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April 2017

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LuxembourgInvestment Vehicles SICAR

20172017

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We are what we repeatedly do. Excellence, then, is not an act, but a habit.

-Will Durant-

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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> LEGAL FRAMEWORK The SICAR regime was established by the Luxembourg Law of 15 June 2004 (“SICAR Law”), as lastly amended:

SICAR Law is divided in two parts:(i) general provisions applicable to all SICARs (see PART 1 - PRO-VISIONS APPLICABLE TO ALL SICARs) and(ii) specific provisions applicable to SICARs which qualify as Alter-native Investment Funds (“AIFs”) and which are required to be mana-ged by an authorized Alternative Investment Fund Manager (“AIFM”) within the meaning of Directive 2011/61/EU of 8 June 2011 on alterna-tive investment fund managers (see PART 2 - SPECIFIC PROVISIONS FOR SICAR AIFs).

Luxembourg Investment Vehicles / SICAR

> SICAR: 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 Investment Company in Risk Capital (So-ciété d’investissement en capital à risque or “SICAR”).

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

SICAR is a regulated, fiscally efficient structure designed for private equity and venture capital investments, benefiting from a light regula-tory regime while still being subject to the permanent supervision of the Luxembourg Supervisory Authority of the financial sector (“Com-mission de Surveillance du Secteur Financier” or “CSSF”). In a nutshell, SICAR regime offers a great deal of corporate flexibility along with re-cognized supervision and favorable tax treatment.

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Luxembourg Investment Vehicles / SICARPart 1. PROVISIONS APPLICABLE TO ALL SICARs

> AUTHORISATION AND SUPERVISIONSICARs are regulated vehicles subject to the supervision of the CSSF. Furthermore, SICARs are subject to prior authorisation by the CSSF be-fore they can be launched and carry out the relevant activities.

> ELIGIBLE INVESTORS Investment in a SICARs is reserved to “well-informed investors” who are deemed to be able to adequately assess the risks associated with an investment in such a vehicle. This term comprises (i) institutional investors, (ii) professional investors as well as any (iii) other investor that: A. has declared in writing its status as a well-informed investor and: a. invests a minimum of EUR 125,000 in the SICAR; or b. has obtained an assessment from a credit institution, an invest-ment firm or a management company which has certified which certifies the investors’ ability to understand the risks as sociated with investing in the SICAR.The above conditions do not apply to the persons involved in the mana-gement of a SICAR.

> ELIGIBLE ASSETS AND RISK DIVERSIFICATION REQUIRE-MENTSSICAR regime can be opted for by vehicles whose object is to invest their assets in securities representing so-called risk capital. The concept of risk capital is defined by the SICAR Law as “the direct or indirect con-tribution of assets to entities in view of their launch, development or listing on a stock exchange”. The SICAR Law does not levy any restrictions in terms of eligible assets that can be held by a SICAR. The CSSF published Circular CSSF 06/241 which describes its interpretation of the concept if risk capital under the SICAR Law stating that the same generally pi-vots on two cumulative elements such as a high risk and an intention to develop the target entities (“portfolio companies”).

SICAR Law does not impose any risk spreading requirements.

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Luxembourg Investment Vehicles / SICARPart 1. PROVISIONS APPLICABLE TO ALL SICARs

> STRUCTURAL AND LEGAL ASPECT

1. LEGAL FORMSA SICAR must adopt one of the corporate form expressly provided by the SICAR Law and namely a public limited liability company (société anonyme or “SA”), a partnership limited by shares (société en com-mandite par actions or “SCA”), a cooperative set up as a public limited company (société coopérative organisée sous forme de société anonyme or “SCSA”), a private limited liability company (société à responsabilité limitée or “Sà rl”), a common limited partnership (société en commandi-te simple or “SCS”), a special limited partnership (société en commandite spéciale or “SCSp”).

2. UMBRELLA FORM AND MULTIPLE CLASS STRUCTURE The SICAR Law specifically refers to the possibility of creating a SICAR with multiple compartments. The SICAR Law provides that each compartment of such a vehicle is linked to a specific portfolio of assets and liabilities which is segregated from the portfolio of assets and liabilities of the other compartments.

3. CAPITAL REQUIREMENT AND OTHER ASPECTSThe minimum subscribed capital, increased by the share premium, if any or, where applicable, the value of the amount constituting the part-nership interest as required by the SICAR Law is EUR 1,000,000.This amount must be reached within twelve months of authorization. At least 5% of each share must be paid up at subscription. A SICAR may opt for variable or fixed share capital.

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> SERVICE PROVIDERS AND OTHER ISSUES

1. DEPOSITARYSICARs must entrust the custody of its assets to a depositary. The same must either have its registered office in Luxembourg or be established there is its registered office is located abroad. The custody is a function to be understood in the sense of supervision of the assets. The deposi-tary must be a credit institution or an investment firm within the Law of 5 April 1993 on the financial sector (“Financial Sector Law”). However, investment firms are eligible to act as a depositary only if they fulfill certain conditions laid down by the Law of 12 July 2013 on alternative investment fund managers (“AIFM Law”).

2. EXTERNAL AUDITORThe SICAR prepares annual accounts which are audited by an authori-zed external Luxembourg statutory auditor (réviseur d’entreprises agréé) which has received the due approval of the CSSF with appropriate pro-fessional experience. There is no obligation to pro-duce a semi-annual report.

3. ADMINISTRATIONIn accordance with the SICAR Law, a SICAR must have its registered office and central administration in Luxembourg.

