Company vs Fund, Roadmap, Legal Limits and All Asset Classes Deals Under the Securitisation Law of 22 March 2004 (as amended)
For sponsors, arrangers, originators, asset managers, family offices and institutional investors, Luxembourg remains one of the most versatile jurisdictions to structure securitisation vehicles (SVs). The framework is designed to be economically neutral, legally predictable, and operationally scalable, especially when you combine multi-compartment platforms with professional service providers.
This guide walks through the starting point for setting up a securitisation vehicle, explains company vs. fund, outlines a clear roadmap, and dives into the Securitisation Law of 22 March 2004 as amended, including its limitations, CSSF positions and tax aspects. Real estate transactions across all asset classes are explicitly covered.
Starting Point: What Is a Luxembourg Securitisation Vehicle?
A Securitisation Vehicle (organisme de titrisation) is a vehicle that:
- Assumes or acquires risks linked to assets, obligations, or activities of third parties (directly or indirectly); and
- Finances those risks by issuing financial instruments whose value or yield depends on those risks.
The Luxembourg Securitisation Law of 22 March 2004 introduced this concept and deliberately drafted a much broader definition of “securitisation” than the one used in EU-level regulation. That is why transactions that would not qualify as “securitisation” under the EU Securitisation Regulation (e.g. certain unitranche or non-credit risk deals) can still be structured comfortably under Luxembourg law.
In practice, almost any risk that can be economically modelled can be securitised, provided that:
- The vehicle remains passive in its management (with limited and clearly framed exceptions after the 2022 amendments);
- Financing is structurally linked to the performance of the underlying risks; and
- The overall structure respects the prudential, tax and investor protection rules.
Company vs Fund – Choosing the Form of Your Securitisation Vehicle
A Luxembourg securitisation vehicle can take two main forms:
Securitisation Company
The vehicle can be incorporated as a company under Luxembourg corporate law. Common options include:
- Société Anonyme (S.A.) – public limited company
- Minimum share capital: EUR 30,000
- Highly flexible governance
- Widely used for note programmes, multi-compartment platforms and listed transactions
- Société à responsabilité limitée (S.à r.l.) – private limited company
- Minimum share capital: EUR 12,000
- Simple, efficient, often used for private placements or bilateral deals
- Société en commandite par actions (S.C.A.) – corporate partnership limited by shares
- Hybrid partnership/corporate model, useful if sponsor wants stronger influence while maintaining a corporate shell
- Société coopérative organisée comme une société anonyme (SCoSA)
- Cooperative company organised as an S.A., occasionally chosen for specific investor profiles or governance logic
Other corporate forms (e.g. SAS, SNC) may also be possible when they fit the transaction, especially after legislative modernisation.
Securitisation Fund
Alternatively, the vehicle can be established as a securitisation fund, a specific type created by the Securitisation Law:
- No legal personality of its own
- Constitutes a pool of assets managed by a Luxembourg management company
- Can be structured as:
- Co-ownership (co-propriété) – investors hold a direct right in rem over the underlying pool of assets; or
- Fiduciary property under the Luxembourg trust and fiduciary regime – assets are held in fiduciary ownership by the management company, segregated from its own assets.
Historically, securitisation funds were less used than companies, but their popularity has grown due to:
- Flexible setup and contractual design;
- Tax transparency in many cases; and
- Exemption from some rules that apply to corporate vehicles.
Constitutional Documents and Reference to the Securitisation Law
Whether you choose a company or a fund, the constitutional documents (articles of association or management regulations):
- Must explicitly opt into and refer to the Securitisation Law;
- Must state whether the vehicle is regulated (CSSF-supervised) or unregulated;
- Typically include limited recourse and non-petition provisions to reinforce insolvency remoteness.
These are not “standard” Luxembourg corporate clauses – they are specifically tailored for securitisation structures.
