dubai conference - legal and regulatory update
DESCRIPTION
This seminar gave an update on the Luxembourg UCITS framework, addressed the Alternative Investment Fund Managers Directive (AIFMD), provided an update on the tax-treaty network with a particular focus on Turkey and India as well as present practical cases of recent Shari’ah-compliant transactions and updates on the existing legal framework.TRANSCRIPT
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Luxembourg, a global hub for financial servicesBishr ShiblaqHead of Dubai Representative Office
28 April 2011
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1. The Grand Duchy of Luxembourg
Historical origins go back to the year 963 Constitutional Monarchy Founding member of NATO, the United
Nations and the European Union Seat of the European Court of Justice, the
European Court of Auditors, the Secretariat of the European Parliament and the European Investment Bank
Member of the Euro Zone Surface: 2,586 km2 / Population: 486,000 Workforce 310,000 (incl. 142,000 daily
border migrants) GDP per capita: € 62,626 (2008)
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2. Country of origin of Luxembourg banks
146 credit institutions (banks) Total balance sheet : € 758 billion Employees: 26,254
France 13
Italy 9Switzerland 10Others 10
Belgium 10
USA 7
Netherlands 4
China 4Israel 3
Brazil 2 Denmark 2
Sweden 7UK; 8
Japan 5
Portugal 2
Luxembourg 5
Germany 44
Source: CSSF
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3. Country of origin of Luxembourg PSF
306 other professionals of the financial sector (PSF) Total balance sheet: € 22 billion Employees : 14,159
Belgium 38
Others 38Netherlands 29
Germany 21
UK 24
USA 11
Liechtenstein 2Sweden 2
France 19
Switzerland 14
Denmark 5Italy 7
Luxembourg 96
Source: CSSF
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4. The Luxembourg Financial Center - Players
3,705 undertakings for collective investment (UCI) – total AUM: € 2,208 billion (February 2011)
261 re-insurance companies and 96 insurance companies Other players incl. pension funds, securitization vehicles,
SICARs, SOPARFIs, private holding companies Great diversity of players 8th largest financial center in the world
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5. The Luxembourg Financial Center - Activities
Fund formation, administration and management → Luxembourg ranked 2nd largest in the world (behind US)
Corporate and financial structuring → use of Luxembourg-based vehicles for M&A, securitization, venture capital and wealth management
Private banking → Luxembourg is the most important private banking center in the Eurozone and is ranked 2nd largest in the world for international private banking (UBS 2006: 15% market share behind Switzerland with 28%)
Bond listing → more than 30,000 securities listed with the LuxSE Clearing and settlement of securities’ transactions (Clearstream)
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6. The Luxembourg Financial Center – Products
Collective investment schemes (UCITS / UCIs / SIFs); Investment companies in risk capital (SICARs); Securitization vehicles; Non-regulated investment vehicles (SOPARFIs); Life insurance products, insurance policy as an underlying for individual
portfolio management (unit linked policies); Private banking products: discretionary asset management – fiduciary
structures – banking privacy – private holding companies.
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7. The Luxembourg Financial Center – Advantages
Luxembourg is one of the founding members of the EU; Onshore jurisdiction, with a recognized KYC and AML legislation; Efficient but flexible regulation; Accessible and responsive regulator (CSSF); Choice between regulated or non-regulated vehicles; Tax efficiency and one of the broadest treaty network available; Expertise in financial services, in particular investment funds,
internationally recognized.
