What legal structure does KAPITAL uses?
KAPITAL structures Special Purpose Vehicles ("SPV") in Luxembourg, by turning alternative assets such as private company stocks or alternative funds into marketable securities in the form of Investment Notes. Specifically, the vehicles used to structure investments via KAPITAL act as a security issuers under the Luxembourg Securitisation Act 2004 & the Luxembourg Fiduciary Act 2003.
What European regulations does KAPITAL comply with when issuing securities?
Investments structured via KAPITAL are considered financial marketable securities, and therefore must comply with the The Markets in Financial Instruments Directive (MiFID II) in Europe.
Are SPVs structured via KAPITAL require a prospectus or registration with the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg ?
No, investments structured via KAPITAL are unregulated and therefore do not require a prospectus or a registration with the regulators. In Europe, financial securities can be marketed without the need for regulation or a prospectus under certain exemptions, one of which is the private placement exemption. This exemption allows issuers to offer securities to a restricted group of investors, such as professional investors or high-net-worth individuals, without the requirement for a prospectus or extensive regulatory oversight.
Generally, securities offered to the European public (ie: retail investors) must be registered with the European regulator and require a prospectus.
Can non-accredited Retail Investors invest via KAPITAL?
No, generally KAPITAL does not issue investment to Retail Investors. Except on rare occasion where the appropriate adjustment is made and relevant registration, disclaimers and prospectus are prepared, KAPITAL does not provide investment structuring intended to non-professional, non-accredited retail investors.
What is the difference between Retail Investors & Professional Investors?
Retail Investors are typically buying publicly available financial products (ie: listed on Public Stock Exchange) and are subject to higher levels of protection by the regulators due to presumed lower financial sophistication. Professional Investors are generally investment firms, or smaller entities and individuals that meet high net worth or income criteria, allowing them access to private, higher-risk investment opportunities not available to the general public.
What is the European (MiFID II) definition of Professional Investors?
An Accredited Investors is a person or entity meeting specific financial criteria, allowing them to access investment opportunities not available to the general public. In the exception mentioned in Article 1(4)(a) of the Prospectus Regulation, a 'qualified investor' refers to a person or entity listed in points (1) to (4) of Section I of Annex II to MiFID II. This includes those treated as professional clients upon request or recognized as eligible counterparties unless they've chosen to be treated as non-professional clients.
Qualified investors encompass:
- Entities required to be authorized or regulated to operate in financial markets, including:
- Banks
- Investment firms
- Insurance companies
- Pension funds
- Other financial institutions regulated by EU or national law
- National and regional governments, central banks, and international organizations like the World Bank.
- Other institutional investors primarily involved in financial instrument investments, including securitization entities.
Certain entities from the list, such as investment firms and banks, are considered eligible counterparties. Individuals or entities meeting at least two of the following criteria can be treated as professionals upon request:
- Regularly conducting significant transactions in the market.
- Having a financial portfolio exceeding €500,000.
- Having worked in the financial sector for at least a year in a role requiring knowledge of financial transactions.
Entities not falling into these categories are considered under a broader definition of qualified investors."
As a European Investor, how is my investment held via KAPITAL considered?
Based on the assessment from our lawyer A&O Shearman, investments made via KAPITAL are considered to be Securities structured as Investment Notes or Certificates. Generally, European investors are considered to hold their interest in the underlying asset directly.
What accounting method is used for KAPITAL's SPVs?
KAPITAL uses two different valuation methods, based on the type of investment made in a SPV and the ongoing reporting on the Net Asset Value ("NAV").
- For direct private company stocks, where fluctuation in valuation is difficult to assess in between financing rounds; KAPITAL uses the Luxembourg Generally Accepted Accounting Principles ("LUX GAAP") method at-cost and with impairment.
- For VC/PE Fund investments or real-estate investments, the valuation is prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and prepared by a professional accounting firm registered with the Financial Sector Supervisory Commission ("CSSF") in Luxembourg as Professional of the Financial Sector ("PSF").
How are currency exchange handled?
Generally, currency exchange are handled by the bank of the subscribing Investor. For each transaction, assets and liabilities denominated in currencies other than the base currency of each investment are translated into the base currency at the exchange rate prevailing at the transaction date.
What document will KAPITAL provide for my annual tax return?
KAPITAL provides an annual statement on the status of each investors portfolio at year end. This statement will include for each investment made:
- The date of investment;
- The amount invested;
- The name of the underlying asset;
- The type of underlying asset;
- The % ownership within each specific SPV;
- Any change in the asset valuation at year end;
How should I report my investments as part of my annual tax return?
KAPITAL cannot provide tax or legal advice. Instead, we provide investors with a standardised annual statement (see above) which investors can share with their own accountant in order to prepare their tax return.
Please note that the taxation of an investment might vary based on the underlying asset you're investing into; therefore it is always recommended to seek independent professional opinion before investing or when deemed necessary.
