What makes Luxembourg unique?
Luxembourg provides several options for establishing private equity enterprises. Luxembourg has become an internationally leading destination for private equity funds, the 2nd largest investment fund hub after the United States, and the public finances domicile in Europe, with about EUR 5 trillion in assets under management.
Furthermore, private equity funds founded in Luxembourg can be distributed more readily inside the EU due to existing passporting under the alternative investment fund manager‘s directive.
Why establish a Luxembourg investment fund?
The country is a founder member of the European Union.
- Political stability
- Financially secure.
- AAA-rated.
It has:
- Trustworthy investment regulations.
- There are over 4,200 monitored investment entities with over 14,500 sub-funds.
- A rigorous framework for fund passporting within the EU.
- Luxembourg funds are sold in over 70 countries, making it the leading fund distribution jurisdiction.
- A well-known financial regulator.
It offers:
- A diverse assortment of supervised and unsupervised investment funds are available.
- The umbrella funds.
- Unsupervised funds.
- Tax advantages
Depending on the needs of investors, Luxembourg provides tax-free or taxable investment vehicles.
What exactly is Private Equity?
Like a private equity firm, a private equity fund invests in the equity of privately owned enterprises focusing on the long-term prospects of the acquisition. Such investments are typically made following seed, pre-seed, and Venture Capital Fund rounds.
Private equity investing phases are typically regarded as pre-IPO.
How long will starting a Luxembourg private equity fund or company take?
The setup length is determined by whether the fund is supervised or unsupervised. A non-supervised investment option can be established in two weeks, whereas a supervised investment account can be established in one to four months, based on the fund structure and its investment philosophy.
How can you set up a private equity fund in Luxembourg?
Luxembourg provides a variety of fund forms for private equity deals.
The Specialized Investment Fund, or SIF, is the most adaptable investment fund form, suitable for asset classes and investment techniques, including private equity transactions.
The Luxembourg SIF is a monitored business entity typically only available to professional or experienced investors. It has modest diversification needs and can be set up like an umbrella fund with many sub-funds, allowing for various transactions in the same structure.
The Reserved Alternative Investment Fund (RAIF) may also be of interest since it is an unregulated alternative investment managed by an alternative investment manager who must be supervised by CSSF (Commission de Surveillance du Secteur Financier or Financial Sector Supervisory Commission)
A Luxembourg SLP, or Special Limited Partnership, is an unregistered Alternative Investment Fund (AIF) that can be formed in Luxembourg with one General Partner (GP) who serves as the fund management and one Limited Partner (LP) as the investor.
The Luxembourg SLP structure is based on partnerships established in other countries like the United States, the United Kingdom, and the Cayman Islands. Their tactics are typically illiquid, with typical investments in real estate, private equity, or debt markets. There are, however, no restrictions on asset classes or fund strategies.
A Limited Partnership Agreement oversees the operation of the SLP and provides the fund with contractual flexibility to form the fund. An SLP is not limited to a specific asset class or subject to risk diversification regulations.
Benefits of establishing a Luxembourg SLP:
The following are the advantages of establishing an SLP in Luxembourg:
- It can be up and running in 2-3 weeks.
- There is no need for prior regulatory permission.
- As an unsupervised fund, it is not subject to onerous regulatory regulations.
- When the AUM exceeds Euro 100 million, the GP must be regulated (in the case of closed-ended funds, when the AUM crosses Euro 500 million).
- There are no limitations on hedge fund strategy.
- There is no need for a custodian, audit, or prime broker.
- The vehicle itself is tax neutral.
Can a Luxembourg SLP benefit from European passport ?
Yes, it certainly can. It would have to select an Alternative Investment Fund Manager (AIFM) for the SLP to be issued to authorized investors across the European Union. It needs about a month to complete the process.
How long will it take in Luxembourg to establish a Private Equity Fund?
A non-supervised fund framework can be established in two weeks, whereas a monitored fund can take one to four months. A significant portion of this is partly due to the lengthy procedure of opening a bank account, which can take up to a month, traditionally.
The SOPARFI has emerged as the favored vehicle for cross-border private equity deals in Europe. Companies, sovereign funds, family offices, and fund managers employ Luxembourg SOPARFIs because of their flexibility, structural advantages, and Double tax treaty access.
What is the cost of establishing a private equity entity in Luxembourg?
The cost varies depending on the structure chosen and the quality of responsibility. It is supervised funds are more expensive than unsupervised funds.
A SOPARFI, for example, can be established three days after a bank account is formed and share capital of EUR 12,000 is deposited. Notary fees are roughly EURO 1,700, and the SOPARFI can enter into a domiciliation agreement with a service provider to get a registered address.
To establish a Special Limited Partnership, The cost of SLP would thus be determined only by the type of constitution ( notarial deed or private deed). Once completed, the Limited Partnership Agreement can be registered with the Luxembourg Trade and Companies Register.
Other costs vary based on the structure and whether or not supervision is chosen.
Damalion specializes in helping fund promoters and foreign investors establish a private equity structure in Luxembourg.