The Legal Definition of Securitisation – Broad Scope, Real Assets Included
Under the Securitisation Law, securitisation encompasses transactions where the vehicle acquires or assumes risks related to:
- Claims (receivables, loans, trade credits, NPLs, etc.);
- Other assets (movable, immovable, tangible, intangible);
- Obligations of third parties; or
- Risks inherent to all or part of the activities of third parties.
Because the law focuses on risk rather than strictly on “credit claims”, Luxembourg can accommodate a wide array of assets and structures:
- Commercial loans, SME loans, leveraged loans
- Mortgage loans and home equity lines
- Car leases, consumer finance, credit cards
- Trade receivables, rental receivables, royalties, IP income
- Non-performing loans and distressed portfolios
- Commodities and commodity-backed financings
- Income from operating businesses, franchise fees, royalties, etc.
Real Estate Securitisation – All Asset Classes
Real estate risks sit comfortably within this definition. The vehicle can securitise:
- Residential: single units, multi-family, PRS, build-to-rent
- Office and commercial: office portfolios, retail parks, shopping centres
- Logistics and industrial: warehouses, distribution hubs, light industrial
- Hospitality and living: hotels, serviced apartments, student housing, senior living
- Special assets: data centres, healthcare facilities, schools, stadiums, energy infrastructure
- Development projects: forward funding, forward purchase, value-add CAPEX, lease-up risk
The Securitization Vehicle can hold:
- Direct title to the properties;
- Equity in SPVs holding the real estate;
- Economic or risk participation (e.g. through profit-participating instruments or derivatives).
The key is that investor instruments must be linked to the performance of the underlying real estate risk (rental income, capital gain, development milestones, etc.), while the operational management is handled by property and asset managers, not by the SV acting as an “entrepreneur”.
What Risks Can Be Securitised? – CSSF Clarifications
Luxembourg’s regulator, the CSSF, clarified in its securitisation FAQ that:
- A securitisation vehicle may, in certain circumstances, originate loans itself and still be considered a securitisation structure, provided that:
- It does not use funds collected from the public to carry out general lending business for its own account; and
- The issuance documentation clearly describes the borrowers or selection criteria and the assets on which loan servicing and repayment depend, so that investors understand the credit and performance risks.
- Commodity-based securitisations are accepted if the commodities are used as collateral for financing an entity and serve the securitisation purpose.
In practice, many Luxembourg SVs securitise non-Luxembourg assets and pools located across Europe or globally.
Financing the Securitisation Vehicle – From Securities to Ancillary Loans
5.1 Issuance of Securities and Other Instruments
The traditional core rule is that the Securitization Vehicle must finance itself by issuing securities (valeurs mobilières) whose value or yield depends on the securitised risks. These may be:
- Debt instruments (notes, bonds, profit-participating notes);
- Equity instruments (shares, units) where returns are structured by compartment;
- Instruments linked to specific assets, risks or compartments;
- Subordinated instruments where repayment is conditional upon other instruments being satisfied.
After the amendments of 9 February 2022, the Law allows a broader range of financing instruments, including certain loans, provided that the economic linkage to the underlying risk remains clear.
Warehousing and Ancillary Borrowings
The Securitization Vehicle may use short-term borrowing to:
- Pre-finance (warehouse) assets before issuing securities;
- Cover liquidity mismatches between asset cash flows and investor payments;
- Maintain working capital.
However:
- Borrowing must remain ancillary and proportionate to the securitisation;
- Excessive leverage should be avoided unless clearly disclosed and justified;
- Transaction documents must spell out the additional risks created by external leverage.
Acquisition and Transfer of Assets – True Sale and Synthetic Forms
The Securitisation Law expressly recognises both:
- True sale transactions – where the Securitization Vehicle acquires assets directly (legal ownership of claims, receivables or shares);
- Synthetic structures – where the Securitization Vehicle assumes economic exposure via derivatives or guarantees without acquiring the assets themselves.
