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How to set up a Luxembourg securitization vehicle

by | Jan 11, 2025 | Investments, Securitization

Harnessing Luxembourg’s Framework: Setting Up a Securitization Vehicle

Luxembourg has established itself as a premier destination for securitization vehicles (SVs) due to its investor-friendly legal framework, fiscal efficiency, and strategic location in the heart of Europe. Setting up a securitization vehicle in Luxembourg involves several steps, from selecting the right structure to ensuring compliance with regulatory requirements. Below is a comprehensive guide to the process.

1. Understand Securitization in Luxembourg

Securitization in Luxembourg refers to the process of pooling financial assets and transforming them into tradeable securities. The Luxembourg Securitization Law of 22 March 2004 governs these activities, offering a flexible framework that supports a wide range of securitization transactions, including:

A securitization vehicle in Luxembourg can be structured as a company or a fund, depending on the investor’s objectives and operational needs.

2. Choose the Legal Form

The first step is selecting the legal form for your securitization vehicle. Luxembourg law allows SVs to be set up as:

  • Companies: Typically structured as public limited companies (S.A.), private limited companies (S.à r.l.), partnerships limited by shares (S.C.A.), or cooperatives organized as public limited companies (SCoSA).
  • Funds: These are contractual arrangements with no legal personality, often chosen for greater operational simplicity.

For most international transactions, securitization companies are the preferred option due to their robust governance structures.

3. Define the Scope of Activities

A securitization vehicle can engage in the acquisition, holding, and management of financial assets, as well as the issuance of securities. It’s crucial to clearly define the scope of activities in the constitutional documents to ensure compliance with the Securitization Law.

Additionally, SVs can compartmentalize assets and liabilities into separate compartments, allowing for the segregation of risks and tailored issuance programs.

4. Draft Constitutional Documents

The formation of a securitization vehicle requires drafting appropriate constitutional documents, including:

  • Articles of Association (for companies)
  • Offering Memorandum (detailing the structure, risks, and asset pool)

These documents must align with Luxembourg’s legal requirements and the specific objectives of the securitization transaction.

5. Obtain Regulatory Clearance

Depending on the structure and scope of the SV, regulatory oversight by the Commission de Surveillance du Secteur Financier (CSSF) may be required. Generally:

  • Non-regulated SVs: Securitization vehicles issuing securities on a private placement basis do not require CSSF approval.
  • Regulated SVs: If securities are offered to the public on a continuous basis, CSSF authorization is mandatory.

6. Incorporate the Vehicle

Once the constitutional documents are ready, the SV must be incorporated. This process involves:

  • Notarization: The articles of association must be executed before a Luxembourg notary.
  • Registration: Filing with the Luxembourg Trade and Companies Register (RCS).
  • Capital Requirements: Minimum share capital for an S.A. is €30,000, while an S.à r.l. requires €12,000.

7. Tax Structuring

Luxembourg offers significant fiscal advantages for securitization vehicles, including:

  • Tax Neutrality: Income and gains generated by the securitization vehicle are typically not subject to corporate income tax.
  • No Withholding Tax: Distributions made to investors are generally exempt from withholding tax.
  • VAT Exemption: Management services provided to securitization vehicles are exempt from VAT.

However, careful tax structuring is essential to ensure compliance with transfer pricing and anti-abuse regulations.

8. Open Bank Accounts and Appoint Service Providers

A securitization vehicle must open a bank account in Luxembourg for capital contributions and ongoing transactions. Additionally, appointing professional service providers is essential, including:

  • Corporate Administrators
  • Auditors
  • Legal Advisors
  • Custodians (if required by the structure)

9. Initiate Securitization Transactions

Once operational, the securitization vehicle can commence transactions by:

  • Acquiring Assets: Purchase or transfer of financial assets.
  • Issuing Securities: Structured to match the cash flow and risk profile of the underlying assets.
  • Managing Risks: Implementing mechanisms such as credit enhancements or hedging.

10. Ensure Ongoing Compliance

Maintaining a Luxembourg securitization vehicle requires adherence to local regulations, including:

  • Annual Reporting: Filing audited financial statements.
  • Tax Compliance: Submitting periodic tax declarations.
  • CSSF Reporting: If regulated, regular reporting to the CSSF.

