The most recent EU Directive on Alternative Investment Fund Managers (AIFMD) transposed to Luxembourg law further expanded the country’s corporate legal framework by introducing the Special Limited Partnership (SCSp). This business structure is heavily inspired by the Anglo-Saxon limited partnership regimes. It was designed to boost the position of the Grand Duchy as a primary alternative investment vehicle formation domicile in the European Union.
Main Characteristics of a Luxembourg Special Limited Partnership
- No legal personality
- Greater contractual freedom
- Lack of minimum share capital
- No minimum subscription
- No need for auditing contributions in kind
- Legal ownerships of assets
- Multiple voting rights
- No mandatory reporting of annual accounts
- Publication of annual accounts not mandatory
- Possibilities of issuance of debt securities
- Only published partner is the general partner
- Bookkeeping required
The Luxembourg Special Limited Partnership as an Investment Vehicle
- Can be utilized for master feeder structures, joint ventures, and acquisition vehicles.
- Common use among investors includes private equity, venture capital, and real estate investments.
- It may take the form of a collective investment undertaking (UCI) featuring various compartments or sub-funds, with the aim of raising capital for a number of investors.
- Participants invest in accordance with a specific investment policy for their benefit.
- It does not require the authorization under the Undertakings for Collective Investments in Transferrable Securities regime. (UCITS).
- A special limited partnership qualifies as an Alternative Investment Fund (AIF) governed by the 2013 legislation pertain to Alternative Investment Fund Managers (AIFM).
- Special limited partnerships (SCSps) that are categorized as an alternative investment fund may take the form of a specialized investment fund (SIF), investment company in risk capital (SICAR) regime, or an unregulated entity.
- Special limited partnerships (SCSps) that are categorized as an alternative investment fund is under direct supervision of the Commission for the Supervision of the Financial Sector (CSSF) .
- May not be considered as an internally managed alternative investment due to lack of legal personality.
Main Steps in Establishing a Special Limited Partnership (SCSp) as an Alternative Investment Fund
- Incorporating a general partner.
- Drafting and implementation of a Limited Partnership Agreement (LPA) through private or notarial deed.
- Engaging the appropriate service providers based on the regulated or unregulated status of the special limited partnership (SCSp).
- Publishing the brief version of the Limited Partnership Agreement (LPA) before the Luxembourg Trade and Companies Register.
- Setting up a register of partnership interests.
- Requesting the authoritization of the Alternative Investment Funds Manager (AIFM) by the Commission for the Supervision of the Financial Sector (CSSF).
Special Limited Partnership Legal Framework and Features
- Can be established for a limited or unlimited duration, between one or more general partners.
- general partner/s will be liability for the partnership’s liabilities.
- Limited partner/s with limited liability does not exceed their partnership interest.
- Management functions entrusted to a general partner or an external manager.
Main Traits of a Luxembourg Special Limited Partnership
- May start promptly, as it can be set up in a matter of weeks.
- No need to obtain prior approval from local institutions.
- Investors need to appoint a fund manager with authoritization only in cases wherein a fund’s assets are above a certain threshold.
Luxembourg Special Limited Liability Accounting Requirements
- Must adhere to the standard accounting framework by the General Accepted Accounting Principles (GAAP) applicable in Luxembourg and the International Financial Reporting Standards (IFRS).
- A special limited partnership is not deemed to file its annual accounts, but only applicable if the special limited partnership is an unregistered vehicle.
- A special limited partnership registered as an investment company in Risk Capital (SICAR), annual accounts must be submitted before the Commission for the Supervision of the Financial Sector (CSSF).
Special Limited Partnership Taxation Regime
- Unregulated and regulated special limited partnerships (SCSp) are tax transparent entities for corporate income tax and net worth tax purposes.
- 6.75% municipal business tax for special limited partnerships (SCSps) running commercial activity in Luxembourg.
- A special limited partnership is considered carrying out commercial activity if the general partner of a public or private limited liability company holds at least 5% of partnership interests.
- A special limited partnership (SCSp) is tax neutral, so long as the general partner/s does not hold more than 5% of partnership intertests.
- Unregulated and regulated special limited partnerships (SCSps) does not benefit from double tax treaties nor the EU’s Parent-Subsidiary Directive.
- Special limited partnerships qualifying as an alternative investment fund are exempt from value added tax.
- Dividend distributions made by a special limited partnership are not subject to withholding tax.
For expert help in the formation of a special limited partnership in Luxembourg, our team of experts at Damalion can help. Leveraging our global service network, we assist foreign investors in company formation and other associates activities, from opening a bank account, advice on applicable tax regime, accounting, bookkeeping, management, and more. Reach out to a Damalion expert today if you wish to learn more.
