Modernization of the Securitization Law in Luxembourg was presented on 21 May 2021 before the Chamber of Deputies. The amendments aim to further elevate the Grand Duchy as a premier jurisdiction for a wide range of transactions and investment opportunities.
Luxembourg securitization opportunity : Financing or refinancing aircrafts
Under the Securitization Law, Luxembourg-based companies and funds are greatly benefitting from the dependable and flexible nature of securitization vehicles in the country. Further boost in flexibility, global reach, and reinforcement of key features comprise the amendments suggested to be included in the Securitization Law.
The inherent features, advantages, and relief offered by the new securitization Law are available for existing and emerging securitization vehicles. It paves the way for better opportunities to enhance the overall securitization regime in Luxembourg by extending financing arrangements for securitization companies and streamlining the process of securitizing assets.
Setting Up an Aviation Company Under the Luxembourg Securitization Law
While the Securitization Law was introduced in 2004, it was only in recent years that securitization undertakings grew exponentially in the Grand Duchy. The strength of the country’s political, legal, and regulatory frameworks combined with its attractive taxation regime broadens the opportunity for international investors to establish their aviation company efficiently and smoothly.
At present the security undertakings in Luxembourg utilized for aviation incorporation may come in various legal forms, including:
- Public Limited Company (S.A.)
- Private Limited Liability Company (S.à r.l.)
The legal form of an aviation company will assume the of shareholder for an aircraft owner or a subordinate lender.
Under the provisions of the Securitization Law, a securitization vehicle may feature one or more sub-funds or compartments. These compartments typically hold different types of assets and liabilities of its investors.
For instance, a private limited liability company may establish multiple compartments to hold one or more aircraft. Although a sub-fund or compartment does not have a unique legal personality, the assets within are protected by Securitization Law rules.
Excellent Protection for Aviation Company Investors
The Securitization Law was strategically designed to uphold the integrity of a securitization company and its many investors for the following reasons:
- No limitations on the type of investor. Private individuals and institutional investors may incorporate an aviation company in Luxembourg.
- Securitization undertakings do not require direct supervision from the Commission for the Supervision of the Financial Sector (CSSF). unless a securitization company acquires authorization to issue securities to the public on a continuous basis.
- Wider scope or allowed activities for securitization undertakings to take advantage of.
- Greater level of security is provided to securitization vehicles and respective compartments.
Level of Protection for Securitization Undertakings
- The rights of creditors and investors are limited to their assets within a securitization vehicle.
- Securitization funds and companies may allocate assets based on their respective Articles of Association.
- An aviation company under a securitization undertaking does not have the ability to grant protection over its assets nor it can transfer assets for guarantee reasons, except in the case of securing obligations among its investors.
In the case of an aviation company, it cannot grant security to an aircraft financer on deals that involve traditional debt financing schemes.
Under Luxembourg Law, aircraft investors and creditors may agree to create subordination and non-petitioning agreements. Activities that violate these agreements will be considered null and void. Given the serious consequences of subordination and non-petitioning, aircraft financiers are recommended to assess their situation before agreeing to any such requests.
Protection for Compartments or Sub-Funds
Simply put, a securitization vehicle compartment does not have a separate legal personality. The assets are limited within a compartment as prescribed by the Securitization Law. It enjoys protection from interference from third-party creditors and investors that belong to other compartments or sub-funds.
Investors and creditors enjoy the following advantages under the Securitization Law:
- Rights of creditors and investors are limited to these assets within the compartment they belong to.
- Securitization compartment assets are available to satisfy the needs of its own investors and creditors.
- Each compartment within a securitization fund or company is distinct from one another, unless stated otherwise in an aviation company’s Articles of Association.
- The same principle is applicable in the case of insolvency. Compartments are protected from problems that occur in other compartments or sub-funds within a securitization undertaking.
Taxation Regime for Securitization Vehicles in Luxembourg
The tax regime that applies to security undertakings make it an attractive option to set-up an aviation company in the Grand Duchy. The country showcases complete tax neutrality as opposed to other equally population jurisdictions for incorporating an aircraft company.
Here are the major selling points of the Luxembourg Securitization Law for securitization undertakings:
- While aircraft companies will be assessed with corporate income tax, all money paid out among investors and credits are recognized as interest on debt. This means that all income will be fully deductible for tax reasons.
- Distributions among investors of a securitization company are exempt from Luxembourg withholding tax.
As far as company structuring and investment type, investors looking to invest in an aircraft company have excellent options to choose from. Investors can place investments on multiple aircraft in a simple and straightforward manner. The tax neutral landscape and ring-fencing of both assets and insolvency makes it the perfect securitization undertaking for private and institutional investors alike. To learn more about securitization undertakings and how to register an aviation company in Luxembourg, reach out to one of our Damalion experts today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.