Key legal aspects:
- The law governing the assigned claims determines whether claims are assignable, how the assignment becomes effective against the debtor, and how the debtor can be validly discharged.
- The assignment becomes effective between the parties and against third parties from the moment they agree, unless they contractually decide otherwise.
- Future claims (not yet in existence at signing) can also be validly assigned.
- By operation of Luxembourg law, the transfer of a claim to the Securitization Vehicle automatically carries with it related guarantees and security interests.
- Opposability to third parties is governed by the law of the assignor’s state, which is relevant for cross-border portfolios.
Passive Management and the “Prudent Man” Standard
A critical limitation of the Luxembourg framework is that a securitisation vehicle must generally adopt a passive management approach:
- It administers the cash flows of the securitisation;
- It manages its assets with a “prudent man” standard;
- It should not actively create new commercial risks or behave like an operating business.
Activities aimed at creating new wealth through entrepreneurial decisions – such as direct business operations, speculative trading or active commercial development – are not compatible with the classical securitisation profile, especially where instruments are offered to the public.
After the 2022 reform, active management is permitted in limited circumstances, notably where securities are not offered to the public and the investor base is professional or institutional. This is particularly relevant for actively managed loan portfolios or CLO-type structures placed privately. For public or retail offers, the portfolio must remain passively managed.
For real estate, this means:
- The Securitization Vehicle may own or hold economic interests in property portfolios;
- Day-to-day property operations, leasing, capex decisions and asset repositioning are carried out by third-party property/asset managers under contract;
- The securitisation vehicle remains a financing and risk-transformation platform, not a real estate operating company.
Security Interests, Guarantees and Structural Protection
To preserve the pure securitisation character, the Securitisation Law restricts the way an Securitization Vehicle can grant security interests and guarantees:
- Security over the Securitization Vehicle’s assets should secure obligations incurred for the securitisation or be in favour of its investors and finance providers.
- Security and guarantees that fall outside this purpose may be considered void under the Law.
Later reforms broadened the range of parties in whose favour the Securitization Vehicle may grant security, but the guiding principle remains: security must be structurally tied to the securitisation transaction, not to unrelated exposures.
Vehicles also typically include:
- Limited recourse clauses – investors’ claims are explicitly limited to the assets (or the assets of a given compartment);
- Non-petition clauses – investors and certain counterparties agree not to file insolvency proceedings against the Securitization Vehicle beyond the contractual framework.
These features, combined with orphan ownership structures (for example using a Dutch stichting or other independent shareholder), are designed to reinforce insolvency remoteness.
Compartmentalisation – A Key Luxembourg Advantage
One of Luxembourg’s distinctive strengths is the ability to create compartments within a single securitisation vehicle:
- Each compartment represents a segregated pool of assets and liabilities;
- Creditors whose claims relate to a compartment have recourse only to that compartment’s assets;
- Compartments do not have separate legal personality but benefit from statutory ring-fencing;
- A compartment can be liquidated separately without affecting the other compartments or the Securitization Vehicle as a whole.
Operationally:
- The SV’s management body decides on the creation of new compartments, making the setup cost-effective and quick;
- Accounts must report clearly identifiable information per compartment;
- Auditors must verify the fair presentation both at the Securitization Vehicle level and at each compartment’s level.
For sponsors and arrangers, this enables:
- A platform approach – new deals launched as new compartments;
- Clearly separated real estate portfolios (e.g. office, logistics, hospitality) within the same vehicle;
- Tailor-made waterfalls, note structures and investors per compartment.
Regulated vs Unregulated – CSSF Supervision Triggers
Most Luxembourg securitisation vehicles are unregulated, i.e. not authorised or prudentially supervised by the CSSF. Supervision arises only if two cumulative conditions are met:
- The Securitization Vehicle issues securities to the public; and
- It does so on a continuous basis.
10.1 “Continuous Basis”
As a rule of thumb, an Securitization Vehicle is considered to issue on a continuous basis if it makes more than three issues per year. For multi-compartment vehicles, this test is applied at the level of the vehicle as a whole, not per compartment.