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Investment Funds: Legal and Regulatory updateFlorence StainierPartner, Investment Funds
28 April 2011
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Agenda
I. Luxembourg fund industry
II. UCITS UpdateA. OverviewB. Update about CSSF supervisionC. Re-domiciliation in the air
III. From UCITS to UCITS IV… and UCITS V
A. UCITS IV in a nutshellB. Simplified Notification ProcedureC. Key Investor Information DocumentD. Merger and Master-Feeder structures
IV. Miscellaneous
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I. Luxembourg fund industry
• 3.667 investment funds
• 12.937 fund units
• 2.198,99 billion euros in assets under management
Figures as at November 30, 2010 Source: CSSF
… at a glance:
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20 years of sustained growthNet assets of Luxembourg domiciled UCIs
Figures as at November 30, 2010 Source: CSSF
0
500000
1000000
1500000
2000000
2500000
€bill
ion
December 20102 198.994
Growth rate 12 months
19.45%
I. Luxembourg fund industry (2)
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20 years of sustained growthNumber of Luxembourg domiciled UCIs
Figures as at November 30, 2010 Source: CSSF
0
500
1000
1500
2000
2500
3000
3500
4000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2001
2003
2004
2005
2006
2007
2008
2009
Dec
. 201
0
Num
ber o
f fun
ds
Growth rate 12 months
5.89%
December 20103667
I. Luxembourg fund industry (3)
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Luxembourg: the hub for international fund distribution
1,3
2,1
2,5
12,9
76,2
0 20 40 60 80 100
BE
FR
UK
IE
LU
76.2% of all UCITS registered in at least 3 countries
(including home states) are Luxembourg funds
I. Luxembourg fund industry (4)
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Luxembourg: No 1 for global fund distributionLuxembourg market share of cross-border funds for public distribution
Figures as at November 30, 2010 Source: CSSF
I. Luxembourg fund industry (5)
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II. UCITS UpdateA. Overview
UCITS
Strong SupervisoryFramework
High RiskDiversification
Retail Investors
TS, MMI, UCI, Cash, Derivatives
PassportEU
EEA, Asia, Middle East, Americas
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II. UCITS Update (2)
UCITS
B. Update about CSSF Supervision
Management Company
InvestmentManager
• Subject to prudentialsupervision
• Cooperation between the UCITS supervisory authorityand the supervisory authority of the investment manager
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GOOD REASONS TO RE-DOMICILE INLUXEMBOURG
Solid regulation and continuous prudential supervision
Reputation: stable jurisdiction, predictable planning and long term investment decisions
Attractive tax regime
Experienced fund administration, custody and transfer agency services
Strongly developed compliance and risk management structures
Expertise and know-how, commitment to excellence and reliability
Access to worldwide distribution
QualityBrand
C. Re-domiciliation in the air…
UCITS
II. UCITS Update (3)
TrackRecord
?
and Master-Feeder…
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III. From UCITS to UCITS IV… and UCITS V
Driving ForcesPermit cross-border
offering of open-ended investment funds to EU
investors
More asset classes eligible (bank deposits, units of other
UCIs, MM and use of derivatives)
Permit industry consolidation, improve efficiency and increase
investor protection
Benefits Harmonization of
investor protection rules Marketing through
simple notification process - passport
Widening of investment power and product offering in UCITS
Enhanced risk management procedures
Principal amendments to UCITS regime: Simplified notification
procedures KII EU-wide fund merger
regime Management company
passport Master-Feeder
structures
UCITS 20 December 1985
UCITS III21 January 2002
UCITS IV13 July 2009
UCITS V
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Key Investor Information
NotificationProcedure
Fund Mergers
Master-Feeder
ManCoPassport R
EGU
LATO
RC
OO
RD
INAT
ION
Date of Implementation : July 1st, 2011
Reduce Administrative
Burden
Increase
Investor
Protection
IncreaseMarket
Efficiency
III. From UCITS to UCITS IV… and UCITS V (2)A. UCITS IV – in a nutshell
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III. From UCITS to UCITS IV… and UCITS V (3)B. Simplified Notification Procedure
• Objective: improve time to market / reduction of costs
• Regulator to regulator notification
• Overal efficiency
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III. From UCITS to UCITS IV… and UCITS V (4)C. Key Investor Information Document (KIID)
• Objective: improve retail investors protection and information
• Standard & harmonized format & presentation
• Maximum 2 pages long
• Comprehensible form & presentation: short & simple
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III. From UCITS to UCITS IV… and UCITS V (5)D. Mergers and Master-Feeder structures
• Objective: consolidation of EU fund industry – efficiencies –
economies of scale
• Enhancement of the ability to complete cross-border fund
mergers
• Adoption of a model for facilitating master feeder structures
UCITS V TO COME
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IV. Miscellaneous
A. Products trendB. Cross investmentsC. P Shares
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The Alternative Investment Fund Managers DirectiveA special focus on private equity funds
Pierre BeisselPartner
28 April 2011
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The AIFMD in the context of the European regulatory framework
MiFID review replies flood
in – a record?
