The ELTIF: amendments in the Belgian AIFM Law
On 19 April 2021, a draft law on diverse financial provisions (the “Draft Law”) was published. The Draft Law was adopted by the Parliament at the end of May. Amongst other things, it amends the Belgian AIFM Law to integrate the ELTIF fund status. Together with its parliamentary works, the Draft Law finally provides some clarity on this vehicle’s place in the existing Belgian fund framework.
The status of the European long-term investment fund (“ELTIF”) was introduced a few years ago by Regulation 2015/760 of 29 April 2015 on European long-term investment funds (the “ELTIF Regulation”). With the ELTIF Regulation, a new type of investment vehicle was created that qualifies as an AIF and is available for marketing to all types of investors across the European Union (“EU”).
By introducing the ELTIF, EU legislators have sought to provide investors with long-term, stable returns and, at the same time, help stimulate employment and economic growth in the EU by promoting certain investments, such as infrastructure and mobility projects. To that end, the ELTIF Regulation has created a fund that has to meet specific asset class restriction requirements and that benefits from an EU passport.
The ELTIF Regulation includes provisions on authorisation, investment policy, eligible investment assets, diversification and concentration provisions, and investment and borrowing restrictions. To qualify as an ELTIF, a fund must (among other things):
- be managed by an authorised AIFM;
- invest at least 70% of its capital in eligible investment assets;
- not engage in short-selling; and
- observe strict limitations on its use of leverage and derivatives.
Lack of clarity in Belgium
The ELTIF Regulation has already been in force since 9 December 2015 and in principle does not require any transposition or implementation in Belgian Law. However, since its introduction there has been some confusion in the market about how to apply the ELTIF Regulation in the broader Belgian AIF legal framework. Questions have arisen about whether the ELTIF investment vehicle has rather been a “label” that is available to existing fund types under the Law of 19 April 2014 on alternative investment funds and their managers (the “AIFM Law”) and the vehicle-specific implementing Royal decrees, or, whether the ELTIF Regulation has constituted a separate European investment vehicle, in addition to the already existing fund types.
Not just a label
The Draft Law introduces a new Book I/1 “specific provisions for ELTIFs” in Part III of the AIFM Law. By introducing this new Book, the Belgian legislator has made clear that an ELTIF can be created as a separate investment vehicle, meaning the ELTIF status can also be obtained by AIFs that have not opted for another specific status under the AIFM Law and its implementing Royal Decrees.
Main Belgian Characteristics
The ELTIF will have to obtain an authorization from the Belgian financial services and markets authority (“FSMA”). In accordance with the Draft Law:
- the ELTIF status will only be available for funds taking the form of an investment company, meaning ELTIF funds cannot merely have a contractual basis;
- the ELTIF company will be governed by the Code of Companies and Associations (“CCA”) in so far as the CCA provisions are in line with the ELTIF Regulation;
- the company forms available are the private company (BV/SRL) or the public limited company (NV/SA);
- an ELTIF will be constituted as an investment company with fixed capital (bevak/sicaf), as, 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 the company form for an investment company is also a new under the AIFM Law. In fact, the Draft Law’s parliamentary works introduce a new ‘rule of thumb’ in which financial companies can only opt for the status of private company if their governing 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.
In general terms, most Belgian investment companies can benefit from a deviating corporate tax regime, in which case their taxable basis is limited to disallowed expenses and abnormal or gratuitous advantages received. In practice they often don’t pay corporate tax. Since they are formally subject to corporate income tax, they are also in principle eligible to treaty benefits from a Belgian perspective (assessment on a case-by-case basis).
The possibility to benefit from this deviating corporate tax regime however, needs to be explicitly foreseen by the Belgian legislator. When this is not the case, a Belgian company will be taxed, investment company or not, under the normal principles of the Belgian corporate tax regime (25% taxation of all income/proceeds).
For the moment, Belgium hasn’t foreseen in any specific tax treatment of the ELTIF as separate investment vehicle. The ELTIF qualification as such would not lead to a deviating or beneficial tax regime. It remains to be seen whether any action will be taken by the Belgian Legislator to provide for a beneficial tax regime in order to boost the use of the ELTIF vehicle in Belgium. Ideally, the ELTIF should be brought under the scope of the derogative regime of Article 185bis ITC92.
Should the ELTIF act as a “label” to an investment vehicle that already benefits from a deviating tax regime under a specific legal basis, the ELTIF label won’t change anything with respect to the applicable tax regime.
Finally, The Belgian net asset tax also seems applicable.
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