RealTime volume 4, issue 4

March 2011


Welcome to the fourth edition of our RE-PE news digest

Our news digest provides you with the latest European and Luxembourg regulatory changes, the latest developments in direct and indirect tax and changes to International Financial Reporting Standards (“IFRS”) that impact the real estate and private equity industries. We have also captured the latest market trends since the previous issue.


Modernisation of accounting law and introduction of IFRS accounting standards for undertakings

On 17 December 2010, the Law of 10 December 2010 introducing international accounting standards for undertakings was published in Mémorial A. It amends the Law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, Law of 10 August 1915 on commercial companies, as amended, and Article 13 of the Commercial Code. The key changes include:

  • the option to prepare annual or consolidated accounts under IFRS as adopted by the EU
  • the option to value certain asset classes with reference to their fair value
  • the presentation of amounts within items in the profit and loss account and balance sheet shall have regard to the substance of the reported transaction or arrangements
  • content of the management report and of the consolidated management report has been extended
  • any company whose securities are admitted to trading on a regulated market shall include in its annual report a corporate governance statement
  • certain headings in the layouts for annual and consolidated accounts in balance sheet and profit and loss statement have changed
  • transactions with related parties, including the amount of such transactions, must be described in the notes, if such transactions are material and have not been concluded under normal market conditions
  • amendments to the scope of consolidations which include the repeal of Article 318 of the Law of 10 August 1915 that subsidiaries can no longer be excluded by reason of dissimilar activities
  • increase in the size criteria for small and medium-sized companies
  • increase in the thresholds for consolidation requirement

Click here for the regulatory update explaining these changes.

A milestone reached!

During December 2010, the UCITS brand reached a major milestone as it celebrated its 25th birthday, following the adoption of the first UCITS directive on 20 December 1985. Nearly 25 years later, the Luxembourg Parliament ratified UCITS IV on 16 December 2010. Following the trend set in 1985, Luxembourg is again the first country in the EU to pass this new regulation into national law. Subsequently, the Luxembourg legislator has made use of this opportunity to redraft the entire UCI legislation (excluding legislation relating to the specialised investment funds regime). Certain provisions (such as fiscal reliefs) not directly related to the U CITS IV Directive have already come into force on 01 January 2011.

With the UCITS brand recognised as representing “safety, transparency and cost-efficiency”, Claude Kremer, Chairman of ALFI is confident that “UCITS products will continue to expand its global reach”. Camille Thommes, Director General of ALFI further quoted a study by Lipper FMI which “estimates that Luxembourg’s fund industry will grow at a rate of 10.4% over the next five years, resulting in assets of €2.6trn by 2014.”

UCITS IV also has a major impact on management companies which govern the UCITS. To see how this may impact your company and how we may be of service please click here.

CSSF Circular 10/437 Remuneration policies in the financial sector

The recent financial crisis highlighted, amongst other things, the risks inherent in financial institutions having inadequate reward governance policies and structures. Over the last year a number of international authorities (G20, FSB, European Commission, CEBS) have consequently studied and issued various recommendations to align the remuneration principles of financial institutions with long-term value creation, to increase their transparency and to ensure adequate control procedures with regard to their application and monitoring.

In particular, the CEBS (Committee of European Banking Supervisors) finalised its list of ‘High-level principles for remuneration policies’ in April 2009, followed by the issue of the European Commission's own recommendation (recommendation 2009/382/CE). The objective of the CSSF (Commission de Surveillance du Secteur Financier) circular 10/437 is the implementation of the latter in Luxembourg.

The circular applies to all entities, natural or legal persons subject to the prudential supervision of the CSSF, including their foreign branches as well as branches of similar entities established in Luxembourg and the registered office or the central administration of which is located outside the European Economic Area. It thus applies notably to credit institutions, investment firms, managers of pension funds and collective investment undertakings (financial undertakings).

The circular concerns the remuneration of persons who are members of the administration and management of a financial undertaking as well as the categories of staff whose work has a material impact on the risk profile of the financial undertaking.

Entities which only pay fixed salaries are exempted from the circular. It also excludes fees and commissions received by external intermediaries in case of outsourced activities.

The principles of the circular must be included in remuneration policies by 30 June 2010 with effective implementation as of 1 January 2011. Where necessary, existing employment contracts should be renegotiated as soon as possible, however, no later than 31 December 2010.

Click here for a detailed description of the effects of the circular and how our professional advisors can help you.

ALFI survey on Luxembourg Real Estate Investment Funds

The Association of the Luxembourg Fund Industry (ALFI) has published the fifth edition of its annual survey on Luxembourg Real Estate Investment Funds, looking at the Luxembourg market at the end of the year 2009.

The survey covers direct REIFs, real estate SICARs and Funds of Real Estate Funds to which ALFI members provide depositary services. The survey does not cover unregulated vehicles.

The main findings of the survey are:

  • In terms of geographical investment strategy, of the 158 funds surveyed 24% have a single country investment focus, while 82% of the funds invest only in Europe.
  • 67% of the funds surveyed are closed-ended, 15% are semi-open ended with only 6% being fully open-ended with no restrictions on redemptions.
  • 44% of the funds surveyed are value-added funds, 37% core and 19% opportunistic funds.
  • Assets under management (“AUM”) have grown from €15.4billion at 31 December 2007 to €19billion as at 31 December 2009. In July 2010, AUM reached €20billion, approaching the AUM as at 31 December 2008 of just short of €21billion.

The full report can be downloaded here.

Read more concerning the IFRS news, and tax updates in the PDF below.