Investors alarmed over EU reform
process
Asset managers aim to navigate
funds through big rocks ahead
Europe prepares for governance
green paper
The AIFMD – a benefit or a
hazard?
Insurers still uneasy over Solvency II
EU urged to go ahead with
tougher bank rules
European regulations on OTC derivatives spark
disquiet
UCITS IV paperwork will
surprise regulators
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Similar stories elsewhere....
United States: tougher banking
regulations
New Investment Funds Regulations in
the UAE
United States:Dodd-Franck
challenges ahead
Qatar: QFCRA’s newregime for CIS
Impact of the AIFMD on UAE
based managers ???
......ESCA approved
local distributors...
[....] Executive compensation under review...
Asia....
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Creation of a harmonised and stringent regulatory and supervisory framework for AIFM
AIFMD = a Managers’ Directive rather than a Product Directive
Creation of a passport for European and third country managers
The regulatory approach adopted by the AIFMD
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In scope:
EU AIFM managing EU (LUX) AIF or non-EU AIF
Non-EU AIFM (e.g., DUBAI) managing EU (LUX) AIF
Non-EU AIFM (DUBAI) marketing non-EU AIF in the EU
The regulatory approach adopted by the AIFMD
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INDUSTRY FIGURES
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The European Fund Industry in numbers(as of 31 December 2010)
Non-UCITS
Country Assets € millions
Germany 876,105
Luxembourg 318,382
Ireland 204,795
France 191,345
UK 118,556
Switzerland 57,218
Italy 56,701
Spain 7,231
Sweden 3,643
Others 200,914
Total: 2,034,890
UCITS
Country Assets € millions
Market share in %
Luxembourg 1,880,612 31.4%
France 1,210,280 20.2%
Ireland 758,531 12.7%
UK 675,401 11.3%
Germany 249,748 4.2%
Switzerland 195,998 3.3%
Italy 175,358 2.9%
Sweden 162,446 2.7%
Spain 162,337 2.7%
Others 518,919 7.1%
Total: 5,989,630 100%
Source: EFAMA Quarterly Statistical Release, February 2011, No. 44
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The European (AIF AND NON-AIF) Fund Industry in numbers
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The leading European regulated private equity centre
Over 300 regulated private equity funds
Over US$ 40 billion of PE/VC fund assets administered in Luxembourg
Growth of 850% over last 5 years
Leading private equity service providers present in Luxembourg
Leading global private equity managers operating in Luxembourg
Luxembourg – the leading European private equity hub
US$ 40 billion in assets Over 300 regulated funds
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AIFMD IMPACT IN DUBAI ?
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Dubai PE manager has no European investors for the AIF it
manages: NO IMPACT
Dubai PE manager has European investors in the AIF it
manages: IMPACT
Dubai PE manager wishes to use a European alternative
investment fund (AIF) vehicle/regime without EU investors: [NO]
IMPACT
Dubai PE manager wishes to use a European alternative
investment fund (AIF) vehicle/regime with EU investors: IMPACT
Consequences for Dubai based PE manager
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How can Dubai and Luxembourg work together under
the AIFMD?
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Luxembourg: distribution platform and gateway to Europe for Dubai PE manager
2013
2015
EU Passport
LUX AIF
EU Passport
LUX AIFM
Dubai AIFM
LUX AIF
for Dubai AIF
Dubai AIFLUX AIFMfor and
for and
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How can Dubai and Luxembourg work together outside
the AIFMD?
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Luxembourg: European PE acquisition gateway
DubaiManager
InvestorsNon EU
LUXCO
EU TARGET
AIF
LEVEL 1
LEVEL 2
LEVEL 3
LEVEL 4
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Luxembourg: European PE acquisition gateway
Luxembourg is Europe’s premier acquisition and financing hub:
extensive tax treaty networktax efficient entry level and exit planningfiscal and legal planning/structuring flexibility/certainty
AIFMD applies to AIFM and indirectly to AIF, but:
does not apply to special purpose acquisition vehicles (SPV)also provides for exceptions and exemptions
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Challenges & Opportunities
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Positioning as AIF pan-European and global distribution platform efficient network of MOUs and cooperation arrangements with “asset manager”
jurisdictions (US, Hong Kong, Switzerland, Channel Islands, Singapore, UAE etc.)
