LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard, Benjamin Marthoz and Tom Storck, Stibbe
taxable base corresponds to either the purchase price or the fair market value of the property, whichever is higher. As a rule, if a Luxembourg real estate asset is contributed to a company against the issuance of shares, reduced transfer taxes apply, amount - ing to 3.4% (or 4.6% for an office or commercial property located in Luxembourg City). No Luxembourg transfer taxes should apply to the disposal of shares in an opaque company holding a Luxembourg property. 2.11 Legal Restrictions on Foreign Investors There are no specific legal restrictions on foreign investors. Acquisitions of commercial real estate in Luxem - bourg are commonly financed through a combi - nation of equity, quasi-equity and senior debt in the form of a loan, which may be completed with junior (subordinated) debt depending on the risk profile of the transaction, the size of the portfolio and the required loan-to-value ratio. The debt portion of the financing may take the following forms: • a mortgage debt for the financing of the acquisition of real estate assets; • an acquisition debt for the financing of the acquisition of the shares of the entities hold - ing real estate assets; or • a combination of both for the financing of the acquisition of the shares of entities holding 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
real estate assets and the refinancing of the existing indebtedness of such entities. 3.2 Typical Security Created by Commercial Investors The financing of acquisitions and development projects is generally secured by securities cre - ated over the assets and the shares of the bor- rower; lenders usually accept non-recourse financing for the acquisition of commercial real estate assets, whereas investor and/or bank guarantees will usually be required in addition to the standard security package for develop - ment projects. Typically, the lenders will require securities that allow them to recover the financed asset directly or indirectly. Such security may take the form of a contractual mortgage ( hypothèque ) over the real estate asset and/or a pledge over the shares of the entity holding such asset. The security package will also include a security interest over cash flow related to the real estate asset or resulting from the financing transaction, usually in the form of an assignment of rights (insurances, rent), a pledge over receivables (generally related to intragroup financing) and a bank account pledge (over the relevant accounts such as rent account). Depending on the type of transaction, the credi - tors may also require security over the borrow - er’s other movable assets. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Generally, there are no restrictions on granting security to foreign lenders, nor on payments made to foreign lenders under a security docu - ment or loan agreement. To remain enforceable
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