10.2 “To the Public”
The Securitisation Law’s use of “public” is not identical to the prospectus law concept. The CSSF’s guidance generally considers that issues are not to the public when:
- They are directed exclusively to professional clients (as defined under MiFID II); and/or
- Each security has a denomination of at least EUR 125,000; and/or
- The placement is a genuine private placement to a small, identified group of investors.
A listing on a stock exchange does not automatically mean that the securities are issued to the public. However, if an institutional investor or intermediary subscribes with the intention of on-placing to a broad public, the initial issue may be treated as to the public for the purposes of the Law.
10.3 Consequences of Being Regulated
If the Securitization Vehicle issues securities to the public on a continuous basis:
- It must obtain CSSF authorisation;
- Its constitutional documents, shareholders and management will be approved by the CSSF;
- It must entrust the custody of liquid assets and securities to a Luxembourg credit institution;
- It must comply with ongoing prudential and reporting requirements.
Audit, Central Bank Reporting and Statistical Obligations
Both regulated and unregulated securitisation vehicles must:
- Prepare annual accounts and financial statements;
- Have them audited by one or more approved independent auditors (réviseurs d’entreprises agréés);
- Present financial information compartment by compartment, with clear identification and fair-view assessment.
In addition, many SUs must register with the Luxembourg Central Bank and provide periodic statistical reports (e.g. monthly or quarterly) under the central bank’s circulars on securitisation vehicles.
EU Securitisation Regulation and AIFMD – How They Interact
12.1 EU Securitisation Regulation
The EU Securitisation Regulation (Regulation (EU) 2017/2402) provides:
- A general framework for securitisations in the EU;
- A specific regime for Simple, Transparent and Standardised (STS) securitisation;
- Due diligence obligations for institutional investors;
- Transparency and reporting requirements;
- Risk retention (5%) obligations, imposed directly on originators, sponsors or lenders.
Important: the definition of “securitisation” under this Regulation is narrower than under the Luxembourg Securitisation Law. Many Luxembourg securitisation vehicles (e.g. certain unitranche, non-credit risk, real-asset, or bespoke transactions) fall outside the Regulation’s scope, but still benefit from the Luxembourg Securitisation Law.
12.2 AIFMD Considerations
Under AIFMD and its Luxembourg implementation:
- Securitisation special purpose entities (SSPEs) are excluded from the AIFMD regime.
- A securitisation vehicle that only issues debt instruments and is not managed according to a defined investment policy is normally not considered an alternative investment fund.
- CLO-type securitisation vehicles are generally treated as SSPEs, not AIFs.
- Entities that primarily act as “first lenders” and do not structure true securitisations may fall within AIFMD and need to assess the AIFM regime.
Careful classification is essential when dealing with ** loan origination strategies, real estate credit platforms or hybrid vehicles**.
Tax Aspects – Corporate vs Fund, ATAD and VAT
13.1 Securitisation Company
A securitisation company is:
- Fully subject to Luxembourg corporate income tax and municipal business tax;
- Typically taxed at a combined rate (e.g. around 25% in Luxembourg City, depending on year);
- However, the Securitisation Law allows all commitments vis-à-vis investors and creditors (interest, profit-linked payments, redemptions, etc.) to be treated as deductible expenses, leading in practice to tax neutrality if structured correctly.
Other points:
- The company is generally exempt from net wealth tax, except for an annual minimum tax;
- It is considered “liable to tax” and tax-resident in Luxembourg for treaty purposes;
- There is no Luxembourg withholding tax on interest or dividend-type payments made by a securitisation company to investors (subject to specific anti-abuse rules).
13.2 Securitisation Fund
A securitisation fund is tax transparent:
- Not subject to income tax, municipal business tax or net wealth tax;
- Not subject to the subscription tax applicable to many investment funds;
- Typically does not qualify as a tax treaty resident, meaning treaty benefits are usually not available at fund level.