Positioning as center of excellence for AIFM leverage on strong UCITS position creation of ManCo (AIFM) with appropriate substance and monitoring
requirements center of excellence in risk management
Adequate regulatory framework for service providers (central administration, custodian banks): focus on monitoring functions flexible outsourcing intra-group delegation
Challenges and opportunities for Luxembourg
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Timeline
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November2010
December2010
November2011
July2013
June 2012
Adoption of
Directive
Start of work on Level 2
legislation
ESMA advice to
EC expected
Transpo-sition into national
law
Issue of Level 2
measures by EC
expected
Timeline
July2011
Planned entry into
force
2015
Passport for third country AIFM +
AIF
2018
End of private place-ment
regimes
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Thank you for your attention!
Questions & answers
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Tax structuring: recent developments and country focus on Turkey
Thierry LesagePartner
28 April 2011
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Part. 1General aspects
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Flexible and secure tax environment
Advantageous domestic tax system
No need for specific legislation for shari’ah complianttransactions as the tax system is based on
an economic approach; anda substance over form principle
Well-developed tax treaty network
Key strengths of Luxembourg as holding andfinancing location
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Extensive participation exemption regime (for dividendsincome, capital gains, outbound dividend payments and networth tax purposes)
Several tax incentives (e.g. 80% exemption for IP income)
No exit taxation enabling appropriate repatriation plannings
Lowest VAT rate within the European Union (15%)
Attractive tax regime for different investment vehicles andinvestors (e.g. family wealth management companies,securitization vehicles, SICARs, UCITs…)
Luxembourg offers for shari’ah compliant transactions
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Income tax rate 28.80% (CIT + MBT; Luxembourg city)
Net Wealth tax rate 0.5%
Capital duty No
WHT on dividend 15% (with several exemptions/reductions)
WHT on interest 0% (very limited exceptions)
WHT on royalties 0%
Tax certainty can be achieved through an efficient advance tax agreement practice
Double tax treaties in force 62
Luxembourg basic tax features
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Double tax treaty network – treaties in force
ArmeniaAustria
AzerbaijanBahrain Belgium Brazil
Bulgaria Canada China
Czech Republic Denmark Estonia Finland FranceGeorgia
Germany Greece
Hong Kong HungaryIcelandIndia
IndonesiaIrelandIsraelItaly
JapanLatvia
LiechtensteinLithuania MalaysiaMonaco
MaltaMauritiusMexico
MoldovaMongoliaMorocco
NetherlandsNorwayPoland
PortugalQatar
RomaniaRussia
San MarinoSingapore
SlovakiaSlovenia
South AfricaSouth Korea
SpainSweden
SwitzerlandThailand
Trinidad and TobagoTunisia Turkey
United Arab EmiratesUnited KingdomUnited States
UzbekistanViet-Nam
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Double tax treaty network – treaties not in force yet
Albania Kazakhstan Macedonia Syria
Argentina Kuwait Pakistan Ukraine
Barbados Kyrgyzstan Panama Uruguay
Cyprus Lebanon Serbia and Montenegro
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Part. 2 Recent developments on intra-group
financing
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Circular 164/2 LIR on intra-group financingtransactions
On 28 January 2011, the Luxembourg tax authorities issued the Circular164/2 LIR on the tax treatment of companies engaged in intra-groupfinancing transactions.
The Circular introduces transfer pricing guidelines for the determination ofarm’s length character of intra-group financing transactions.
New rules are based on article 9 of the OECD Model Convention and theOECD Transfer Pricing Guidelines for Multinational Enterprises and TaxAdministrations.
The Circular addresses the tax treatment of intra-group financingtransactions and governs the prior clearance thereof through advancetransfer pricing confirmations.
