Professional Documents
Culture Documents
lternatives
Real Estate
Shaping
the Alternative
landscape
www.pwc.lu/real-estate
1
Introduction
The Luxembourg special The Luxembourg special limited Now, three years after the introduction
limited partnership vehicle partnership (Société en Commandite of the Luxembourg SCSp, more than
– the “Luxembourg SCSp” Spéciale, or “SCSp”) legal form was 1,300 of these partnerships have been
introduced in 2013 – at the time of set up in Luxembourg.
– has filled a notable gap in
implementation of the AIFMD – as
the range of legal entities
one of several measures designed to In contrast to the long-established
offered in Luxembourg. Since encourage the alternative investment standard Luxembourg limited
its introduction in 2013, the fund industry in Luxembourg. partnership legal form (Société en
Luxembourg SCSp has opened In legislating at that time, the Commandite Simple, or “SCS”), a
up new solutions for the real Luxembourg Government deliberately Luxembourg SCSp does not have
estate industry. went beyond merely transposing the a legal personality separate from
AIFMD into domestic law: it took a those of its partners. It is formed by
This brochure summarises the step forward, and modernised and an agreement between its partners.
first three years of experience expanded the legal solutions available The SCSp allows for more flexible
in Luxembourg for structuring structuring when compared with
with the SCSp, and helps
funds and real estate transactions. SCSs and other corporate entities
to discover and explore the
Historically, limited partnerships set established in Luxembourg, which
possible functions that an SCSp up under Anglo-Saxon legal systems must comply with additional corporate
may serve. had been the predominant choice law requirements.
whenever a solution involving a non-
regulated “transparent” entity type
was sought.
1500
1340
1200 1219
An SCSp may be used as a fund relationships between the manager vehicle, a vehicle typically formed to
The SCSp is a legal form that aims at extending the range of le- vehicle, either regulated (Part II UCI, and the investors, also makes the SCSp accommodate investments by one or
gal solutions available in Luxembourg for structuring both real SIF, SICAR or RAIF) or unregulated. attractive from a fund management more investors on a deal-by-deal basis
structuring perspective. into assets such as real estate projects
estate investment funds, and dedicated vehicles to the real estate If a fund vehicle set up as an SCSp where the lead participant is a real
industry. is unregulated, it is governed A Luxembourg SCSp may also be estate fund.
principally by the provisions of the considered as a suitable form for a
Law of 10 August 1915 on commercial feeder fund vehicle, set up by a fund’s More recently, the SCSp has become
SCSp purpose companies, as amended – the main sponsors or managers to accommodate a popular legal form for the setting-
legislation on Luxembourg company investment into the fund by one or up of the carried interest structures.
law. The provisions implementing the more investors who have particular Often individuals connected with the
AIFMD may well also apply. needs or obligations not shared by management of a fund are entitled
GP interest Lux SCSp all of the target investors for the to share a priority or enhanced share
Carry vehicle
Regulated SCSps (similarly to the fund. This may often be due to the of the profits (i.e. performance or
other legal forms used for regulated suitability or otherwise of the main promote fees), often referred to as
Lux GP Fund Investors fund vehicles) may be set up as fund’s jurisdiction of incorporation “carried interest”. A Luxembourg
“umbrella” fund vehicles, having or legal/tax regime, meaning that SCSp’s contractual flexibility, and the
Lux SCSp multiple distinct and segregated asset an investor or class of investors private nature of such partnership
GP interest LP interest
Fund or Feeder portfolios, with each such portfolio may prefer to invest into the fund arrangements can make it an optimal
vehicle or JV constituting a separate sub-fund or indirectly through an upper-tier entity. solution for the vehicle, through which
compartment. There are of course Alternatively, a feeder fund can serve the fund’s sponsor/key executive
many different factors that have to “ring-fence” investors who might managers may derive such a share of
Master Platform an impact on the choice of a fund otherwise cause all the investors in a the profits.
vehicle’s legal form. In most situations, fund to suffer additional costs, such as
the choice of the SCSp is driven by those of tax or regulatory compliance, Finally, in some circumstances, a
investors’ considerations - e.g. both or of an undue disadvantageous tax Luxembourg SCSp may serve as ideal
tax and legal transparency of the treatment. choice of asset-owning entity. This is
fund vehicle being either a regulatory specifically relevant for the real estate
Co-investor
LuxCo 1 Lux SCSp LuxCo 2 requirement for, or a preference The contractual flexibility of the and infrastructure industries.
of, the investors. Contractual SCSp regime can also favour the
flexibility, in terms of framing the use of an SCSp as a co-investment
Lux SCSp
Co-invest vehicle
MIP
Local Propco Local Propco
Taxation aspects
Luxembourg
tax(except
specific cases,
Yes e.g. Luxembourg
Lux SCSp is
treated as tax real estate held
Resident LP transparent Can LP investor by SCSp)
Direct taxation aspects investor and resident benefit from
LP is taxable in a double tax
Luxembourg treaty with
Does the Yes Luxembourg?
