On April 19, 2021, a bill on various financial provisions (the “Bill”) was published. The bill was passed by Parliament at the end of May. Among other things, it amends the Belgian AIFM law to integrate the status of ELTIF funds. In conjunction with its parliamentary work, the bill finally provides some details on the place of this vehicle within the framework of the existing Belgian funds.
The statute of the European long-term investment fund (“ELTIF”) Was introduced a few years ago by Regulation 2015/760 of 29 April 2015 relating to European long-term investment funds (the“ ELTIF Regulation ”). With the ELTIF regulation, a new type of investment vehicle has been created, qualified as AIF and available for marketing to all types of investors across the European Union (“EU”).
By introducing ELTIF, EU lawmakers sought to offer investors stable long-term returns and, at the same time, help stIboost employment and economic growth in the EU by encouraging certain investments, such as infrastructure and mobility projects. To this end, the ELTIF regulation has created a fund which must meet specific asset class restriction requirements and which benefits from a European passport.
The ELTIF regulation includes provisions on authorization, investment policy, eligible investment assets, diversification and concentration provisions, and investment and borrowing restrictions. To be considered as an ELTIF, a fund must (among other things):
- be managed by an authorized AIFM;
- invest at least 70% of its capital in eligible investment assets;
- not to engage in short selling; and
- observe strict limitations on its use of leverage and derivatives.
Lack of clarity in Belgium
The ELTIF Regulation is already in force since December 9, 2015 and does not in principle require any transposition or transposition into Belgian law. However, since its introduction, there has been some confusion in the market as to how to apply the ELTIF regulation within the wider Belgian legal framework for AIFs. Questions have arisen as to whether the ELTIF investment vehicle was rather a “label” available for the types of funds existing by virtue of the law of 19 April 2014 on alternative investment funds and their managers (the “AIFM law”) and the royal implementing decrees specific to vehicles, or if the ELTIF regulation a separate European investment vehicle, in addition to the types of funds already in existence.
Not just a label
The bill introduces a new book I / 1 “provisions specific to ELTIFs” in part III of the AIFM law. By introducing this new Book, the Belgian legislator has clearly indicated that a ELTIF can be created as a separate investment vehicle, which means that the ELTIF status can also be obtained by AIFs which have not opted for another specific status under the AIFM law and its royal implementing decrees.
Main Belgian characteristics
The ELTIF must obtain an authorization from the Belgian Financial Services and Markets Authority (“FSMA”). In accordance with the bill:
- ELTIF status will only be available for funds in the form of a investment company, which means that ELTIF funds cannot simply have a contractual basis;
- ELTIF will be governed by the Companies and associations code (“CCA”) insofar as the provisions relating to the CCA comply with the ELTIF regulation;
- the available company forms are the private company (BV / SRL) or the public limited company (NV / SA);
- an ELTIF will be made up of investment company with fixed capital (bevak/sicaf), because, in principle, investors in an ELTIF will not have the right to redeem their units or shares before the end of the fund’s life cycle.
It is interesting to note that the use of a private company as a form of company for an investment company is also new under the AIFM law. In fact, the parliamentary work of the bill introduces a new “rule of thumb” according to which financial companies can only opt for private company status if their current financial legislation does not require a minimum amount of capital.
It is up to the national legislator of each European Member State to regulate the specific tax treatment of the ELTIF.
Generally speaking, most Belgian investment companies can benefit from a derogatory corporate tax regime, in which case their tax base is limited to disallowed expenses and abnormal or free benefits received. In practice, they often do not pay corporate tax. Being formally subject to corporation tax, they are also in principle eligible for conventional benefits from the Belgian point of view (assessment on a case-by-case basis).
The possibility of benefiting from this deviating corporate tax regime must however be explicitly provided for by the Belgian legislator. When this is not the case, a Belgian company will be taxed, investment company or not, according to the normal principles of the Belgian corporate tax regime (taxation at 25% of all income / products).
For the moment, Belgium has not provided for any specific tax treatment of the ELTIF as a separate investment vehicle. The ELTIF qualification as such would not lead to a deviating or advantageous tax regime. It remains to be seen whether measures will be taken by the Belgian legislator to provide for an advantageous tax regime in order to stimulate the use of the ELTIF vehicle in Belgium. Ideally, the ELTIF should be placed under the exemption regime of article 185bis ITC92.
In the event that the ELTIF would serve as a “label” for an investment vehicle which already benefits from an exceptional tax regime within the framework of a specific legal basis, the ELTIF label will not change the applicable tax regime.
Finally, the Belgian tax on net assets also seems applicable.