TAX

LUXEMBOURG 2014

Luxembourg SICAR

A vehicle for venture capital investments

The undertaking for collective The SICAR fills the gap between the form of a SCS with variable capital
venture capital investments (Société publicly financed vehicles qualifying (Société en Commandite Simple à
d’investissement en capital à risque as UCITS under the amended law of capital variable). As at February 2014,
or SICAR), a semi-regulated venture 20 December 2002 (which are strictly 276 SICARs have been set up with total
capital/private equity vehicle, was regulated) and the unregulated standard assets amounting to approximately
introduced in Luxembourg in 2004. taxable companies investing in shares or € 32.91 billion, which proves that the
financing (so called “SOPARFIs”) often vehicle fully meets the needs and
The purpose of the amended SICAR used as private equity investments requirements of the market.
law of 15 June 2004 (“the Law”) was to vehicles. Limited regulatory supervision
facilitate fund-raising and investment in and favorable tax rules aim at attracting
risk-bearing capital. SICARs are mainly venture capital investors.
used as vehicles for private equity or
venture capital, even if investments In 2008, the Luxembourg Government
in quoted companies or real estate significantly modernized the Law
are also possible under certain strict to make it even more attractive by
conditions. The shares of a SICAR may, introducing the possibility to structure
under certain conditions, be listed on a SICARs as an umbrella with multiple
Stock Exchange. sub funds and to set up a SICAR in

Luxembourg SICAR / 2014 1

Most typical use of a SICAR

High Net Worth Institutional Investors Other Investors

Individuals (corporate or partnership) (management, etc)

SICAR
Investment
in securitised
loans

Luxembourg Soparfi

Definition of a SICAR
General is very broad. There is no clear definition Qualified Investors
A SICAR is a vehicle with the principal of assets ‘at risk’. However the The shares/units of a SICAR may only be
object of investing in risk-bearing supervisory authority of the Luxembourg issued/offered to investors with a high
assets to the benefit of qualified financial sector (Commission de level of expertise (qualified investors),
investors. Surveillance du Secteur such as professional investors and
Financier - CSSF) has stated that it institutional investors. Directors and
Unlike the amended law of 20
looks at two main criteria1: managers of a SICAR are deemed to be
December 2002 on investment
qualified investors in the meaning of the
funds, SICARs are not subject to risk • Investment risk (i.e. the risk of the
Law.
spreading obligations. As a result, a investment is higher than normal
SICAR may invest all of its funds or business risk); and Other investors will have to declare
acquire the majority of voting power in in writing that they are aware of
• Intention to realise the investment
a single company. One reason for this the risks and must invest at least
(i.e. clear intention to develop and
flexibility is the limitation on investors €125,000 or obtain confirmation from
then realise the investment, for
discussed under the heading ‘qualified a financial institution that they have
instance by onward sale or by an
investors’ below. Qualified investors sufficient experience to understand
initial public offer).
are assumed to be aware of the risks the risks involved and to take adequate
of their investments and to accept the Classic venture capital (e.g. investment decisions.
SICAR’s proposed investment policy biotechnology and information
SICARs are open to individual as well
from the outset. technology start-ups) and private
as corporate investors.
equity targets are naturally included.
Mezzanine financing, distressed debt
Risk-bearing assets
and real estate investments may also Elective
The key qualification for gaining SICAR
qualify under certain conditions and The Law only applies to companies that
status is that the capital of a SICAR
subject to a case-by-case confirmation elect in their bylaws to be governed by
is invested in assets ‘at risk’. The
from the CSSF. the SICAR law.
interpretation of authorized investments

1
CSSF circular 06/241 of 5 April 2006 on the notion of risk capital for the purposes of the Law.

Luxembourg SICAR / 2014 2

Legal aspects Authorization and supervision
A SICAR must be authorised by the
Publication of prospectus and
annual reports
and supervision Luxembourg supervisory authority
for the financial sector (CSSF) prior to
The SICAR is required to prepare a
prospectus and an annual report for
commencing its operations. The CSSF each financial year. The annual report
is the relevant supervisory body for must be audited by a Luxembourg
SICARs. independent qualified auditor
Legal forms (“réviseur d’entreprises”). The audited
In line with the semi-regulated
A SICAR can be established in any of annual report must be made available
nature of SICARs, the conditions for
the following legal forms: to the investors within six months
authorisation are less stringent than for
following the end of the financial period
• A public limited company (société regulated investment funds (such as
to which it relates.
anonyme – S.A.); UCITS). There are no restrictions on the
SICAR’s investment policy. However, SICARs typically report under
• A private limited liability company the CSSF must approve: Luxembourg Generally Accepted
(société à responsabilité limitée - Accounting Principles (Luxembourg
S.à r.l.); • The SICAR’s incorporation
GAAP) and may use International
documents;
• A partnership limited by shares Financial Reporting Standards (IFRS)
(société en commandite par action – • Its directors; and upon agreement with the CSSF and
S.C.A.); in particular if the SICAR is listed in
• The regulated financial institution that
accordance with EU regulation.
• A cooperative company organised will act as the local asset custodian.
as a public limited liability company The official list of approved SICARs is
(société cooperative organisée comme published in the Official Luxembourg Latest developments
une S.A.); Gazette (Mémorial). On 10 July 2013, a new law on
Alternative Investment Fund Managers
• Limited partnership (société en Similarly, CSSF supervision of ("the AIFMD law") was adopted by the
commandite simple - S.C.S. and compliance by the SICAR and Luxembourg Parliament and introduced
société en commandite simple à its directors with their legal and some amendments to the Law of
capital variable – S.C.S. à capital contractual obligations is undertaken 15 June 2004.
variable). on a simplified basis.
According to the new AIFMD law, SICARs
The statutory seat and central may now be classified into two categories:
administration of the entity need to Umbrella structures
be located in Luxembourg. A SICAR can be set up in the form of an • SICARs qualifying as an alternative
umbrella fund with multiple segregated investment fund (“AIF”) and required
There are no requirements with respect to appoint an alternative investment
to the number of investors or the compartments. Each compartment
forms a distinct part of the SICAR’s manager (“AIFM) and;
transferability of SICAR shares.
patrimony and the prospectus has • SICARs not qualifying as an AIF.
to state the investment policy of
Capital requirements each compartment. SICARs qualifying as AIFs and managed
The minimum subscribed share capital The rights of investors/creditors are by an AIFM are impacted by the
of a SICAR is € 1 million (share capital limited to a specific compartment in changes introduced by the new AIFMD
and share premium), which must which they hold securities. It is possible law. The following main provisions have
be reached within 12 months of the to liquidate a compartment separately been included in the Law:
company being authorised. The share without liquidating the others (only the • Depositary rules;
capital must be fully subscribed and liquidation of the final compartment
each share must be paid up to at least triggers the SICAR’s liquidation). • Delegation of functions;
5%. This facilitates successive drawing • Valuation rules and the information to
down of subscriptions once satisfactory Umbrella structures could therefore
potentially be useful to introduce be communicated.
investments are identified.
several investment strategies and • Transparency rules.
No debt-to-equity ratio applies. hence meet various needs of several
investors in the same SICAR. These new provisions are not applicable
There are no legislative restrictions for SICARs not qualifying as AIF.
on capital repayments, share They could also potentially help to
redemptions, dividends or interim reduce set up costs and achieve
dividends. The only restrictions are economies of scale.
those found in the SICAR’s articles of
association. A SICAR is not obliged to
maintain a legal reserve.

