is organized in the form of an investmentcompany with variable capital (société d’investissement à capital variable or “SICAV”), or of an investment company with fixed capital (Société d’Investissement à Capital Fixe or “SICAF”). A SICAV/SICAR UCITS may be established as a public limited liability company (société anony-me or “SA”), a private limited liability company (société à responsabili-té limitée or “Sàrl”), a corporate partnership limited by shares (société en commandite par actions or “SCA”), a common limited partnership (société en commandite simple or “SCS”), a special limited partnership (société en commandite spéciale or “SCSp”).

2. CAPITAL REQUIREMENT AND OTHER ASPECTS2.1 Management CompaniesThe management company is required to have initial capital of at le-ast EUR 125,000. Additional own funds will be required if the value of the portfolios managed by a management company exceeds EUR 250,000,000 with a maximum total requirement not exceeding EUR 10,000,000.

2.2 CapitalThe minimum net assets threshold of € 1,250,000 must be reached wi-thin six months from the authorization. In case of a self-managed SI-CAV, the minimum capital as of the date of the authorization must be EUR 300,000.

2.3 Umbrella formA UCITS may be organized as an umbrella fund, consisting of one or more compartments, or sub-funds, which may differ in, inter alia, their investment policy, redemption policy, dividend policy, fee structure, re-ference currency, appointed investment manager/adviser and/or type of target investors.

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Luxembourg Investment Vehicles / UCITS

> ELIGIBLE INVESTORSUCITS can be traded to both professional and retail investors. The strong regulation of UCITS and the resulting high level of investor pro-tection have made them popular with supervisory authorities and retail investors all over the world.

> ELIGIBLE ASSETS AND RISK DIVERSIFICATION REQUIRE-MENTSAs per Article 41 of 2010 Law, UCITS can invest in the following assets:• transferable securities;• money market instruments;• bank deposits;• other UCITS;• other UCIs (within the threshold of 30%);• financial derivative instruments;• ancillary liquid assets within the threshold of 49%).The 2010 Law sets the percentage of each kind of asset and the relevantrisk diversification requirements.

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> MANAGEMENT AND SERVICE PROVIDERS

1. PROMOTERThe promoter of the UCITS must be a regulate entity with sufficient financial resources.

2. MANAGEMENT COMPANYIf a management company is appointed, it shall be responsible for gene-ral investment, administration and distribution. The Management Com-pany may take care of the administration and portfolio management or can delegate these functions but must retain the oversight functions. If no management company is appointed, the UCITS will be considered to be “self managed”. In this case the board of directors is responsible for the management and governance of the UCITS.

3. DEPOSITARYThe Depositary provides asset safekeeping, fiduciary and oversight ser-vices relating to the review and supervision of fund and providers as well as income collection and corporate action processing. The deposi-tary to be appointed will need to be located in the same Member State as the UCITS one. In addition, the appointment of the depositary will need to be evidenced by a written contract entrusting the depositary with the safekeeping, oversight and cash flow monitoring functions.

4. ADMINISTRATIONResponsible for accounting, NAV calculation, keeping of the register ofthe shareholders/unitholders, handling subscriptions and redemptions,communication with investors and preparation of financial statements – which must be a Luxembourg bank or a branch of a foreign bank or aprofessional of the financial sector with a proper license.

5. EXTERNAL AUDITORThe External Auditor must audit the annual report of the UCITS.The External Auditor is appointed and remunerated by the UCITS andhas received the due appointment from the CSSF and demonstrated to have the have appropriate professional experience.

6. TRANSFER AGENTThe Transfer Agent provides shareholder services to the fund; such as opening accounts for the shareholders, address them communication and queries, payments etc.

Luxembourg Investment Vehicles / UCITS

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> TAXATION

1. GENERAL TAX REGIME1.1 Annual subscription taxThe UCITS generally pay an annual subscription tax (taxe d’abonne-ment) of 0.05% of their net asset value on the last day of every calendar quarter. This rate is reduced to 0.01% in case of money market cash funds and institutional funds.

1.2 ExemptionsUCITS are exempt from Luxembourg net wealth tax. Furthermore, no Luxembourg taxes are levied on capital gains realized or income recei-ved by UCITS as they are not subject to corporate income tax.Investments in special institutional money market cash funds, special pension funds (including pension pooling vehicles) and funds investingin other funds which are already subject to subscription tax are exemptfrom subscription tax. The same applies to micro-finance investment vehicles and exchange traded funds UCITS are not subject to withhol-ding tax except if EU Savings Directive applies.As a general rule, UCITS are not levied to a withholding tax on the divi-dends, interests, proceeds to the shareholders/unitholders.

1.3 VATThe management services performed by a Luxembourg management company for a UCITS are exempt from value added tax. This exemption covers management services, investment advisory services and certain administrative services.

2. DOUBLE TAXATION AGREEMENTS (DTA’s) AND PARENTSUBSIDIARY EU DIRECTIVE (P-S EU DIRECTIVE)The DTA network only applies to UCITS set-up in the form of SICAV/SICAF and to certain double tax treaties, within the extent that they are recognized by the other country in question. UCITS cannot benefit from the P-S EU Directive.

Luxembourg Investment Vehicles / UCITS

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LEXTRAY is committed to providing the highest quality legal and tax services. Our team is at your service in 6 different languages (English, French, Italian, German, Spanish and Arabic), directly active in 7 juri-sdictions (Luxembourg, Italy, Switzerland, UK, Ireland, Singapore and Dubai) and indirectly through our associates in the Netherlands, Spain, USA, Argentina and Brazil, to provide you with the finest tailor-made work products and solution. Our widespread territorial coverage allows us to remain in constant contact with you, 24h24 and 7/7, guaranteeing a first-rate standard and rapid execution as well as a clear, practical and up-to the minute advice.Considering the fast moving and aggressive business environment we nowadays facing, we are committed to a relentless professional skill update and are outmost attentive to tuning to the clients’ wishes and adapting to new laws and regulations.

EMPHASIS ON OUR INVESTMENT VEHICLES PRACTICE AREA Our Luxembourg team has a robust expertise in all areas of Luxem-bourg investment vehicles law.

This includes among others: (i) support in finding the ideal investment vehicle to meet your requirements and your goals from a governance, regulatory and tax perspective;(ii) support in setting up the vehicle;(iii) tax structuring support;(iv) providing ongoing corporate support service throughout the lifetime of the vehicle; (v) keeping you updated on the new regulatory developments.

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