China Outbound Investment Guide 2014: Luxembourg

Section 1: China outbound investment

1. What are the key sectors in your jurisdiction that attract, or to which the government is seeking to attract, China outbound investment (COI)?

   Some of the leading sectors into which the Luxembourg government has been seeking to attract foreign investment are biotechnology/health technologies, e-commerce, logistics and eco-technologies.

   Over the past few years, Luxembourg has become a focal point for Chinese companies' outbound investment by their setting up offshore companies in Luxembourg through holding and pooling investments. Luxembourg is also an obvious choice to locate all kinds of (pan-European) operations, whether it is a European headquarters for Chinese banks, where Luxembourg is to act as Europe's hub for renminbi products (Industrial and Commercial Bank of China (ICBC), Bank of China (BoC), Chinese Construction Bank), or for structuring tax-efficient acquisitions in Europe.

   The Luxembourg Stock Exchange is one of the leading listing places for renminbi denominated bonds in Europe. Luxembourg is the most important hub for cross-border renminbi business in the Eurozone and it is the only country in Europe with renminbi denominated mutual funds.

2. Is the government generally supportive of COI? Which government, and regional, bodies are responsible for driving COI in your jurisdiction?

   The government, banking and fund associations and the financial regulatory authority of Luxembourg have continually shown their support for foreign investors, including COI. The tax authorities in particular apply a pragmatic approach to foreign investment with a tax-efficient structure for repatriation of profits and access to a broad double taxation treaty network which includes China, Hong Kong and various other Asian countries.

   Section 2: Investment vehicles

1. What are the most common legal entities and vehicles used for COI in your jurisdiction? How long do they take to become operational?

   Undertakings for Collective Investment in Transferable Securities (UCITS) is the retail fund vehicle distributed on a pan-European basis that benefits from a European passport. This makes them freely marketable throughout Europe and subject only to a simplified notification procedure. The 2008 Memorandum of Understanding signed between Luxembourg and China qualifies UCITS as eligible assets in China under the Qualified Domestic Institutional Investors (QDII) regime. Luxembourg is one of very few financial centres to have such an agreement in place with China.

   Luxembourg has developed various alternative investment products and bespoke investment structures such as hedge funds and funds of hedge funds, private equity vehicles and real estate funds. The recent implementation of the alternative investment fund management (AIFM) regime is expected to create a global alternative investment fund branch for non-UCITs funds. In 2004 and 2007 respectively, Luxembourg created the investment company in risk capital (SICAR) and the specialised investment fund...