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securitization in luxembourg

client memorandum banking & finance
client memorandum securitization


The Luxembourg law of 22 March 2004 on
Securitizations (the “Luxembourg Securitization
Law”) has laid the foundations for the legal,
regulatory and tax framework for Luxembourg
securitization vehicles. The main features and
advantages of the Luxembourg Securitization
Law are discussed hereafter. A securitization
is a type of structured financing in which a pool
of financial assets (such as loans, mortgages,
etc.) is transferred to a special purpose vehicle
(“SPV”) that then issues debt backed solely
by the assets (collateral) transferred and
payments derived from those assets. While the
benefits of securitization may vary for different
2 issuers and investors, the common advantage
of securitization is that it provides a lower cost
of capital, enables a company to convert illiquid
assets into cash and transfers the risks related
to some assets to third parties.

This publication has been prepared by the law firm Chevalier & Sciales and is for general guidance only. The contents
hereof are not intended to constitute legal advice and do not substitute for the consultation with legal counsel required
before any actual undertakings.

© 2010 Chevalier & Sciales
client memorandum securitization

i. key features • “continuously” means more than three (3)
issues per year to the public. The number of
issues to consider is determined by the total
number of issues of all compartments of the
(a) definition securitization undertaking.

The definition of “securitization” is very broad
• “to the public”: Concerning the issuance of
securities to the public, the CSSF has set down
and encompasses all transactions whereby
the following criteria:
a SPV acquires (true sale securitization) or
assumes (synthetic securitization) any risk - Issues to professional clients within the
linked to an asset. This SPV is financed by meaning of Annexe II to Directive 2004/39/EC
the issue of shares, bonds or other securities, (MIFID) are not issues to the public;
whose return value depends on the investment - Issues whose denominations equal or exceed
risks. EUR 125,000 are assumed not to be placed
with the public;
- The listing of an issue on a regulated or
(b) legal forms – share capital
alternative market does not ipso facto entail
The Luxembourg Securitization Law that the issue is deemed to be placed with the
distinguishes between securitization vehicles public;
that have either been set up under the form of - Issues distributed as private placements,
a company (securitization company) or under whatever their denomination, are not
the form of a fund (securitization fund) run by considered as issues to the public. The CSSF
a management company. The securitization assesses whether the issue is to be considered
company must adopt one of the following as a private placement on a case-by-case basis
forms, namely (i) a company limited by shares according to the communication means and the
(société anonyme), (ii) a limited liability technique used to distribute the securities. 3
company (société à responsabilité limitée),
(iii) a partnership limited by shares (société en
(d) asset classes
commandite par action) or (iv) a cooperative
company organized as a company limited by The Luxembourg Securitization Law allows
shares (société cooperative organisée comme for the securitization of “risks related to the
société anonyme). A securitization company is ownership of all assets, whether movable,
not subject to a specific minimum share capital. tangible or intangible, as well as risks resulting
The minimum share capital depends upon the from commitments that were assumed by third
legal form and ranges between 12.500 euro (for parties or that are inherent to all or part of the
an S.à r.l.) to 31.000 euro (for an S.A.). activities undertaken by third parties”. As a
result, virtually all assets can be securitized
such as: mortgages, trade receivables,
(c) supervision
commercial credits, current accounts, shares,
There is no need to have the approval of debenture loans, buildings, etc… Securitization
a Luxembourg administrative authority, for may be used in various situations. Some
example the Supervisory Commission of the potential applications could be:
Financial Sector (“CSSF”), for securitization
vehicles issuing securities in a private placement • Securitization of a portfolio of securities
or making a single issue of securities or issue In order to cancel the negative consequences
on an irregular basis. However, securitization of the risk inherent of holding securities
vehicles which issue securities on a continuous being accounted for on the balance sheet, a
basis to the public must be authorized by company will transfer this portfolio at current
the CSSF. The following terms appear to be value to a securitization vehicle. This allows
understood as follows: companies to convert a portfolio of securities