Luxembourg Investment Vehicles / SICARPart 1. PROVISIONS APPLICABLE TO ALL SICARs

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1. REQUIREMENT TO APPOINT AIFMSICAR AIFs must be managed by an authorized AIFM either established in Luxembourg, in a Member State of the EU (including EEA Member States) or in a third country. The AIFM can be either (i) externally ma-naged by an external AIFM duly appointed to manage the SICAR AIF or (ii) internally managed, in case the SICAR AIF’s legal form permits internal management and its governing body has chosen not to appoint an external AIFM (in the last case the SICAR AIFs itself will be conside-red as the AIFM and therefore will be required to comply to the AIFM Law and submit a request for authorization under the AIFM Law.

2. DEPOSITARY In conformity to the general regime applied to SICARs, the depositary of a SICAR AIFs, might be a credit institution or an investment firm within the meaning of the Financial Sector Law.Depositaries of SICAR AIFs must comply with the depositary regime provided for by the AIFM Law.

3. ANNUAL REPORTCompared to the general provision applicable to SICARs, SICAR AIFs are required to disclose additional information in their annual report such as (i) the total amount of remuneration paid by the AIFM to its staff for the financial year, (ii) the number of beneficiaries, (iii) any car-ried interest paid by the SICAR AIF and (iv) the aggregate amount of re-muneration as broken down by senior management and by AIFM staff members whose actions have a material impact on the risk profile of the SICAR AIF.

4. ADDITIONAL INFORMATION TO INVESTORS As specified by the AIFM Law, the AIFM of a SICAR AIF must provide additional information to the investors and in particular the securities financing transaction and total return swaps that the AIFM is authori-zed to use and a clear statement that those transactions and instruments are used.

Luxembourg Investment Vehicles / SICARPart 2. SPECIFIC PROVISIONS FOR SICAR AIFs

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> MARKETING AND LISTING

1. MARKETING 1.1 SICAR AIFs 1.1.1 Marketing to EU professional investors Currently only SICAR AIFs managed by an authorized EU AIFM bene-fit from a EU passport allowing the AIFM to market the SICAR shares/unit partnership interest to EU professional investors. On the other side, SICAR AIFs managed by a non-authorized EU AIFM do not yet benefit from this EU passport and the marketing is therefore subject to the national placement rules of the countries (“NPR”) where the marketing is performed.

1.1.2 Marketing to other well-informed investors The marketing of SICAR AIFs outside or within Europe to well infor-med investors (which are not professional investors) requires complian-ce with the NPR of each country where the marketing is performed.

1.2 Other SICARsSICARs managed by a registered AIFM (AIFM not fully authorized but merely registered pursuant to the AIFM Law) do not benefit from the EU passport for the marketing of their shares or unit and remain subject to the NPR of each country where the marketing is performed.

2. LISTING SICAR may apply for listing of its shares on the Luxembourg Stock exchange provided that it complies with its requirement. No prohibition against a SICAR seeking a listing on any other stock exchange.

Luxembourg Investment Vehicles / SICARPart 2. SPECIFIC PROVISIONS FOR SICAR AIFs

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> TAXATION

1. IN GENERAL: TAXATION OF A SICAR 1.1 Applicable tax ratesAs of 2017, the applicable corporate income tax rate in Luxembourg is 19%, for any corporation with a taxable income of more of EUR 30,000.The SICAR established in Luxembourg city – in principle – is subject to an overall corporate taxation at a rate of 27.08% (including the munici-pal business tax). This rate will be lowered at 26.01% as of 2018.If a SICAR is incorporated as a Limited Partnership (“LP”), it is the persons carrying on business as partners and not the partnership itself which is liable to tax. In such a case the SICAR remains exempt from corporate income and the municipal business tax. On the contrary the-reto, its investors remain liable to tax in the country in which they are resident.

1.2 Exemptions1.2.1. Exemption from withholding tax on dividends distributed, irre-spective of the residence and tax status of its shareholders;1.2.2. Exemption on:(i) the returns derived from securities, whether in the form of interest incomes, dividends or capital gains;(ii) incomes arising from funds awaiting to be invested (transit funds);1.2.3. subject to t hmeinimum NWT (max 3,210 Euro);

1.2.4. no Luxembourg tax is levied on capital gains realized by nonre-sidentinvestors upon the sale of SICAR`s shares/units.1.2.5. exemption from the net wealth tax as well as on liquidation pro-ceeds.1.2.6. Moreover, management services provided to a SICAR by a Mana-gement Company in Luxembourg is exempt from VAT. 2. DOUBLE TAXATION AGREEMENTS (DTA’s) PARENTSUBSIDIARY EU DIRECTIVE (EU P-S Directive)The Law of 18 December 2015 implements into domestic tax law Di-rective 2014/86/EU on anti-hybrid instruments and Directive 2015/121/EU on the European general anti abuse rule amending the parent-subsi-diary Directive 2011/96/EU. The result is the introduction of measures putting an end to double non taxation situations that result from the mismatch of tax treatment applicable to an income distribution betwe-en to member States. Under the new provisions, profits received by an eligible Luxembourg entity (such as SICAR) which have been deducted from the taxable basis of the Member State subsidiary which distributes the profit (anti-hybrid instrument measure) might no longer be exempt in Luxembourg.

Luxembourg Investment Vehicles / SICAR

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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.

Presentation of the Firm

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CONTACTWe would love to hear from you.

Don’t hesitate to get in touch with one of our professionals or dedicated departments.info@lextray.lu

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Tel. + 352 27 85 74 1 | Fax + 352 27 85 74 70

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