Setting up a securitization vehicle in Luxembourg provides a versatile and efficient platform for structured finance transactions. By leveraging Luxembourg’s sophisticated legal and regulatory framework, businesses can achieve tailored financing solutions while benefiting from fiscal advantages. Partnering with experienced advisors ensures smooth incorporation and ongoing compliance, enabling your securitization vehicle to thrive in this dynamic financial hub.

Damalion helps international investors to structure their investments thanks to the Luxembourg investment vehicles which offer strong stability and advantages. Contact your Damalion expert now. 

Damalion – Luxembourg

How to set up a Luxembourg securitization vehicle — clear eligibility, documents, formation, financing options, CSSF points, tax, compartments, listing, and ongoing duties.

For sponsors, arrangers, originators, asset managers, family offices and institutional investors • Damalion helps organize information and coordinate with providers so reviews are efficient. Decisions belong to each institution.

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What makes a Luxembourg securitization vehicle (SV) work well?

Define the assets or risks to be securitized, choose a suitable legal form, and keep documents consistent with the Luxembourg Securitisation Law of 22 March 2004, as amended (notably by the law of 9 February 2022). Explain the offer model (private or public, one-off or continuous), the investor base, and any listing plan. Set out cash flows, hedging, and servicing in simple terms. Maintain a single, traceable file from setup to ongoing reporting.

Documents you will usually need

  • Founders’ and directors’ identification, proof of address, and compliance checks.
  • Source of funds and source of wealth explanations with supporting evidence.
  • Draft constitutional documents (e.g., articles of association for a company; rules for a fund).
  • Draft terms of the financial instruments (notes, loans, shares, beneficiary shares).
  • Asset or risk description, transfer mechanics, servicing and custody arrangements.
  • Cash flow model and priority of payments; hedging terms if any.
  • Offering or listing documents where applicable (Prospectus Regulation rules if a public offer or admission to trading applies).
  • Tax memo covering neutrality mechanism, transfer pricing, and withholding points.
  • Agreements with key providers (administrator, auditor, legal, paying agent, listing agent, account bank, servicer, calculation agent).

Common legal forms and features

Form Notes Typical uses
S.A. (public limited company) Minimum capital €30,000. Flexible governance. Often used for listed note programs and multi-compartment setups. ABS, CLO/portfolio deals (no public offer if actively managed), repacks.
S.à r.l. (private limited company) Minimum capital €12,000. Simple and efficient for private placements. Private deals, single investor structures, bilateral risk transfer.
SCS / SCSp (limited partnerships) Contractual flexibility and possible tax transparency. Popular where equity-style instruments are used. Tailored risk transfer, bespoke investors, co-investment structures.
Securitisation fund No legal personality; must be managed by a management company in Luxembourg. Registered with RCS. Where operational simplicity and segregation by compartments is needed.

Set up – step by step with Damalion support

  1. Scoping. Define assets/risks, investor type, private vs public offer, and any listing.
  2. Choose the legal form. Company (S.A., S.à r.l., SCS/SCSp/SCA/SAS/SNC/SCoSA) or fund.
  3. Draft and notarize. Articles or fund rules; board and service agreements; instrument terms.
  4. Register. File with the Luxembourg Trade and Companies Register (RCS). Record UBO data.
  5. Open accounts. Bank and custody arrangements, paying and listing agents as required.
  6. Transfer assets/risks. Execute sale/assignment or risk transfer; appoint servicer and calculation agent.
  7. Issue instruments. Notes, loans, shares or other financial instruments allowed by law.
  8. Ongoing duties. Accounts, audit, tax filings, regulatory and market disclosures where relevant.

Costs, timing and operations

  • Formation costs (notary for companies), provider fees (legal, admin, audit, listing agent), and bank/agent fees.
  • Timing: from complete file to first issuance may be days to weeks, depending on structure and approvals.
  • Operations: board meetings, service provider oversight, reconciliations, compartment bookkeeping, and investor reporting.