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Scope of the Circular 164/2 LIR
The provisions of the Circular apply to all “entities engaged inintra-group financing transactions ”
Four conditions must be fulfilled:
1. Granting loans
2. as a main activity
3. to direct or indirect affiliated / controlled companies
4. Debt-funded
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Arm’s length character determinationComparability analysis
As per the Circular, two types of comparability analysis are available tojustify the arm’s length character of the concerned transactions:
1. Comparable uncontrolled transaction analysis = comparison of thetransactions to those realised by an entity exercising a comparable activity,such as a financial company subject to the regulatory requirements of theCSSF.
2. Indirect comparability analysis = justifying the transaction by taking intoaccount tangible and economics factors/criteria :
prudential ratio of the entity credit risk exposure additional expenses (solvability) specific contractual duties/provisions exposure on foreign currency exchange
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Advance Pricing Agreement (APA)
Conditions to be fulfilled to obtain an APA in Luxembourg:
1. Composition of the executive board : predominance of Luxembourg managers/directors
2. Manager / Director with well established professional skills and power to act
3. Key decisions on the conduct of the business are taken in Luxembourg
4. Bank account in Luxembourg
5. Respect of the general tax filing obligations
6. Not be a fiscal resident in another State
7. Appropriate equity amount given the risks associated to the activities performed= 1% x nominal value of financing activity or max Euro 2 million
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Documents required
Following documents are required in order to apply for an APA:
Proper information on the taxpayer and the related entities
Detailed description of the transactions
The name of all States involved
Presentation of the legal structure of the group
The fiscal years covered by the APA
A transfer pricing study respecting the OECD guidelines
A general description of the relevant market situation
An analysis of all other relevant tax problems associated to the activitiesperformed
Declaration that the information transmitted is complete and truthful
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Validity of the APA
The duration of the validity of the APA depends on each individual case,but may not exceed 5 years
Once 5-year period has expired, the Luxembourg tax authorities may,upon request, grant a new confirmation for a maximum period of 5 years
The APA has a binding effect on the Luxembourg tax authorities unless:
– the situation or the operations described were incomplete or notaccurate;
– the essential elements of the operations differ from the request; or– the confirmation is not complying with international law.
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Part. 3Shari’ah-compliant transactions
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Tax Circular on Islamic finance
The Luxembourg tax authorities published an administrativeCircular related to shar’iah compliant finance instruments (CircularL.G.-A n 55 dated 12 January 2010)
In particular, the Circular clarifies the Luxembourg direct taxtreatment of murabaha and sukuk:
Economic approach confirmed Luxembourg UCIs investing in Islamic finance instruments are
excluded from the scope of the Circular
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Analysed as debt instrument from a Luxembourg tax perspective
Thus, the remuneration paid to the sukuk holder = interest payment
Remuneration is tax deductible at the level of the sukuk issuer
Not subject to a WHT in Luxembourg
Remuneration = income from transferable securities Luxembourg tax provisions related to typical silent partners and
profit-linked obligations are not applicable
Tax treatment of Sukuk
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Sukuk financing structure Tax treatment
LuxCo fully-taxable entity subject tocorporate income taxes and net worthtax, but profits from the Eligible Assets repatriated
through PPN / sukuk no withholding tax on payments under the
PPN /sukuk payments under the PPN / sukuk are
deductible expenses return on the PPN / sukuk equal to the
net profit derived from the Eligible Assetsless an arm’s length margin
only taxation of the margin Upon exit, generally (i) no withholding
tax on distribution of liquidation proceedsand (ii) no taxation of capital gain onLuxCo shares realised by non-residentshareholders.