We understand how important your time is and how significant your investing goals are. Our global service network draws on years of expertise and experience to deliver exceptional results to informed investors wishing to expand their portfolio in Luxembourg. Our Damalion consultants have extensive industry knowledge, which, when paired with our local financial market understanding, enables us to assist you in determining the optimal business structure, management, accounting, bank account creation, taxation, and other areas of running a fund in Luxembourg at cost effective prices. We think that each client deserves relevant and engaged customer service that propels their businesses forward. Contact a Damalion expert today to learn more about our network in establishing a private equity structure in Luxembourg.
Establishing a Private Equity structure in Luxembourg
Luxembourg combines flexible fund regimes, experienced service providers and a clear supervisory environment. To help you move from strategy to execution, this guide explains which vehicles to consider, how governance fits together (AIFM, depositary, administrator, auditor), which tax touchpoints typically arise, and the practical steps to launch without rework.
Which vehicles are commonly used for PE in Luxembourg?
Before deciding, weigh legal flexibility, launch speed and your anchor investor’s preferences so the vehicle supports—not slows—your strategy.
| Vehicle | Typical use | Governance | Tax notes (indicative) |
|---|---|---|---|
| SCSp (Société en commandite spéciale) | Partnership-style fund (GP/LP) for PE/VC/Private Debt | Flexible LPA; can sit as standalone or within a RAIF | Generally transparent; taxation flows to investors |
| RAIF (Reserved Alternative Investment Fund) | Platform with umbrella and sub-funds; faster market entry | AIFM and depositary mandatory; no product pre-approval | Usually subject to NAV-based taxe d’abonnement |
| SIF (Specialised Investment Fund) | CSSF-supervised product appreciated by institutions | Product oversight and reporting + AIFM and depositary | Similar to RAIF with more regulatory process |
| Soparfi (Commercial holding) | Participation/financing layer supporting the investment chain | Local directors and operational substance aligned to activity | Participation exemption subject to conditions; beneficial-owner tests |
If you plan multi-vehicle deployments, explore our overview of Luxembourg parallel funds, the advantages and challenges of parallel funds, and the steps to launch a master–feeder. For the holding layer, compare Soparfi vs SPF.
How should governance be assembled?
Beyond the vehicle name, governance quality drives bankability, risk control and investor confidence throughout the fund’s life.
- AIFM (alternative investment fund manager): leads portfolio and risk; pivotal for EU distribution.
- Depositary: safekeeps assets, monitors ownership and cash flows.
- Administrator: NAV calculation, investor register, periodic reporting.
- Auditor: financial statements and valuation policy assurance under consistent standards.
- Board/management: decisions in Luxembourg, documented minutes and procedures.
Which tax matters should you anticipate early?
Tax outcomes hinge on the fund regime and on the upstream/downstream HoldCo and SPV architecture across source and destination countries.
- Fund layer: transparency (e.g., SCSp) or subscription levy (taxe d’abonnement) in RAIF/SIF.
- HoldCo/SPV: participation exemption, source-country withholding, treaty access, substance and beneficial-owner tests.
- Financing: interest limitation, anti-hybrid rules and transfer pricing for arm’s-length leverage.
- Currency and hedging: policies consistent with mandate and investor communications.
What are the steps to launch your PE structure?
A precise roadmap shortens time-to-market and prevents back-and-forth with banks and providers during onboarding.
- Strategy and thesis: define size, sectors, geography, currency and LP profile.
- Vehicle and architecture: choose RAIF/SIF/SCSp and whether to use an umbrella with sub-funds.
- Governance and providers: appoint AIFM, depositary, administrator, auditor and legal/tax advisors.
- Documentation: draft LPA or fund rules, valuation policy, fee schedule and distribution mechanics in plain language.
- Onboarding: subscriptions, KYC/AML, source-of-funds evidence and ownership chain clarity.
- Operations and reporting: capital calls, investments, NAV cadence, LP reporting and AIFMD obligations.
Where strategies span jurisdictions or co-investors, align policies across parallel funds and co-investment vehicles so allocations, conflicts and disclosures stay consistent.
FAQs (practical and specific)
These answers distill what we typically address in a PE kick-off workshop.
Which vehicle enables the fastest launch?
RAIF generally, because there is no product pre-approval if the AIFM, depositary and documents are in place.
When do institutions prefer a SIF?
When they value product-level oversight by the CSSF and a more extensive reporting framework.
Can an SCSp operate outside the regulated perimeter?
Yes. It can be a standalone unregulated vehicle or the legal form used within a RAIF.
How do we describe the waterfall without jargon?
Write plainly: minimum return target, the mechanism to reach it, the manager’s profit share and any give-back if final returns fall—avoid unexplained acronyms.
What most often slows bank account opening?
Opaque ownership chains, documentation inconsistent with the stated activity, thin local substance and incomplete KYC/AML packs.
Are digital assets acceptable?
They can be, provided custody, valuation and risk controls are well defined and expressly accepted by the depositary.
Does an umbrella with sub-funds add real value?
Yes—it separates strategies, regions or currencies with operational and liability firewalls across sub-funds.
How do we keep distributions aligned across multiple vehicles?
Set consistent policies across parallel funds and co-investments and document pro-rata rules and conflict management.
References: CSSF — Luxembourg regulator · ESMA