© 2010 Chevalier & Sciales
client memorandum securitization

into liquid assets. The investors investing in taxable profits and should therefore to, a large
the securitization vehicle have the benefit of extent, be tax neutral. They will need to leave
acquiring a significant interest in a portfolio a very small margin to be negotiated and
of securities without having to bear the full approved with the Luxembourg tax authorities
investment of this portfolio alone. in a Luxembourg tax ruling.
• VAT exempt: The management of
• Securitization as structure for intra group
securitization vehicles are exempt from VAT.
financing activities
• No Luxembourg wealth tax: Securitization
It enables a group company to find a financing
vehicles are exempt from net wealth tax. This is
source within the securitization vehicle. Holders
an important advantage as normal Luxembourg
of the securities of the securitization vehicle will
companies (soparfi) are subject to a wealth tax
be paid profits owed to them on the financing
of 0,5 % on the net assets of the company.
activity. Unlike normal Luxembourg companies,
there is no debt equity ratio that needs to be • Benefit from Luxembourg’s double tax
maintained on a securitization vehicle. A treaty network: As securitization companies
securitization vehicle can thus be financed are fully taxable companies, they can benefit
without having to maintain any minimum capital from Luxembourg’s double tax treaty network.
requirement. This substantially reduces the • Liquidation / tax exempt: The liquidation of
costs of financing. securitization companies is tax exempt.
• Registration tax: Any agreement executed
ii. tax benefits and other in the context of a securitization or any deed
advantages related thereto is exempt from the registration
formality unless it relates to real estate situated

• No debt equity ratio: As above mentioned,
in Luxembourg, aircraft or vessels recorded
in a Luxembourg public register. In case of
there is no debt-to-equity ratio obligation that
voluntary registration, such agreements and
needs to be maintained for a securitization
deeds are subject to a fixed registration duty
vehicle. This is not the case when using a
of 12 Euro. It is important to note that for the
common Luxembourg company (soparfi), where
registration of any agreement or deed relating
there is a 85/15 debt equity ratio.
to a securitization, documents written in English
• Withholding tax: Interests and royalties are accepted without the need for a translation
paid by securitization vehicles are not subject to into French or German.
any withholding tax (except for the application
of the EU Savings Directive). Furthermore
• Listing on the Luxembourg Stock
Exchange: The securities issued by a
payments made to holders of shares (for
Luxembourg securitization vehicle may be listed
instance dividends) of a SPV are not subject
on the Luxembourg Stock Exchange (either on
to any withholding tax. This is an important
the Regulated Market as on the Euro MTF).
advantage in comparison with a common
Luxembourg company (soparfi) where there is • Possibility to have segregated
a 15% withholding tax on dividends. compartments: The Luxembourg
• Deductibility of expenses and payments
securitization company can establish
segregated compartments. The Luxembourg
to investors of the Luxembourg SPV: All
securitization vehicle constitutes one single
expenses related to the management of the
legal entity. However, each pool of assets may
SPV are fully deductible and the payments
be invested for the exclusive benefit of the
made to investors of the SPV (whether in the
relevant shareholders of the compartment and
form of interests or dividends) are further
each compartment shall only be responsible
fully deductible from the taxable basis of the
for the liabilities which are attributable to
SPV. Therefore Luxembourg securitization
such compartment. All the rights of investors
companies should not generate significant

© 2010 Chevalier & Sciales
client memorandum securitization

and creditors in relation to each compartment
are therefore limited to the assets of the
compartment. Each compartment will be
deemed to be a separate entity for the investors
and creditors of the relevant compartment.

iii. conclusion

The Luxembourg Securitization Law allows
Luxembourg to establish itself as a key
jurisdiction for securitization transactions.
Luxembourg legislators have created a tailored
framework for securitization transactions by
establishing a well balanced compromise
between flexibility of the securitization vehicle
on the one hand and investor protection on the
other hand whilst at the same time providing a
tax neutral environment.


© 2010 Chevalier & Sciales
client memorandum securitization

for further information please contact:

olivier sciales , partner

rémi chevalier , partner



51, route de Thionville Twin Towers
L-2611 Luxembourg Bldg. Baniyas Road,
Luxembourg Deira, Dubai,
P.O. Box 4404, Office
Tel : +352 26 25 90 30 #217, 2nd Floor,
Fax : +352 26 25 83 88 United Arab Emirates

Tel: +971 4 2937033
Fax: +971 4 2088699

© 2010 Chevalier & Sciales