LuxCo
Equity & Profit-participating notes “PPN”/ sukuk
Investors
Eligible Assets Eligible Assets
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Tax treatment of murabaha transaction
Analysed as a sale, the gain i.e. the difference betweenacquisition and sales price realised by the financing entity underthe murabaha transaction – the “Gain” – being as a rule taxableupon signature of the agreement
However, the Gain being the remuneration of a deferral ofpayment (comparable to an interest), in such case possibility of adeferred taxation i.e. taxation on a straight-line basis during theperiod of the deferral of payment
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Tax treatment of murabaha transaction
The Gain qualifies as interest if:
pursuant to the murabaha agreement, it is clear that the financing entity acquiring theasset sells it back simultaneously or in a period not exceeding 6 months;
the murabaha agreement distinguishes between (i) the remuneration of the financingentity for its intermediation (ii) the acquisition price paid by the financing entity and(iii) the acquisition price paid by the investor;
the Gain of the financing entity must be clearly stated, known and accepted by bothparties;
the Gain must be expressly qualified as being the counterpart of the service rendered tothe client and resulting from the deferral of payment granted to the client; and
from an accounting and tax perspective, the Gain is accounted for on a straight-linebasis by the financing entity, irrespective of the actual payments made.
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Murabaha financing structure Tax treatment
Profit of EuCo repatriated to LuxCo throughe.g. dividends, interest, royalties Generally, no local withholding tax and
application of EU Directives Exemption for dividend income, capital gains
and liquidation proceeds from EUCo at the levelof LuxCo
At the level of LuxCo, profits from EUCooffset by (i) payments under the murabahaand (ii) payments under the PPN Remuneration on murabaha and PPN, not
subject to withholding taxes Remuneration on murabaha and PPN generally
deductible expenses Possible withholding tax exemption on dividends
under an applicable double tax treaty
Upon exit, generally no withholding tax ondistribution of liquidation proceeds and notaxation of capital gain on LuxCo shares
Investment Bank Investors
LuxCo
EUCo
Equity & PPN
Seller
Cash payment100
Transfer ofEUCo
Dividend, interest,royalties
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Part. 4Country focus - Turkey
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DTT between Luxembourg and Turkey – Key features
Exchange of information
Promulgation in March 2011 by Turkish Official Gazette of theAmendment Protocol of the DTT (signed on 30 September 2009)concerning the exchange of information.
Turkish tax authorities should start treating Luxembourg as an OECDwhite list jurisdiction.
“Anti-tax haven” provisions should not apply to payments from Turkishcompanies to Luxembourg companies.
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DTT between Luxembourg and Turkey – Key featuresWithholding taxes rates
Dividends (Art. 10): - 10% of the gross amount of the dividends if the beneficial owner is a company
which holds directly at least 25% of the capital of the company paying thedividend
- 20% of the gross amount of the dividends in all others cases
Interest (Art. 11):- 10% of the gross amount of the interest if it is paid on a loan made for a period
of more than 2 years- 15% of the gross amount of the interest in all others cases
Royalties (Art. 12):- 10 % of the gross amount if the beneficial owner is resident in Luxembourg
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DTT between Luxembourg and Turkey – Key featuresCapital gains on disposal of participation (Art. 13):
Disposal before 12 months:
– Gains may become subject to tax in Turkey– Luxembourg should generally exempt the gain by application of the DTT
Disposal after 12 months:
– No taxation in Turkey nor in Luxembourg (Luxembourg participationexemption should be available)
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Acquisition structure exampleDescription Investor incorporates or buys SPV Investor funds SPV with a mix of equity
and a profit participating loan ( “PPL”) SPV acquires the TargetTax treatment The PPL’s interest has two components:
– a fixed annual interest rate of 0.5-1%– a profit participating interest tracking the income
that SPV derives from specific assets
Repatriation of profits through thepayment of the variable interest
No WHT levied on interest paymentunder the PPL nor its reimbursement
A range of instruments can be used (e.g.convertible bonds, total return swaps) asan alternative to a PPL
SPV(Luxembourg)
Target(Turkey)
Investor(UAE)
PPL
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Acquisition 6 months 12 months
Sale of SPV
Sale of Turkish Target
Timeline and exit gains
Gains potentially subject to tax in Luxembourg
Gains not subject to tax in Luxembourg and Turkey
- Gains subject to tax inTurkey- Luxembourg should exempt the gain by application
of the DTT
Gains not subject to tax in Luxembourg and Turkey
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Islamic Finance in Luxembourg: Case studies
Bishr Shiblaq, Head of Dubai Representative Office
28 April 2011
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Overview (Part 1) – Islamic Finance in Luxembourg1978 First Islamic finance institution established in a Western country
(Islamic Banking System, later Islamic Finance House Universal Holdings S.A.)
