Luxembourg moves forward in boosting its position as one of the world’s best destinations for investment vehicles. The Luxembourg Parliament works relentlessly to improve its investment toolbox for investment managers, giving them the opportunity to organize their investments strategically while protecting the best interests of investors.
By being one of pioneer countries in the EU to integrate AIFMD into local law, Luxembourg is fast rising as an attractive destination for alternative investment funds. As of the first quarter of 2021, Luxembourg is home to almost 400 management companies, 250 of which are authorized AIFMs and more than half of those offering third-party AIFM services. Additionally, there are more than 605 registered sub-threshold managers in the Grand Duchy.
Damalion provides you with a brief overview of well-known unregulated fund vehicles that can be incorporated in Luxembourg across major asset classes and investment strategies.
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RAIF
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SPF
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Securitisation Vehicle
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Unregulated SCS/ SCSp
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Ordinary Luxembourg Company | |
Applicable Legislation |
Law of 23 July 2016 (RAIF Law) |
Law of 11 May 2007 (SPF Law) |
Law of 22 March 2004 (Securitization Law) |
Law of 10 August 1915 (Company Law) |
Law of 10 August 1915 (Company Law) |
Authorization and Supervision by CSSF |
No | No | No, unless a company continuously issues securities to the public. | No |
No
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Qualification as an AIF |
Always an Alternative Investment Fund | In principle, no. As defined in the ESMA guidelines on fundamental concepts of the AIFM Directive, SPF is not raising capital from investors as the structure is used to invest private wealth of a pre-existing group. |
No in the following cases: -A vehicle is categorized as a securitization special purpose vehicle or securitization SPV under the AIFM Law. -The company issues collateralized debt obligations. -It exclusively utilizes debt instruments -An entity is not supervised based on investment policy as defined by the AIFM Law. |
Considered non-alternative fund, unless activities fall under the scope of article 1 (39) of the AIFM Law. | Considered non-alternative fund, unless activities fall under the scope of article 1 (39) of the AIFM Law. |
| Exemption from AIFMD full regime under lighter regime (AIFMD registration regime) | No | Not Applicable | Possible | Possible | Possible |
| External Authorized AIFM Requirement |
Always a requirement |
Not Applicable |
A requirement if an entity is categorized as an AIMF that is not self-managed in nature and placed above the AIFMD threshold. | A requirement if an entity is categorized as an AIMF that is not self-managed in nature and placed above the AIFMD threshold. | A requirement if an entity is categorized as an AIMF that is not self-managed in nature and placed above the AIFMD threshold. |
| Eligible Investors |
Well-informed investors |
Restricted to the following: -Management entities acting on the interest of the private wealth trust or private foundations. -Natural persons assuming the role of manager of their own personal wealth. -All types of intermediaries acting on behalf natural persons and entities listed above. |
Unrestricted | Unrestricted | Unrestricted |
| Eligible Assets | Unrestricted except in cases where an entity engages in portfolio risk capital. |
Restricted to the following: -Acquisition, detention, management, and fulfillment of financial assets. A SPF is prohibited to run commercial activities or directly hold real estate, except for personal use or through participations. |
Unrestricted All kinds of securitization that involved risks relating to claims, assets, obligations that are assumed by third parties or those inherent to all or partial activities of third parties. |
Unrestricted |
Unrestricted |
| Risk Diversification Requirements | Risk diversification requirements are aligned with those that apply to SIFs, unless a RAIF decides to invest exclusively in risk capital and such a decision is inscribed in its constitutive documents. | No risk diversification requirements. | No risk diversification requirements. | No risk diversification requirements. | No risk diversification requirements. |
| Legal Form |
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Securitization vehicles may be set up as a company (SA, Sarl, SCA, SCoSA) or it may be established as a fund consisting of several ownerships or several legal estates under the supervision of a management company.
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| Umbrella Structure | Yes | No | Yes |
No
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No |
| Capital Requirements |
For FCP: -EUR 1,250,000 to be reached within 12 months from the start of management enforcement. For SICAV -EUR 1,250,000 to be reached within 12 months from start of SICAV incorporation. |
Varies depending on the form:
-SA/SCA: EUR 30,000 -SCoSA: No minimum capital requirement -Sarl: EUR 12,000
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For securitization vehicles set-up as a company, requirements vary: -SA/SCA: EUR 30,000 Sarl: EUR 12,000 For securitization vehicles set up a s fund, there is no minimum capital requirement. |
No minimum capital share requirement. |
Requirements may vary based on legal form: -SA/SCA: EUR 30,000 -Sarl: EUR 12,000 No minimum capital requirement for other legal forms. |
| Required Service Providers |
For FCP, services of a management company may be required. -Depositary bank or obtaining the services of a professional offering depositary services, pending for approval. -Administrative agent. -Registrar and transfer agent. -Approved licensed and certified auditor. |
In principle registered auditor is not a requirement unless it meets two of the following criteria: -Net turnover of EUR 8.8 million or more. -Balance sheet above EUR 4.4 million -Average number of employees more than 50. Depending on the company legal form, it may be mandated to appoint an accounts commissioner.
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-For securitization vehicles set up as a fund then it must obtain the services of a management company. -Unless for regulated securitization vehicles, there is no need for depositary institution. -No need for administrative agent.