Frequently asked questions

1) What law governs securitization in Luxembourg?
The Law of 22 March 2004 on securitisation, as amended (including the law of 9 February 2022), applies together with relevant EU rules such as the EU Securitisation Regulation (EU) 2017/2402 where in scope, the Prospectus Regulation for public offers/admissions, and other financial market rules depending on the structure.
2) Do all securitization vehicles require CSSF authorization?
No. Authorization applies where financial instruments are offered to the public on a continuous basis. Private placements or one-off issues remain outside authorization, but general laws still apply.
3) What counts as “offered to the public on a continuous basis”?
The amended law clarifies this concept by reference to frequency and investor scope. A recurring offer to a broad, undefined group can be considered continuous and public. Case-by-case analysis is needed against current guidance and practice.
4) Can an SV issue instruments other than traditional notes?
Yes. Since 2022, financing may be done by issuing financial instruments broadly defined, and by taking loans, subject to the terms set in the vehicle’s documents and overall compliance.
5) Is active asset management permitted?
Active management of receivables and certain debt instruments is allowed where the instruments issued are not offered to the public. Where there is a public offer, a passive approach is expected unless another regime applies.
6) Can an SV create compartments?
Yes. Compartments allow segregation of assets and liabilities inside the same legal entity. Rights of investors are normally limited to the assets of their compartment as defined in the constitutional documents.
7) What are common legal forms?
Companies (S.A., S.à r.l., S.C.A., SCoSA, SAS, SNC) and partnerships (SCS/SCSp), or a securitisation fund managed by a Luxembourg management company. Each form has different governance and tax features.
8) What are typical minimum capital rules?
For companies: S.A. €30,000; S.à r.l. €12,000. Partnerships may agree contributions contractually. Funds do not have legal personality, but the management company must meet its own requirements.
9) Are SVs tax-neutral?
Luxembourg provides an effective neutrality through deduction of commitments to investors and other features. No withholding tax generally applies on distributions to investors. Minimum net wealth tax may apply to companies. Transfer pricing and anti-abuse rules must be respected.
10) Is VAT charged on management services?
Management of securitisation vehicles is generally VAT-exempt in Luxembourg. Other services may be taxable depending on their nature and place-of-supply rules.
11) Do SVs fall under AIFMD?
Usually no. An SV that raises capital from multiple investors to invest under a defined policy may be considered an AIF. Most SVs are structured to stay outside AIFMD, but this needs careful analysis.
12) Do EU Securitisation Regulation disclosure rules apply?
If the transaction qualifies as a “securitisation” under Regulation (EU) 2017/2402, transparency, risk retention, and due-diligence obligations may apply to originators, sponsors, and institutional investors. STS status is optional and subject to strict criteria.
13) Can instruments be listed in Luxembourg?
Yes. Many issues are listed on the Luxembourg Stock Exchange (LuxSE), including on the Euro MTF or the Luxembourg Green Exchange if eligible. Listing requires an appropriate offering document and ongoing disclosures under the chosen market rules.
14) What investor categories are typical?
Professional and institutional investors dominate. Retail access requires additional rules (e.g., Prospectus/PRIIPs), and is uncommon in practice.
15) What are common AML/KYC expectations?
Standard Luxembourg AML/KYC applies to founders, directors, UBOs and key service providers. Expect evidence of identity, address, source of funds, source of wealth, and a clear business rationale.
16) Are there UBO register obligations?
Yes. Entities must record beneficial owners in the Luxembourg RBE (UBO register) with access and confidentiality rules as currently in force. Data must be accurate and kept up to date.
17) Are there cross-border tax reporting duties?
Depending on the structure, DAC6 (mandatory disclosure rules) and exchange-of-information regimes may apply. Proper reviews should be performed before first issuance.
18) Can an SV grant security to third parties?
Yes, the law allows granting security over its assets to secure obligations related to its transactions, including in favour of financing banks and other creditors, as defined in its documents.
19) How are financial statements prepared?
Annual accounts are prepared at entity level; where compartments issue equity-type instruments, the law permits approvals and reserves at compartment level. Audit is usually required for companies that issue to investors.
20) What timelines are realistic?
With a complete file and aligned providers, formation and first issue can be achieved in a short period. Public offers, listings, or complex assets can extend timing. Always plan for document reviews and onboarding checks.
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.
  • Graphic – Luxembourg
  • Graphic – Luxembourg

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