Securitisation in Luxembourg - Company vs Fund

Luxembourg has long been established as a European Hub for structured finance and securitisation transactions. The Securitisation Law implemented on 22 March 2004 (the "Law of 22 March 2004", or the "Securitisation Law"), modernised the statutory framework, introducing a broad definition of securitisation and enabling significant structuring flexibility. This reform strengthened Luxembourg’s appeal for such transactions, and since its adoption, the market has grown steadily, with over 1,590 active SVs now established.

What is a Securitisation Vehicle?

At the core of these transactions is the Securitisation Vehicle (“SV”), which assumes present or future risks, directly or indirectly, relating to claims, assets, or obligations of third parties and issues securities whose value or yield depends on the performance of the underlying portfolio.

To facilitate this, Luxembourg law allows securitisation undertakings to be structured either as a company or as a fund.

Securitisation Company

When structured as a company, an SV has legal personality and can take various forms, including:

• Public limited liability company (société anonyme);

• Corporate partnership limited by shares (société en commandite par actions);

• Private limited liability company (société à responsabilité limitée); or

• Cooperative company organised as a public limited liability company (société coopérative organisée comme une société anonyme).

Minimum share capital requirements apply, EUR 30,000 for a société anonyme and EUR 12,000 for a société à responsabilité limitée. EUR 30,000 for a société anonyme

Securitisation Fund

Alternatively, securitisation undertakings can be established as securitisation funds, a structure under Luxembourg’s Securitisation Law. Unlike companies, these funds have no separate legal personality or assets of their own; instead, they consist of a pool of assets managed by a dedicated management company.

The law permits two possible structures:

• Co-ownership of assets (co-propriété), granting investors a direct property right over part of the underlying securitised assets, or;

• Fiduciary property under the Luxembourg law of 27 July 2003 on trusts and fiduciary contracts, where the management company holds the assets in trust, segregated from its own.

Securitisation funds are tax transparent vehicles, wherein the taxation of income generated occurs at the investor level rather than at the fund level. Although historically less common, securitisation funds are gaining popularity due to their flexibility and exemptions from certain regulatory and tax requirements.

Securitisable Assets

Under the Securitisation Law, the term “securities” has been replaced with the broader term “financial instruments” and regards financing by the issuance of financial instruments, or by entering into any form of loans; in whole or in part, a change which significantly expands the type of instruments that may be issued by a securitisation vehicle through enabling the use of financial instruments that did not previously qualify under the definition of securities.

Both securitisation companies and funds benefit from this flexibility, but the way they implement it can differ. Companies, with their legal personality and defined corporate structure, often favour more complex issuance programs that leverage treaty access and corporate governance frameworks. Funds, on the other hand, typically use this flexibility to structure transactions in a tax-transparent manner, appealing to investors seeking simplicity and neutrality.

Securitisation may be carried out by a single-tier structure or a two-tier structure with separate entities established for acquisition of assets and the issuance of securities.

Single Tier Structure

Two Tier Structure

Within a two-tier structure, acquisition vehicles may be established in the country of the originator or where the assets are located, which may offer a number of tax, legal and operational advantages.

Compartmentalisation

In Luxembourg, SVs may be internally divided by the creation of ring-fenced compartments. Compartments are created by a simple decision of the management body of the SV however, the ability to create compartments must be disclosed in the constitutional documents of the SV.

Where multiple compartments are prevalent, each compartment is treated as a separate entity, corresponding to a distinct pool of assets, rules, and securities. Investors avoid the spill-over of risks and liabilities between compartments, reducing the administrative costs and burdens relating to the set-up and management of separate entities. A compartment may be liquidated without bearing an impact on the other compartments of the SV.

Both securitisation companies and funds in Luxembourg can create compartments. In the case of a company, compartments are established internally by its governing body, making the process straightforward and cost-efficient. For a fund, compartments are managed by an appointed management company and must comply with fund-specific rules, adding an extra layer of administration but offering flexibility for investors seeking a fund-based structure.

Tax Difference - Company vs Fund

Taxation is one of the most significant factors when choosing between a securitisation company and a fund in Luxembourg. While both structures share certain advantages, such as VAT exemptions on management services and no withholding tax on distributions, their overall tax treatment differs substantially. These differences often influence investor decisions, particularly for cross-border transactions where treaty access or simplified tax treatment is a priority.

Conclusion

Ultimately, the decision between a securitisation company and a fund in Luxembourg depends on the specific objectives of the transaction, the investor base, and the desired regulatory and tax outcomes. Both structures are underpinned by Luxembourg’s securitisation law, which continues to make the jurisdiction a leading destination for structured finance solutions in Europe.

How We Can Help

Cafico International has extensive expertise in the establishment, operation and management of SPVs for clients within the aviation industry. We deliver a full suite of services to support the smooth operation of each SPV, including formation, directorships, registered office provision, financial reporting and corporate governance. Our internal processes are built around precision, responsiveness and regulatory rigour. With a guaranteed 24-hour response time and a dedicated point of contact, our client-first approach ensures responsive, reliable support at every stage of the transaction.

For more information, or to find out how Cafico International can assist your business, please contact Arek Kwapien, Director of Corporate Services.