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Specialised Investment Funds (SIFS) : The implementation of the law of march 26th, 2012
 
I. INTRODUCTION

The Law of 13 February 2007, duly modified by the Law of 26 March 2012, introduces Specialised Investment Funds (SIFs), a new vehicle enabling professionals and qualified private investors to create funds, a prerogative hitherto reserved, in Luxembourg, to institutions alone.
 
The main feature of a SIF is its "relaxed" regulatory regime compared with other collective investment vehicles. Its main constraint is its minimum risk diversification insofar as a maximum of 30% of its assets can be invested in assets of the same kind, from the same issuer (unless the investment itself is subject to diversification obligations or is an investment in securities issued or guaranteed by a member state of the OECD). There are exemptions from this 30% limit, particularly during the launch period, which can last up to 4 years.
 
Furthermore, the SIF can be divided into sub-funds, each sub-fund being considered, from the point of view of both capital and income, as an entirely separate entity.
 
A SIF is not subject to traditional taxes but, rather, to a subscription tax ("taxe d’abonnement") of 0.01% on its net assets. Neither is it subject to withholding taxes on dividends distributed.
The SIF object is to give investors the benefits of their asset management and this new Law on 26 March 2012 clarifies the management notion (= Activity with at least a portfolio management service).
 
 
II. MAIN FEATURES OF THE SIF

• Regulated vehicle: subject to authorisation (approved of incorporation documents, registered auditor and custodian) and supervision by the CSSF but "relaxed" supervision compared with other funds. Likewise, managers, promoters and investment manager must have "integrity and sufficient experience" and also require the prior approval of the CSSF since the Law of 26 March 2012 (duly implemented on 1st April 2012);
• Minimum capital of EUR 1,250,000 (including issue premium, to be reached within a period of 12 months as from approval), minimum 5% paid-up;
• Forms:
- FCP ("Fonds Commun de Placement")
- SICAV or SICAF (rare), in the form of a S.A., S.C.A., S.à r.l. or S.C ("Société de Capitaux") in the form of a S.A. In practice, the most common form is the (SICAV) S.A.;
• If FCP: joint ownership with no legal personality, managed by management company approved by the CSSF;
• If SICAV: capital = at all times equal to net assets (to be indicated in the articles of association), no obligation to hold a legal reserve, no restrictions on interim dividends (other than those provided for in the articles of association);
• If SICAF: no exemption from ordinary law (1915 Law on Commercial Companies) except 5% paid-up;
• Sub-fund organisation possible;
• "Fair value" valuation;
• Information to be sent to the CSSF
- Provide with a description of the risk management processes and with respect to delegation rules.
- Provide with a description of the policy adopted and the relevant measures in the management of some contingent conflict of interest.
• An annual report for each financial year to be published within 6 months of year-end (no consolidation of companies held for investment purposes, unless IFRS chosen as accounting standards);
• No half-yearly report or mandatory periodic publication of the net asset value ("NAV"), but periodic information to be sent to the CSSF (monthly + annual);
• Diversification of investments: 30% rule;
• The SIF is reserved for qualified investors, i.e. professional investor and any other investor who meets the following criteria:
- He has declared in writing that he conforms to the status of qualified investor;
- He invests a minimum of EUR 125,000 in the SIF or he has been assessed by a credit institution, investment firm or management company and the latter certifies that he has sufficient expertise, experience and knowledge to adequately appreciate the investment made in the SIF;
- These requirements do not apply to managers and to other people involved in the management of the SIF
• For property SIFs, the debt-to-asset ratio may go as high as 85% (compared with 50% normally);
• Since the Law of 26 March 2012, the SIF are authorized to delegate to a third party, under some conditions, the asset management (to enable the governing body of a SIF to properly control the asset manager).

COMPANY OBJECTS:
 
All collective investment undertakings situated in Luxembourg are considered to be SIFs if:
- their exclusive object is the collective investment of their funds in securities with a view to spreading investment risks and enabling investors to benefit from the results of the management of their assets;
- they reserve their securities to one or more qualified investors;
- their incorporation documents or prospectuses stipulate that they are subject to the provisions of the Law of 13 February 2007.
 
 
III. TAX REGIME OF THE SIF

• Subject only to an annual subscription tax ("taxe d’abonnement") of 0.01% on its net assets;
• The dividends distributed by the SIF are not subject to the 15% withholding tax.

FINAL COMMENT:
 
It should be noted that certain costs relating to the implementation of the structure (such as the drawing up of incorporation documents and the submission of the application for approval) and to the ongoing management of SIFs (custodian bank costs - average 4bp of assets under management, accounting costs, etc.) can be fairly substantial. 
 
 
 

The information and comments expressed in this document in no way constitute any fiscal opinion binding on Centuria Capital Luxembourg S.A.
Therefore, this document is not a contractual document.