Luxembourg Securitisation Vehicle: A High level structuring guide

6 min read

For banks, asset managers, corporate sponsors and HNWI investors who want to transfer risks, fund assets or issue structured securities, Luxembourg offers a dedicated and well-established framework: the securitisation vehicle.

What is a Luxembourg securitisation vehicle?

A securitisation vehicle is a Luxembourg entity governed by the law of 22 March 2004 on securitisation, as amended (most recently in 2022). It acquires or assumes risks linked to assets, such as loans, receivables, bonds or other claims, and funds them by issuing securities to investors. The vehicle can take the form of a securitisation company or a securitisation fund, and the company form is by far the most common in practice.

The returns paid to investors depend on the performance of the underlying assets, which allows originators and sponsors to separate those assets, and their risks, from the rest of the group.

Why sponsors choose Luxembourg

Flexibility: A wide range of assets and risks can be securitised, and securities can be issued privately or to the public.
Ring-fenced compartments: A single vehicle can have several compartments, each with its own assets and investors, so a transaction is not exposed to the others.
Investor protection and insolvency remoteness: Limited recourse, non-petition and subordination clauses are recognised and enforceable under the law.
Tax neutrality: A securitisation company is fully taxable, but amounts owed to investors are generally deductible, so little tax should arise at vehicle level.
EU access and market standing: Luxembourg is an established European hub, with experienced service providers and a defined liquidation process.

A securitisation company is not tax-exempt, and the result depends on how the transaction is financed and remunerated. The tax treatment in the investors' home countries and anti-abuse rules must also be considered.

Legal forms, compartments and regulation

A securitisation company is usually an S.A. or an S.à r.l., and since the 2022 reform partnerships can also be used. Share capital follows the rules of the chosen form (EUR 12,000 for an S.à r.l., EUR 30,000 for an S.A.). A securitisation fund is a co-ownership or fiduciary estate run by a management company, and is used less often.

Whether the vehicle is regulated depends on how it issues securities:

Unregulated: where securities are placed privately, there is generally no CSSF authorisation.
Regulated: where securities are issued to the public on a continuous basis, the vehicle must be authorised by the CSSF, and its assets and securities must be held with a Luxembourg credit institution.

Where a transaction involves tranching and falls within the EU Securitisation Regulation, requirements on risk retention, transparency and, where relevant, simple, transparent and standardised (STS) status also apply.

Illustrative examples

The figures below are simplified, assume the conditions of the securitisation regime are met and that the margin is at arm's length, and are for illustration only.

Example 1: A loan portfolio

A securitisation company acquires a EUR 100 million loan portfolio and funds it by issuing EUR 100 million of notes. The portfolio generates EUR 8 million of income a year, and the company pays EUR 7.9 million to noteholders. Only the EUR 100,000 margin is left to tax, which at the 23.87% headline rate is about EUR 23,870. If all of the portoflio income is paid or accrued to noteholders the Luxembourg taxable result is nil, so no corporate income tax or municipal business tax is due on the income. Without the deduction, the same income would bear about EUR 1.9 million of tax at the 23.87% headline rate. Minimum net wealth tax and running costs still need to be planned.

Example 2: Ring-fenced compartments

One vehicle has two compartments: EUR 60 million of trade receivables in compartment 1 and EUR 40 million of consumer loans in compartment 2. Each compartment has its own assets and investors. If compartment 2 suffers heavy losses, its investors cannot claim against the EUR 60 million held in compartment 1, and the reverse also applies.

Example 3: Interest paid to investors

The vehicle pays EUR 6 million of interest to noteholders in several countries. Luxembourg generally does not levy withholding tax on this interest. Each investor is then taxed according to the rules of its own country of residence, which is why the investors' profile should be reviewed before the notes are issued.