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.
Why choose an SCSp (Special Limited Partnership) in Luxembourg?
Before you commit capital, understand how SCSp aligns with investor expectations, regulatory framework, and tax transparency.
- Flexible partnership law without legal personality constraints
- Tax transparency for limited partners under many jurisdictions
- Well-developed service provider ecosystem
Compare with Luxembourg SOPARFI and fund routes such as RAIF tax regime for alternatives.
What are the key features and benefits of a Luxembourg SCSp?
These characteristics guide negotiating terms and managing expectations.
- General and limited partners. GP manages; LPs contribute capital and benefit from liability limits.
- Flexible capital commitment. No minimum capital required; capital calls and distributions governed by partnership agreement.
- Tax transparency. SCSp often treated as tax transparent; LPs taxed in their own jurisdictions.
- Governance by contract. Rules are defined in LPA; less rigid than corporate forms about shareholder structure.
- Fund raising friendly. Compatible with institutional investors, co-investment, side letters, and tailored waterfall.
For governance and holding options see Luxembourg holding companies.
How do you set up and manage a Luxembourg SCSp?
Follow these steps from drafting to operating with investor expectations in mind.
- Define the LP agreement (LPA). Describe GP/LP roles, capital calls, return waterfalls, decision-rights.
- Choose GP legal form. Usually an SA, S.à r.l., or other corporate vehicle for the GP to limit liability.
- Select service providers. Manager/advisor, administrator, auditor, legal counsel, depositary (if required).
- Raise capital. Identify LPs, negotiate side letters, set subscription documents and reporting cadence.
- Comply with regulations. AML/KYC, CRS, FATCA, reporting to Luxembourg authorities.
- Distribute and report. Manage distributions per LPA, maintain books, deliver annual audits and investor reporting.
For bank onboarding consistency, see our bank acceptance checklist.
Frequently asked questions about Luxembourg SCSp (15)
These answers reflect structure, tax, LP-rights, and what you need to raise capital.
What is a SCSp?
An SCSp is a Luxembourg Special Limited Partnership where limited partners fund capital and the general partner manages operations without limited partner liability beyond contribution.
Who can become a limited partner?
Institutional investors, family offices, high-net-worth individuals eligible under their local rules. LPs may need to show source of funds and legal personality.
How are profits and losses allocated?
Profit and loss sharing is per LPA; LPs receive distributions after GP fees, preferred returns, and any hurdle as agreed in waterfall.
How is allocation of liability handled?
GP holds unlimited liability unless limited by specific vehicle form; LPs liability is limited to committed capital.
How does tax transparency work?
SCSp is often transparent for income/tax purposes in many LPs’ jurisdictions; underlying assets taxed at LP level not at vehicle level.
Can SCSp have multiple classes of LPs?
Yes; LPs may have different rights, priorities, side letters and fee terms defined in the LPA.
What governance controls are expected?
Clear LPA terms; regular reporting; audit obligations; decision rights; cash controls and service provider oversight.
Is subscription or registration tax applicable?
SCSp generally exempt from subscription tax if certain conditions met; otherwise special exemptions or minimal registration may apply.
How long does establishment take?
Once documents and providers are ready, SCSp establishment can be completed quickly; banking and investor onboarding are often the time-drivers.
Are side letters allowed?
Yes; side letters with LPs are common, but must be disclosed appropriately and avoid unfair treatment among LPs.
What ongoing reporting is required?
Annual financial statements, investor reports, GP disclosures, and compliance with AML/KYC and cross-border tax rules.
Can SCSp invest in illiquid assets?
Yes; many SCSp invest in illiquid portfolios such as real estate, private debt, or infrastructure with appropriate liquidity terms.
What happens in case of LP withdrawal or redemption?
Terms are governed by LPA; early withdrawals or redemptions depend on partner agreement and may include notice periods or exit mechanisms.
How do SCSp compare to corporate fund structures?
SCSp offers flexibility, tax transparency and cost efficiencies over fund vehicles; corporates may offer more regulatory clarity or investor familiarity depending on context.
Where can I see comparable Luxembourg fund structures?
| Topic | SCSp at a glance |
|---|---|
| Structure | General Partner + Limited Partners; flexible class rights |
| Liability | GP unlimited unless GP vehicle limits; LP liability limited to investment |
| Tax treatment | Transparent for LPs in many jurisdictions; no vehicle level tax where exempted |
| Governance | LPA terms, audit, reporting, service provider oversight |
| Fund-raising features | Side letters, investor classes, flexible capital calls |
Related reading: Holding company benefits, bank acceptance guidance, and hedge fund formation checklist.