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-SCS qualified as AIF: Alternative Investment Fund Manager (AIFM) -SCS qualified as an AIF with AIFM: No need to appoint a depositary -SCSp qualified as AIF: Alternative Investment Fund Manager (AIFM) -SCSp qualified as an AIF with AIFM: No need to appoint a depositary
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In principle, registered auditor is not deemed a requirement, unless in cases where a company is qualified as an AIF and managed by an AIFM with AUM above the threshold or two of the criteria listed below are met: -Net turnover of EUR 8.8 million or more. -Balance sheet above EUR 4.4 million -Average number of employees more than 50. Depending on the company legal form, it may be mandated to appoint an accounts commissioner. |
| Possibility of Listing | Yes | No | No |
By rule, and SCS and SCSp may release debt securities eligible to be listed on the stock exchange. |
Yes |
| European Passport | Yes | No | No, unless otherwise stated in the full AIFMD regime. | No, unless otherwise stated in the full AIFMD regime. | No, unless otherwise stated in the full AIFMD regime. |
| Net Asset Value Calculation and Frequency of Redemption | At least once a year for reporting purposes. | Not a requirement. | Not a requirement. | Not a requirement. | Not a requirement. |
| Overall Income Tax (corporate income and municipal business tax) | Exempted from income tax assessment, unless company participates in risk capital, then SICAR tax regime will be applied. |
No income tax. |
General aggregate for securitization companies set at 24.94%. Securitization should deduct from gross profits their operational costs and dividends, or interests distributed to shareholders or creditors. Securitization companies should not generate significant taxable income and should therefore be tax neutral. |
No corporate income tax applicable. Municipal business tax set at 6.75% is applicable to very limited instances: – SCS/SCSp carries out commercial operations – SCS/SCSp required to carry out commercial activities in the case where the general partner is a Luxembourg private or public limited liability company holding 5% or more of partnership interests. Proper structuring of a general partner’s partnership interests will help avoid the commercial characteristics of SCS/SCSp.
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General aggregate rate set at 24.94% but 100% exemption if dividends, liquidation proceeds, and capital gains from eligible participations. |
| Subscription Tax | Rate: 0.01% of net asset value annually. | Annual subscription tax of 0.25% of the amount of paid capital and issue premium (if any) | No subscription tax. | No subscription tax. | No subscription tax. |
| Wealth Tax | No wealth tax | No wealth tax | No wealth tax | No wealth tax |
Assessed with 0.05% NAV on 1 January of every year, Since 2017, the minimum net wealth tax for holding and financial companies, collectively known as Soparfi, the fixed financial assets, intercompany loans, transferrable securities, and cash at bank that exceed more than 90% of their gross assets or amount more than 350,000 is assessed with EUR 4,815 annually. Minimum net wealth tax for other Luxembourg companies has not changed at all, which means they will be assessed with EUR 535 with a total balance sheet up to EUR 350,000.
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| Withholding Tax on Dividends | Not assessed with withholding tax. | Not assessed with withholding tax. | Not assessed with withholding tax. | Not assessed with withholding tax. |
In principle, dividends distributed by a Luxembourg company are assessed with withholding tax at a rate of 15%, unless domestic exception or a reduced tax treaty is applicable.
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| Benefit from Double Tax Treaty Network |
RAIFs investing in risk capital portfolio, such as in the case of SICARs. Access may be established if set-up as a corporate entity, except for companies set up as SCS or SCSp. RAIFs no investing in risk capital portfolio such as SICARs, but set-up as: -SICAV/SICAF but limited to certain double tax treaties. (refer to circula L.G. -A no. 61 of the tax administration of December 2017.) -FCP: (refer to circula L.G. -A no. 61 of the tax administration of December 2017.)
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No | Yes, for securitization companies. | No | Yes |
| Benefit from EU Parent-Subsidiary Directive | No, unless RAIF that invests in a portfolio of risk capital (such as a SICAR). |
No | Yes | No | Yes |
| Thin Capitalization Rules | No debt-to-equity ratio. |
Tax of 0.25% on debt that exceeds more than eight times the paid capital and increased by issue premium.
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No debt-to-equity ratio. | No debt-to-equity ratio. |
No provisions in Luxembourg law. However, there are specific administrative practices to be considered.
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| Applications |
-Hedge funds -Private funds -Infrastructural funds -Venture capital funds -Real estate funds -Distressed debt funds -Islamic finance funds -Socially responsible investmenr funds -Tangible asset funds – Any other type of alternative funds
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Individuals looking to optimize their personal tax planning or for private wealth management application. |
-True sale and synthetic securitizations. -Securitization of securities portfolio. -Securituzation as structure for intra-group financial activities. -Securitization of non-performing loans. -Securitization of reduced receivables. |
-Private equity -Venture capital -Real estate investment -Other alternative investments
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-Holding and financing activities -Commercial activity -IP holding
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Damalion is an independent consulting management company with extensive expertise in the formation of investment funds in Luxembourg. We pride ourselves in our expertise of delivering excellent consultancy services through highly responsive customer support, helping investors make well-informed investment decisions. To explore the best investment options for your needs, 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.
