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Lauching a Luxembourg investment fund has been democratized thanks to the Special limited partnership. “Luxembourg is an attractive country for foreign legal entities that wish to take their business to new heights. The Grand Duchy has well-established economic policies that promote the entry of international businesses. Its strategic location in Europe, political stability, and a long list of business incentives are drawing in more investors from across the globe to set-up a business in Luxembourg.”

What is Special Limited Partnership?

A special limited partnership of SCSp is a new business legal entity that operates similarly to a traditional limited partnership. As this business structure is still new on the business landscape, it is yet to be used as an alternative investment vehicle for foreign investors who wish to invest in Luxembourg. By rule, an SCSp is a commercial company with no legal personality. 

Due to the flexible nature of a SCSp is ideal for a wide range of alternative investment strategies, including private equity, real estate, hedge funds, collections, crytocurrencies, and FoFs. It formation delivers the benefit of being domiciled in and onshore and reputable jurisdiction of Luxembourg. 

Purpose and Objective

The creation of special limited partnership or SCSp aims to support the objective of Luxembourg to be a highly competitive nation for foreign  investments. With an attractive common law legal structure, special limited partnerships are designed for investors and fund managers that focus on alternative fund vehicles, such as hedge funds, real estates, private equity, and many more. As a special limited partnership, it has the contractual freedom in private equity funds placement and enjoy favorable tax treatment for its managers. 

With the exception of a limited number of statutory provisions, an SCSp enjoys greater flexibility in the determination of rules that govern the operations of a special limited partnership. A Luxembourg SCSp may also be utilized as a feeder fund vehicle. set up by a fund sponsor or fund manager to accommodate investments into the fund by one or more investors with specific needs or obligations not shared by other fund investors. 

Tax regime I Fiscal benefits

  • SCSps are tax transparent e entities for net worth tax and income tax purposes.
  • A municipal business tax rate of 6.75% is applicable in case a special limited partnership decides to carry out commercial activities. 
  • A special limited partnership is deemed to carry out commercial operations if its general partner is a public or private limited liability company with at least 5% partnership interest. 
  • An unregulated SCSp that functions as an alternative investment fund will be tax neutral with the provision that no general partner is a Luxembourg company holding more than 5% of partnership interests. 
  • SCSps do not benefit from Luxembourg’s double taxation avoidance treaties nor from the EU Parent-Subsidiary Directive. 
  • All management services rendered to an SCSp that serves as an alternative vehicle find are exempt from value-added tax. 
  • All dividend contributions made by an SCSp to resident and non-resident partners are not assessed with withholding tax. 

Income Tax Exemption on Dividends Received

  • SCSps may obtain advance tax clearance from Luxembourg tax authorities on a case-to-case basis similar with SOPARFIs. 
  • All profits paid to SCSp employees acting as an alternative investment fund will be assessed with a reduced 10% tax rate under certain conditions.
  • Any management fee provided to a regulated or unregulated SCSp will be exempt from VAT assessment. 

 Benefits to Set Up and Manage a Special Limited Partnership

  • Contractual flexibility in determining the functions and activities of the limited partnership. 
  • Incorporation of a special limited partnership under private deed and the absence of a tedious registration process that allows the investment vehicle to be active on the market in less than 30 days.
  • There is no minimum capital requirement or minimum investment in the incorporation of a special limited partnership. 
  • Information published in the Luxembourg Trade and Companies Register is only limited to the name of the limited partnership, duration, unlimited partner and managers, as well as signatory powers. The names of the limited partners need not be disclosed altogether.

 To Whom a SCSp is Addressed?

As special limited partnership legal regime allows partners to customize their precisely determine their level of participation in profits and losses, as well as distributions with their best interest in mind. The greater freedom and flexibility of legal provisions governing special limited partnerships enable partners of private equity partnership agreements to efficiently manage their provisions in relation to general partner or limited partners in line with agreed commercial terms. 

 Legal Framework

A SCSp may be created through public and private deed known as partnership agreement. It must have a company name clearly specified in its deed of incorporation. The name must be distinct or named after the purpose of the business. 

Cost to Incorporate

Incorporating an unregulated SCSp can be done by private deed and the absence of the requirement of depositary appointment make the special limited partnership a more practical and cost-effective option than other investment vehicles on the Luxembourg market. Establishing an SCSp entails the following activities:

  • Publication in the Trade and Companies Register (RCS)
  • Administrative authorities issuance costs
  • Notary costs, if needed
  • Auditor costs, if needed

 Investment Policy

  • Unregulated Alternative Investment Fund under a fund manager
  • Unrestricted

 Rules and Regulations

  • Each partner assumes a passive investor role, but may be indirectly involved in the internal management and operations of a SCSp.
  • The rights of general partners are explicitly defined in the SCSp partnership agreement. Such an agreement may include a general partner’s right to approve the account and discretionary right to appoint and/or dismiss managers. 
  • General partners have limited liability. 

 Administration of the Company

  • There can be one or more managers. In case a SCSp has several managers, they may create a board. 
  • A general partner may assume the role of manager. 
  • A non-partner may be appointed as a manager but not a limited partner. 
  • The primary role of a manager is to become a representative of the special limited partnership and take all management decisions. 
  • A SCSp may invest in any type of assets, including equities, participations, bonds, loans, equities, real estate, liquid and illiquid instruments, loans, artwork, hedge fund strategies, and cars. 
  • The manager of a special limited partnership may allocate the management to a third party, who will only be held liable for the performance of his or her own mandate. 

 Why Open a SCSp in Luxembourg?

  • A special limited partnership is an attractive to any foreign investor’s investment toolbox in Luxembourg. 
  • A SCSp may be used as an acquisition vehicle, master-feeder structure, and joint ventures, but is commonly used for venture capital, real estate, and private equity purposes.
  • While it does not fall under the definition of an alternative investment vehicle but it can function as a collective investment undertaking with multiple compartments to raise capital for investors.
  • A special limited partnership can be leveraged or offered to the public. 
  • A Luxembourg SCSp may function as an asset-owning entity, which is relevant for real estate and infrastructure sectors. 

Damalion brings together top-notch lawyers, accountants, and consultants with extensive knowledge, industry experience, and regional expertise to provide the best recommendations in the formation of businesses such as SCSp in Luxembourg. For more information, contact our Damalion experts today. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.