1983 First Shari’a compliant insurance company in a Western country (Solidarity Takafol S.A.)
1990 Other renowned Islamic finance institutions set up Luxembourg establishments:Faisal Finance and FWU Group
2002 LuxSE, first Western stock exchange to enter the Sukuk market(Malaysia Global Sukuk)
2010 Luxembourg Central Bank first EU Central Bank to become a member of the Islamic Financial Services Board (IFSB)
2010 Luxembourg Tax Circular clarifying the treatment Murabaha and Sukuk
2011 Luxembourg banks requested to join the Islamic Liquidity Management Corporation (Objective: Issuance of financial instruments to provide Islamicinstitutions with liquidity management solutions)
2011 First Annual IFSB meeting in a Western country (May 2011)
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Overview (Part 2) – Islamic Finance in Luxembourg
40 Shari’a compliant funds and subfunds registered in Luxembourg
16 Sukuk listed on the Luxembourg stock exchange
1 Shari’a compliant insurance company
Specialised teams and dedicated services for Shari’a compliant structures and funds offered by Luxembourg Service Providers, including Arendt & Medernach
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Islamic Banks
Corporate Investors
Private Equity Firms
HNWI
Governmental Entities
Semi-gov. Entities
(… and others)
Residential Commercial Hotels Shopping CentersInfrastructure
Securitisations
Private Equity
Islamic Funds
Real Estate
Overview of Islamic finance cases
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Real Estate -Unregulated Acquisition Structures
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Real Estate Acquisition in Europe
UAEUAE
LuxCo
ItalyCo
LuxCo
FrenchCo
GCC
PPL and IFL
Luxembourg
ShareholderLoan
Target Jurisdiction
IFL
Equity (1%) Convertible loan (99%)
ShareholderLoan
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Project Company(Jersey)
LuxCo
Conventional Funding Shari’a Compliant Funding
CaymanCo
Private Placement
Memorandum
JVCO(Cayman)
Finance Company
(Luxembourg)
Joint Venture Agreement
Occupational Tenants
Real Estate: UK Mixed-Used Development
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Private Equity
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Private Equity: Participation in Turkish companies
Islamic Bank(GCC)
LuxCo
Target Co 1(Turkey)
Target Co2(Turkey)
TargetCo 3(Turkey)
100%
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Private Equity: Shari’a compliant transaction GCC-Turkey
Investment Bank & Investors
Offshore SPV
LuxCo 1
Luxco 2
Real Estate Private Equity Company
Equity, Murabaha
Murabaha & Mudaraba
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Soparfi(Luxembourg)
JV Soparfi(Luxembourg)
50%
RusSPV1(Russia)
SPV1
InvestmentCo
100%
100% (less one share)
Partner Soparfi(Luxembourg)
50%
QatarCo(Qatar)
Finco(Luxembourg)
100%
100%
Target Group
PanamaCo(Panama)Interest Free Loan
Fixed Interest Loanat 4%
Fixed Interest Loan
Fixed Interest Loan at 4,25%(4% plus 0,25% taxable margin*)
Participation Loan
Interest Free Loan
Payment Delegation AgreementPrivate Equity: Investment into Russian Companies
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Islamic Funds &Shari’a compliant platforms
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Islamic Funds in LuxembourgLuxembourg offers a full range of regulated investment vehicles perfectly suitable for the structuring of Islamic transactions and activities and worldwide distribution to retail and institutional investors
Islamic investment funds provide for special features: Shari’a board: a Shari’a board may be appointed in any type of Luxembourg
regulated vehicles, in order to validate the structure of the fund and its investment policy from a Shari’a perspective
Ban of haram activities: criteria for selecting the investments of the fund and excluding haram activities may also be provided as the basics of the investment policy of an investment fund
Specific limits: exclusion of riba may be ensured by providing some ratios of illiquid assets to be complied with. Interdiction of gharar may also be achieved by express prohibitions included in the sales documents
Purification of haram income: purification processes are commonly accepted and implemented by Luxembourg authorities and service providers and may be described in sales documents
Luxembourg law perfectly allows the integration of such specifc features inconventional regulated vehicles.
