Special Purpose Acquisition Company (SPAC) Options in Luxembourg - 10 Leaves

  • 25-03-2021
A GLOBAL CENTRE FOR INVESTMENT FUNDS:

Luxembourg is a global centre for investment funds, the second largest fund jurisdiction in the world, after the United States. It is the largest centre for funds in Europe, with over Euro 4.5 trillion in cumulative assets under management in supervised funds alone.

Why setup an investment fund in Luxembourg?

The country is:

  • A founding member of the EU.
  • Politically stable.
  • Financially stable.
  • AAA-rated.

It has:

  • Access to over 500 million EU residents.
  • Reliable investment regulations.
  • Over 4,200 supervised investment vehicles with around 14,500 sub-funds.
  • A competitive framework for passporting of funds within the EU.
  • Luxembourg funds are sold in more than 70 countries and is the leading jurisdiction for fund distribution.
  • A responsive and globally recognized financial regulator.

It offers:

  • A wide range of supervised and non-supervised investment funds.
  • UCITS and AIFs.
  • Umbrella funds.
  • Non-supervised funds.

Tax benefits:

  • Depending on the need of investors, Luxembourg offers tax exempt, tax neutral or taxable investment vehicles,
  • Some exemptions for VAT payments;
  • Funds may access Double Taxation Avoidance Treaty benefits or establish SPVs that would have access.

Luxembourg funds and the GCC:

Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.

Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.

Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.

Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.

United Arab Emirates – 64% of foreign funds are Luxembourg funds

Saudi Arabia – 50%

Kuwait – 75%

Bahrain – 75%

Oman – 99%

Qatar – 98%

What are Special Purpose Acquisition Companies, or SPACs?

A SPAC is an acquisition vehicle typically created by experts in specific sectors, for example, in technology.  

The primary objective of an S PAC is to acquire an existing entity that is in the early stages of filing for an Initial Public Offering, or IPO.

The acquisition is funded by the capital that the S PAC raises from it’s own Initial Public Offering. This capital is then kept in escrow until the target company has been identified. Once done, the process can be completed quickly, hence giving the target entity a quicker and hassle-free route to an IPO.

If an SPAC fails to locate an acquisition, it would have to be liquidated.

The advantage to investors is that they get to seize opportunities quickly, within the protection of a listed entity with all the required adherence to regulation and transparency.

The advantage for the target company is that they get to list quickly, through the merger process.

Because of the nature of it’s operation, S PACs are often called “blank-cheque” companies.

Why establish an SPAC in Luxembourg?

Luxembourg offers many solutions to establish S PACs. The country is a leading jurisdiction for setting up of investment funds and holding companies.

In fact, Luxembourg is the second-largest fund domicile in the world, and the largest in Europe, managing over EUR 5.1 trillion dollars.

Funds setup in Luxembourg can be distributed through the European Union, under the AIFM directive.

A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

What structures are available for forming SPACs in Luxembourg?

Well, there are a few, as below:

  1. Specialised Investment Fund (SIF). These are very flexible fund structures, and available to qualified investors only. SIFs are supervised by the CSSF, require a lower level of diversification, and can be set up as umbrella funds as well.

SIFs can also opt for the EU Passport, after meeting certain conditions.

  1. SICAR (Investment Company in Risk Capital). This is also a supervised fund and must invest in risk-bearing assets.

A SICAR is not subject to any diversification rules, is restricted to qualified investors, has access to double-tax avoidance treaties and can qualify for the AIFMD passport, provided the conditions are met.

  1. RAIF, or Reserved Alternative Investment Fund. RAIFs were introduced in 2016 and have been very successful.

They are faster to setup, and flexible enough, and they can be transformed into SIF or SICAR, if required.

In fact, they are structurally similar to the Luxembourg SIF and SICAR, but are not directly supervised by the CSSF. Instead, a RAIF has to appoint an AIFM, which in turn is regulated by the CSSF. This allows the RAIF to benefit from the AIFMD passport and be marketed throughout the European Union.

  1. Limited Partnerships (LPs). These include CLPs and SLPs, and are highly flexible funds that have been quite successful recently.

LPs are not supervised, are similar to partnerships in Common Law jurisdictions, allow for contractual flexibility through Limited Partnership Agreements, and are not restricted to any asset type and not subject to any risk diversification rules.

  1. SOPARFI - The main purpose of the SOPARFI is to hold and manage shareholdings or ownership in underlying assets. The SOPARFI can be established in various legal forms, depending on the needs of the shareholders, the management, listing requirements or the ease of transferability of the shares of the holding.

The SOPARFI is a fully taxable entity and can therefore benefit from the treaty benefits of the 82+ tax treaties that Luxembourg has signed worldwide. The effective tax rate of the SOPARFI can be reduced via many tax incentives, such as the certain exemption on dividends, capital gains and wealth tax and a withholding tax exemption on dividends paid to qualifying shareholders, no withholding tax on interest payments or on payments following a liquidation.

Which is the preferred structure, when it comes to Luxembourg SPACs?

The SOPARFI, in the form of a public limited company, is the structure of choice when it comes to S PACs. This is due to the flexibility in it’s structure and it’s access to the double taxation avoidance treaties that Luxembourg has signed worldwide.

We have also seen that the Special Limited Partnership, or SLP, is also becoming popular when the mode of acquisition is through a fund structure. This is due to the fact that it can be setup quickly ( within three weeks), does not have any minimum capital requirements, does not need a go-ahead from the CSSF and that it is unsupervised.

The SLP also does not have to appoint an AIFM until it crosses the AUM threshold of Euro 100 million, and it has the flexibility of appointing one should there be a requirement to passport the fund throughout the European Union.

How fast can the SPAC be set up?

The time to setup depends on whether the Luxembourg structure is supervised or non-supervised. A non-supervised structure can be set up within 2 weeks, while a supervised structure can take around two months, depending on the complexity of the structure and the time it takes to get approved by the Luxembourg regulator.

What are the costs involved in establishing an SPAC in Luxembourg?

Costs vary, depending on if the structure is supervised, or non-supervised. For instance, setting up a fund which is not supervised, is more economical than a supervised fund.

The SOPARFI can be incorporated within three days of bank account opening, and deposit of the minimum share capital of Euro 12,000.

The notarial fees usually amount to EUR 1,700. Once completed, the SOPARFI has legal personality and can enter into agreements, for instance with a corporate services provider, in order to avail a registered office in Luxembourg.

How can we at 10 Leaves help you?

We provide turnkey services for Luxembourg structures:

From initial consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the legal framework in Luxembourg and submit an application that is comprehensive, complete and compliant.

Our services include assistance in:

1. Reviewing the business model and advice on the applicable regulatory framework;

2. Preparation of all the required documentation, including Private Placement Memorandums and agreements;

3. Provision of compliance and bookkeeping services; and

4. Finalisation of registered space and bank account opening.

5. In fact, we can do all this without you having to visit Luxembourg!

Get in touch! to know more about Special Purpose Acquisition Company (SPAC) Options in Luxembourg

For More Information, View our Luxembourg Brochure

 

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