QUESTION ONE – What are the most common structures used when international clients want to form a company in your jurisdiction? Any examples?
Luxembourg offers a wide range of investments vehicles, which are subject to different levels of regulation. The choice of structure is usually driven by the investment policy and the marketing strategy of the promoters.
Undertakings for Collective Investments in Transferable Securities (UCITS)
UCITS are governed by Part 1 of the Law of 17 December 2010. The peculiarity of these funds is that they are marketed to all the categories of investors, including retail investors. These funds are subject to the highest level of regulation with the aim of protecting the investor. Consequently, they are subject to strict investment restrictions and shall comply with specific requirements in terms of risk diversification and investment strategy. These funds can be freely marketed within Europe as they dispose of the European passport.
Regulated Alternative Investment Funds (AIFs)
Undertakings for Collective Investments (UCIs) which are subject to the Part II of the Law of 17 December 2010. These are funds that can be sold to all types of investors, including retail investors. However, these funds do not dispose of a marketing passport, therefore they can only be marketed in accordance with the regime applicable in the country where they are intended to be marketed.
Investment companies at capital risk (SICARs), which are subject to the law of 15 June 2004. These funds are subject to less strict investment restrictions and their investment strategy is extremely flexible, as they shall only comply with the principle of risk diversification.
Specialised Investment Funds (SIFs), which are subject to the law of 13 February 2007. These funds are subject to less constringent investment restrictions compared to the UCITS funds, although they still have to comply with the investment restriction criteria defined by the SIF Law.
SICARs and SIFs are reserved to well-informed investors, or any other investors confirming in writing that they have the status of “well-informed investor”. They must also invest at least EUR 125,000, or provide a bank confirmation.
Holding Companies (SOPARFI)
The SOPARFI (financial holding company) is the most used unregulated investment vehicle. The notion of SOPARFI is not a defined legal or tax concept but refers to a company the corporate purpose of which is to carry on holding financial activities under the ordinary tax regime (the so-called Participation Exemption).
The recent modernisation of the Company Law has again increased the flexibility (contractual rather than institutional approach) and security of the rules governing Luxembourg companies.
Unregulated
The unregulated AIFs group all those funds that are not included under the SIF, the SICAR or the UCI Part II regime. They pursue alternative investment strategies and are generally private equity funds, real estate funds, hedge funds and venture capital funds.
These funds are often set up as commonly limited partnerships (sociétés en commandite simple – CLP) or as special limited partnerships (sociétés en commandite spéciale – SLP. There is a high degree of contractual freedom in the implementation of the limited partnership (i.e. voting rights, transfer of partnership interests, profit allocation/loss sharing, kind of contribution, new partners, etc.).
QUESTION TWO – Please detail some of the favourable and unfavourable legislation that businesses considering establishing a presence in your jurisdiction should be aware of? How can you help them to streamline the process?
Luxembourg’s economy has the advantage of a business-oriented legal, regulatory and fiscal framework that features a high degree of adaptability to economic change and a predictable fiscal environment that is particularly favourable for investment.
Political stability and economic predictability go hand-in-hand in the country. Luxembourg features great flexibility and responsiveness on the part of its public administrations, with shortened administrative procedures and easily-made contacts with all the parties concerned.
The ease with which speakers of different languages are able to communicate in Luxembourg has attracted more and more talents over the decades, concentrating in the country a highly qualified workforce from all over the world. At HALSEY, despite the fact that we are “only” slightly over twenty professionals, we have colleagues speaking French, Italian, German, Dutch, Luxembourgish, Romanian, Turkish and, of course, English.
HALSEY and its team have a high skills level in the day-to-day management of regulated and unregulated Luxembourg entities for international clients like private equity firms and real estate investors, multinationals, promoters and investment companies held by high net wealth individuals. In addition, as we are fully independent, we can always help our clients to find to right local advisor for any specific structuring or situations to manage.
QUESTION THREE – What due diligence is required to be undertaken by company formations agents under anti-money laundering laws in your jurisdiction?
Luxembourg has a comprehensive and extensive anti-money laundering and countering the financing of terrorism (AML&CFT) legal, regulatory and institutional framework based for the most part on EU instruments and FATF standards.
In Luxembourg, the Financial Supervisory Authority (CSSF) issues the applicable AML/CFT laws for the financial sector. The main AML&CFT law is the Law of 12 November 2004 (as amended) (“AML Law”), reinforced with the Law of 27 October 2010, the FSA Regulation 12-02 and the FSA Circular 17/650 (on predicate tax offences).
The AML Law, although addressed to the financial sector, is the law that is used as a ‘source of inspiration’ to issue AML legal framework also for the other entities and/or professionals which are not under the supervision of the CSSF (i.e. notaries, lawyers).
In practice, identification is done for the direct shareholders and parent companies / ultimate beneficial owners (UBOs) and includes obtaining supporting documents as relevant for individuals/legal entities. The AML law settles the threshold to define UBOs at 25 per cent or more of the shares (direct/indirect ownership) and voting rights in that legal entity. Where no individual can be identified to meet the 25 per cent threshold, it might be that the entity’s senior managing officials will be considered as UBOs.
Finally, there is the Luxembourg law of 13 January 2019 on the register of beneficial owners which was published on 15 January 2019 and entered into force on 1 March 2019.
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