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Islamic Funds: Luxembourg share in Islamic funds
Source: E&Y Islamic Funds Report 2009
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Development of several Islamic Platforms in Luxembourg
New Trend to establish platforms for different Islamic products
Islamic Fund Platforms for UCITS and SIF:
Amiri Sharia EquitiesPlatform IDO Shariah Investment Platform Luxembourg Alternatives UCITS Platform – LAUP Luxembourg Financial Group InvAG TGV
Sukuk platforms on the basis of the Luxembourg Securisation Law
Platform for Takaful and Retakaful
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Sukuk Structures based on the Luxembourg Securitisation Law
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Sukuk al Mudaraba/ Musharaka structure
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Sukuk al Ijara structure
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Sukuk Issuance Platforms in Luxembourg
Deutsche Bank: Al Miyar S.A.
Dar Al Istithmar: Al Waseelah Capital S.A.
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Sukuk Issuance Platform
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Listing of Sukuk
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Listing of Sukuk
Luxembourg Stock Exchange (LuxSE): Founded in 1929 Leading Listing Market for bonds, securities and sukuk with 46 % of
international bonds in Europe being listed thereon Over 4200 issuers from 105 different countries More than 55 countries have at least one issue of their sovereign debt listed
thereon First Western stock exchange to enter the sukuk market
LuxSE offers broad listing options via its two markets:
Regulated Market:
Euro MTF: became the preferred listing platform for sukuk
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Listing of Sukuk
Listing and admission to trading of sukuk on either of the marketsdoes not trigger any additional requirements
The content of the prospectus will vary according to the structure of the transaction underlying the issue of the particular sukuk
CSSF clarification (treated as asset backed securities for purposes of approval of the prospectus)
Today the LuxSE has become one of the most important in Europe for sukuk listing
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Sukuk listed in Luxembourg Sukuk issue Curr. Size Issued Maturity
Salam Bounian Development Company Sukuk Ltd USD 137,500,000 2008 2018
Qreic Sukuk LLC, Qatar USD 270,000,000 2006 2016
Petronas Global Sukuk Ltd USD 1,500,000,000 2009 2014
Wings FZCO USD 550,000,000 2005 2012
Gold Sukuk DMCC USD 200,000,000 2005 2010
IDB Trust Services USD 500,000,000 2005 2010
Pakistan International Sukuk Co USD 600,000,000 2005 2010
Qatar Global Sukuk USD 700,000,000 2003 2010
BMA International Sukuk Company USD 250,000,000 2004 2009
Dubai Global Sukuk FZCO USD 1,000,000,000 2004 2009
Sarawak Corporate Sukuk, Malaysia USD 350,000,000 2004 2009
Stichting Sachsen-Anhalt EUR 100,000,000 2004 2009
Tabreed Financing Corporation, UAE USD 200,000,000 2004 2009
Solidarity Trust Services USD 400,000,000 2003 2008
Malaysia Global Sukuk USD 600,000,000 2002 2007
Al My'iar Capital SA (programme for issuing secs) USD
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Establishment of an Islamic Bank / Professional of the Financial
Sector in Luxembourg
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Establishment of an Islamic Bank/ PSF in Luxembourg
Many GCC inquiries regarding the establishment of an Islamic Bank in Luxembourg, but to date none of these projects has been realised.
As of March 2011, 146 conventional banks and almost 300 professionals of the financial sectors (PSF) in Luxembourg
21 types of PSF an d 6 types of support PSF that can be created in Luxembourg
No additional Luxembourg requirements to be fullfilled for the establishment of an Islamic Bank.
Advantages: Banking license in the heart of the EU Branches in the EU that can be opened more easily Access to the EU markets: European Passport for Credit Institutions and PSF
qualifying as Investment Firms
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Islamic Bank / PSF: Using the European Passport
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ShareholdersShareholders
Shareholders
Private Placement of Shares
Luxembourg Holding Company S.A.
Real Estate Education Other
BanksTakaful Re-Takaful
Holding Company Other
Islamic Bank
Holding Structure for a foreign Islamic Bank
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Thank you
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