Securitization Vehicles in Luxembourg
Luxembourg stands out as a premier destination for establishing securitization vehicles (SVs), offering a robust legal framework, and exceptional operational flexibility.
SVs are subject to the Luxembourg Securitization Law of 22 March 2004 (SV Law), which provides a stable regulatory foundation for securitization enterprises.
The SV Law defines securitization as a process where an SV:
- Directly or indirectly acquires or assumes risks associated with claims, assets, or third-party obligations.
- Issues financial instruments whose value or returns are linked to these risks.
Legal form of a Securitization Vehicle
SVs are multipurpose legal entities that can be organized in different forms, such as funds or as companies1, to meet a wide range of investor preferences.
When set up as a fund, an SV does not possess its own legal personality; instead, it comprises a pool of assets managed by a Luxembourg-based management company (ManCo).
Regulatory environment
Based on the SV Law, both securitization companies and funds are permitted to create multiple compartments within a single legal vehicle.
Each compartment operates independently under its own distinct investment policy, ensuring that assets and liabilities remain separated.
The SV Law also establishes clear legal limits and protects the interests of investors and creditors associated with each compartment.
Consequently, the performance or risks of one compartment do not affect those of the others, providing a flexible and secure environment for various securitization activities within a single legal entity.
SVs issuing financial instruments to the public on a continuous basis2 are subject to oversight by the Commission de Surveillance du Secteur Financier (CSSF).
Tax landscape
Luxembourg's tax regime is designed to provide tax neutrality for SVs.
Although they are subject to corporate income tax (CIT) and municipal business tax (MBT), their commitments to investors and other creditors are recognized as deductible expenses, which technically reduces the taxable base to nearly zero.
Furthermore, distributions to investors incur no withholding tax, and management services provided to the SV might be exempt from VAT under the article 44§1 d) of the VAT Law provided that the management services are specific and essential to the SV (established as a fund).
Reasons for establishing SVs in Luxembourg
Luxembourg has firmly established itself as one of the most appealing destinations for setting up an SV.
Since 2022, SVs have been empowered to fund their initiatives via a wide range of financial instruments—including loans, promissory notes, and beyond traditional securities.
Additionally, SVs now have the flexibility to actively manage debt portfolios, paving the way for the creation of innovative structures like collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs) in Luxembourg.
These advancements position Luxembourg as a creative hub for securitization, offering bespoke solutions that meet the evolving needs of investors.
1. S.A. / S.à r.l. / SCA / SCS / SCSp / SAS / SENS or as a CoopSA. Since 2016, a CoopSA can be incorporated with a sole shareholder, provided the company has 2 shareholders by the year of its incorporation (2 shareholders are required).
2. SV Law defines “continuous” as from when an SV makes more than 3 public issuances per year across all its compartments, provided that all the following criteria are met: the issuance is directed at private (non-professional) investors, each financial instrument has a denomination of less than EUR 100,000 and the issuance is not conducted through a private placement.