Is the SCSp an SCSp have No LP investor
AIF under the Yes “Luxembourg subject to
AIFMD? source”* Luxembourg tax
income? on “Luxembourg
No No No source”* income
Is the Normal situation
SCSp’s GP a No
Does the SCSp – LP investor not
Non resident LP Luxembourg have commercial subject to any
investor company holding activity apart Luxembourg tax
more than 5% of Uncommon
from investing? situation. LP
the SCSp?
Yes investor in
principle fully
subject to
Taxation of SCSp income at Yes Luxembourg
LP investor level taxes on
all income
attributable from
SCSp, although
some double tax
treaty protection
SCSp may be available
in specific cases.
* Principally includes:
• Dividends from Luxembourg companies (if subject to WHT)
• Income coming from Luxembourg real estate
SCSp not • Gains on disposal of “important” (>10%) participations, but
Taxation at Does the general subject to MBT. only if held for less than 6 months
SCSp level regime apply? Subscription tax
should apply
RAIF No
Yes
SCSp not
SICAR subject to MBT
Regulated
SCSp not
SIF, UCI Part II, subject to MBT
SICAF Subscription tax
applies
SCSp subject to
MBT only
SCSp subject to
MBT only
Language • SCSp agreement in the English language permitted (no translation into French or German is required if the SCSp is
Common situation – Preferential regime Number of partners set up by private deed)
Role, rights and • Each LP is a “passive” investor, but may indirectly take part in the internal management of the SCSp (no direct
liability of the contact with third parties), may provide advice and grant loans, guarantees or assistance to the SCSp or its affiliates,
LPs and may control or supervise the SCSp (e.g. be a member of an advisory or supervisory board), BUT may not be a
Common situation manager or part of the management board of the SCSp
The supply of management services by the GP to the SCSp is in • An LP’s right to information, and voting rights, are determined by the SCSp agreement (and may vary depending on
principle in the scope of VAT. The management of “qualifying” SCSps the status of the LP) – exceptions: migration, transformation, liquidation, change of the company’s objects
(Part II UCI, SIF, SICAR, AIF, RAIF) is in principle exempt from VAT
due to its regulatory status. As a consequence, any VAT charged to the • LP’s economic rights are determined by the LP agreement; different LPs may have different economic rights (sole
GP on its purchases of goods and services in relation to this activity VAT registration exception: “unconscionable clause”)
Yes obligations, as well as
Main VAT Is the GP would not be recoverable (i.e., final cost). A VAT registration of the GP is • An LP’s liability is limited to the amount of its investment in the SCSp
required if it receives taxable goods and/or services from abroad. the recoverability of VAT
implications for the established in
GP Luxembourg? on the expenses, of the
SCSp, GP and LP should Management • There may be one or several managers. Where there are several managers, they may form a board. A GP can be a
No manager, but does not have to be. A non-partner may be appointed as manager, but an LP may not.
Uncommon situation be analysed on a case- structure
by-case basis. • The role of a manager is to represent the SCSp and to take all management decisions (GPs who are managers bear
Differences of interpretation may arise. Some countries consider the
GP and the SCSp as a single taxable person from a VAT perspective,
unlimited liability, whereas there is no unlimited liability for managers who are not GPs).
and/or the SCSp’s place of establishment for VAT purposes could be
considered by the foreign tax authorities as located where the effective Commitments of the • Freely defined by the SCSp agreement
management of the SCSp is carried out. LPs/commitment • Can take the form of contractual commitments, or unpaid capital
period • Either partners’ accounts or units are possible
Common situation
Annual accounts • Limited accounting obligations
No Luxembourg VAT obligations, even if the LP is established in
Is the LP a “passive”
Yes Luxembourg. Possibility of • LPs may grant loans to the SCSp, without any commingling of risk
Main VAT leveraging the SCSp
implications for investor (i.e., mere • An SCSp can be leveraged (e.g. through the issuance of debt securities). Debt securities can be convertible, listed
holding of interests or offered to the public
an LP in the SCSp)?
No Uncommon situation
Distribution • None in law, freely defined by the SCSp agreement
General rules for the determination of the VAT status of the LP apply requirements • No clawback imposed by the law
in the LP’s country of establishment, although it would not be usually
expected to have VAT obligations due to its interest in the SCSp.
Publication Mandatory publication of information is limited to:
• details of the GP(s);
• entity name;
• details of the manager(s) (including any representation rights); and
• duration
The identity of and investments by the LP(s) do not have to be made public
Transferability, • Freely determined in the LP agreement; default rule: accepted by all GPs; this rule can be can be strengthened or
stripping, pledging relaxed
Regulatory requirements may apply to regulated SCSps or non-regulated SCSps, if they are managed by an AIFM.
Thierry Braem