Example 4: Private or public issue

The vehicle places EUR 150 million of notes with five institutional investors. This is a private placement, so CSSF authorisation is generally not required. If the same notes were offered to the public on a continuous basis, the vehicle would have to be authorised and supervised by the CSSF, which adds time, cost and ongoing obligations.

Example 5 : Acquiring real estate

A securitisation company acquires a EUR 50 million portfolio of commercial properties, funded by EUR 50 million of notes whose return is linked to the properties. The properties produce EUR 3 million of net rental income a year, and all of it is passed to noteholders, so the Luxembourg taxable result is nil. If the portfolio is later sold for EUR 60 million, the EUR 10 million gain is also passed to investors and the result stays nil. Tax in the country where the property is located, such as local income, property or transfer taxes, still applies and should be modelled.

Example 6: Acquiring listed securities

A securitisation company acquires EUR 80 million of listed shares and bonds, funded by EUR 80 million of notes whose return tracks the portfolio. In a year it receives EUR 2.4 million of dividends and interest and realises EUR 5 million of gains. All EUR 7.4 million is passed to noteholders, so the Luxembourg taxable result is nil. Foreign withholding tax on the dividends may still be suffered at source, for example EUR 360,000 at an assumed 15% rate on EUR 2.4 million, and recovery depends on treaty access and local rules.

Securitisation vehicle, SOPARFI or SCSp?

	Securitisation vehicle	SOPARFI	SCSp
Purpose	Acquiring and financing assets or risks by issuing securities	Holding and managing participations	Investment partnership, often for private equity and funds
Legal basis	Securitisation law of 22 March 2004	Ordinary company law	Ordinary partnership law
Regulation	CSSF authorisation only if issuing to the public on a continuous basis	None for holding activities	Depends on the activities and the manager
Compartments	Yes, ring-fenced	No	Possible only in specific cases
Taxation	Fully taxable, with amounts owed to investors generally deductible	Fully taxable, with participation exemption	Generally tax transparent

Setting up in five steps

Define the transaction: assets or risks to be securitised, originator, investors, issuance method and funding flows.
Choose the vehicle and regulatory position: company or fund, number of compartments, and whether CSSF authorisation is needed.
Draft the articles and transaction documents: corporate object, compartment rules, limited recourse and non-petition clauses, issuance terms and servicing arrangements.
Incorporate before a notary and complete RCS and beneficial ownership (RBE) registrations.
Open the accounts and issue the securities. Banks and service providers run their own due diligence, so start early.

Staying compliant

A securitisation company has the ordinary obligations of a Luxembourg company: annual accounts, tax filings, beneficial ownership data and proper corporate records. It must also keep each compartment's assets and liabilities separate and follow its transaction documents. Regulated vehicles are under continuous CSSF supervision, and transactions within the EU Securitisation Regulation have reporting and transparency duties. Tax substance and arm's-length remuneration should be documented from the start.

Is a securitisation vehicle right for you?

It suits banks, asset managers, corporate sponsors and investors who want to fund or transfer portfolios of loans, receivables, bonds or other assets, issue structured notes, or separate several transactions inside one entity. If the aim is simply to hold and manage participations, or to manage private family wealth, a SOPARFI or an SPF is usually a better fit, and a fund or partnership structure may suit pooled investment strategies.

How we can help

We advise sponsors, originators, asset managers, investment funds and corporate groups on Luxembourg structured finance and holding structures. Our services cover vehicle selection, regulatory analysis, incorporation, transaction documents and compartment structuring, coordination with arrangers and foreign counsel, and ongoing corporate support.

Considering a Luxembourg securitisation vehicle? Contact our team to discuss the structure that fits your transaction.

Disclaimer: This article is provided for general information purposes only and does not constitute legal, tax or investment advice. The examples are illustrative and simplified. Luxembourg laws, tax rates and regulatory requirements are subject to change, and their application depends on individual circumstances. You should obtain specific professional advice before taking any decision or action based on its content. No lawyer-client relationship is created by reading this article.