13.3 ATAD 1 – Interest Limitation Rules
The ATAD 1 implementation in Luxembourg introduced interest deduction limitations:
- Excess borrowing costs are in principle deductible only up to the higher of:
- 30% of EBITDA, or
- EUR 3 million per year.
Certain securitisation vehicles (notably those qualifying as Securitisation Special Purpose Entities (SSPE) under the EU Securitisation Regulation or as alternative investment funds) may benefit from exemptions. Securitisation funds, being transparent, are generally outside the scope of the interest-limitation rules at vehicle level.
Given this, structures must be reviewed to ensure that:
- Leverage is calibrated to avoid unintended non-deductible interest;
- The vehicle can still achieve the target tax-neutral outcome.
13.4 VAT
Management services rendered to a securitisation vehicle benefit from a Luxembourg VAT exemption, limiting VAT leakage at vehicle level. In practice, this often covers:
- Corporate and fund management;
- Collateral management;
- Investment advisory services that are specific and essential to the management of the vehicle.
Practical Roadmap – From Idea to First Issuance
Putting everything together, a typical roadmap looks like this:
- Scoping and Feasibility
- Define assets/risks (loans, real estate, trade receivables, commodities, etc.)
- Identify investor base (private, institutional, public)
- Decide on private placement vs. public offer and any listing needs
- Assess whether the structure will be regulated or unregulated
- Choose Company or Fund and Legal Form
- Decide between company (S.A., S.à r.l., SCA, etc.) or fund (co-ownership or fiduciary)
- Model compartments for each transaction, asset pool or real estate cluster
- Draft Constitutional Documents and Transaction Documentation
- Articles/management regulations with explicit reference to the Securitisation Law
- Clearly stated regulated/unregulated status
- Limited recourse and non-petition clauses
- Asset transfer agreements, servicing and calculation agency agreements
- Terms and conditions of the notes/loans/shares
- Tax memo and regulatory analysis (including Securitisation Regulation, AIFMD, ATAD)
- Incorporation and Registration
- Execute incorporation before a Luxembourg notary (for companies)
- Register with the RCS and, where applicable, the beneficial owner register (RBE)
- Banking, Custody and Service Providers
- Open bank and, if needed, custody accounts in Luxembourg
- Appoint administrator, auditor, legal counsel, paying agent, listing agent, servicer, calculation agent
- Asset Transfer and Warehousing
- Execute true sale or synthetic transfer of the securitised risks
- Put warehouse lines in place if pre-financing is needed
- Issuance of Instruments
- Issue notes, loans, units or shares linked to specific compartments
- Decide on listing (or not) and complete any prospectus or listing documentation
- Ongoing Management and Reporting
- Passive (or, where allowed, carefully controlled active) asset management
- Accounting and auditing, with separate compartment data
- CSSF, Central Bank and investor reporting where required
- Regular tax compliance and ATAD monitoring
Ready to start
A Luxembourg securitisation vehicle, whether structured as a company or a fund, provides a robust, tax-efficient and highly adaptable platform for transforming virtually any form of risk – including complex multi-jurisdictional real estate portfolios – into investable instruments.
Launch your securitization vehicle now
The Securitisation Law of 22 March 2004, refined by later amendments and complemented by CSSF guidance, gives sponsors and investors:
- A broad legal definition of securitisation that covers far more than classic term ABS;
- Compartmentalisation and insolvency-remote protections;
- A tested interplay with EU rules (Securitisation Regulation, AIFMD, ATAD);
- Clear supervisory triggers and a predictable tax environment.
Damalion experts help entrepreneurs, sponsors, and institutional investors map their asset or real estate strategy to the right Luxembourg structure. We coordinate with banks and service providers, and align legal, tax and regulatory aspects. Thus, each institution can take its own informed decision on the final setup. Please contact your Damalion expert now.