Luxembourg SICAR / 2014 3

 Taxation of the SICAR
Income taxation a 7% unemployment surcharge or
SICARs are resident companies fully “solidarity tax”) and € 20,000 (€ 21,400
liable to corporate and municipal including a 7% unemployment surcharge
business tax at an aggregate tax rate of or “solidarity tax”) may apply depending
29.22% (for Luxembourg City in 2014). on the total balance sheet of the SICAR.

Income derived from securities (see A SICAR established in the form of a

below for definition) held by a SICAR limited partnership will be treated as
as well as income resulting from the tax transparent entity for Luxembourg
transfer, the contribution or liquidation tax purposes. These SICARs are not
of such assets is exempt from considered to have a commercial
Luxembourg income tax. activity and consequently are not
subject to municipal business tax
Income on cash held by a SICAR for even if the unlimited partner or the
the purpose of a future investment is majority of the limited partners are
also tax exempt for a period of share capital companies.
12 months, provided it can be proved
that these funds have been invested The Luxembourg fiscal consolidation
in risk bearing assets. rules do not apply to SICARs.

Other income of a SICAR that is not

connected with investments in risk- Definition of a security
bearing capital (e.g. interest earned The term “security” is not defined
after 12 months, management fees, in the Law. However, parliamentary
etc.) is subject to normal income tax. documents on the Law clearly state that
the term securities is “to be considered
Expenses and charges related to in a larger sense, to include shares,
investments generating tax exempt bonds and other debt instruments, as
income may not be offset against well as any other negotiable instruments
taxable income. Foreign exchange that give right to require any of the
gains and losses on such exempt above-mentioned securities”2.
investments follow the same regime.
In 2011, a minimum corporate income Withholding tax
tax was introduced in Luxembourg, the The Law provides a withholding tax
scope of which was amended in 2013. exemption on dividends distributed
As from 2013, SICARs which have a total by a corporate SICAR, irrespective
balance sheet consisting of more than of the residence and tax status of its
90% of financial assets, transferable shareholders.
securities (including receivables against Interest payments made by SICARs
related parties in which the SICAR holds are not subject to domestic withholding
a participation and shares units held in a tax (except where required by EU
tax transparent entity) and bank deposits Savings Directive or by Luxembourg
should be subject to a minimum flat tax Relibi Law).
amounting to € 3,000 (€ 3,210 including
a 7% unemployment surcharge or Under Luxembourg domestic tax law,
“solidarity tax”). If the 90% threshold the liquidation of a SICAR, regardless
is not met (which is not expected to be of its legal form, does not trigger any
the case for a SICAR), a minimum tax withholding tax at the level of the SICAR.
ranging between € 500 (€ 535 including

2
Projet de loi N°5201, p21

Luxembourg SICAR / 2014 4

Double tax treaty protection and Luxembourg SICARs qualify as taxable
access to EU Parent-Subsidiary persons for VAT purposes. It needs to
Directive be analysed on a case-by-case basis
SICARs do, from a Luxembourg whether this status should also result
perspective, benefit from the EU in the registration for VAT.
Parent-Subsidiary Directive and the
Management services rendered to a
double tax treaties concluded by
SICAR within the scope of the Law are
Luxembourg as they are fully taxable
in principle VAT exempt.
corporations. The Luxembourg Tax
Authorities issue on request certificates
of Luxembourg tax residency Net wealth tax
for SICARs. SICARs are exempt from the annual
0.5% net wealth tax.

Indirect taxes
As of 1 January 2009, Luxembourg Capital gains realized by
capital duty has been abolished. non-residents
Therefore, as of this date, only the fixed Non-residents are exempt from
registration duty of € 75 will be due Luxembourg income tax on capital
on incorporation or modification of the gains realised on the disposal of
bylaws of a SICAR. shares of a SICAR.

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