Because of the multiple benefits it offers, foreign investors are more enthusiastic about opening an investment fund in Luxembourg, and among the popular investment fund chosen is the UCITS (Undertakings for Collective Investments in Transferable Securities), which offers a high level of protection for the investors.
Features of the Luxembourg UCITS
| UCITS | an undertaking of collective investment in transferable securities (UCITS) subject to Part I of the Law of 17 December 2010 concerning undertakings for collective investment |
| UCITS | regulated investment fund that invests in liquid assets and can be distributed publicly to retail investors across the EU |
| Applicable legislation | The UCITS is regulated under the rules of the Law of 17 December 2010, which is conformed with the EU Directive. |
| Eligible investors | Unrestricted to anyone |
| Eligible assets | A UCITS is restricted to transferable securities admitted or handled on a regulated market, investment funds, financial derivative instruments, cash, specific money market instruments, and units of UCITS and/or UCI’s. And other liquid assets. Note that the eligibility of the asset must be verified on a case-by-case basis in view of the applicable laws and regulatory practice. |
| UCITS Risk diversification requirements | The Detailed risk diversification is imposed per Articles 42 to 52 of the Fund law, e.g. a UCITS must not invest over 10% of its assets in transferable securities a UCITS must not invest over 20% of its net assets in deposits made with the same body No single asset should represent over 10% of the fund’s assets |
| Legal Form | a common contractual fund (fonds commun de placement – FCP). open or closed ended investment company with variable capital (SICAV or société d’investissement à capital variable ), or fixed capital (SICAF or société d’investissement à capital fixe) |
| Segregated compartments | Yes |
| Capital requirements | The net assets of an FCP is a minimum of EUR 1,250,000. This minimum must be reached within a period of six months after its authorisation. The minimum capital of a self-managed SICAV/SICAF should be at least EUR 300,000 at the time of authorisation. The capital of a SICAV/ SICAF must reach EUR 1,250,000 within six months after its authorisation |
| Net asset value (NAV) calculation and redemption policy | it must make public the issue, sale and repurchase price of their units every time they issue, trade and repurchase their units, at least two times a month |
| Taxation | Tax charged: Capital duty, The subscription tax, Capital gains tax (applied in exceptional conditions) Tax exemption: net wealth tax, capital gains tax, income tax, withholding tax (except if EU Savings Directive applies) |
| Tax system for the UCITS subscription tax | It is charged at a rate of 0.05% of the net assets of the fund. A lower rate – 0.01% – is available in specific conditions. |
| Institutional supervision and authorization – by the CSSF (yes/no) | Yes |
| Possibility of listing | Yes |
| European passport | Yes (it is a key aspect of the UCITS regime) |
| Thin capitalization rules (debt-to-equity ratio) | Can borrow up to 10% of net assets to finance redemptions or to buy real estate for its business, but may not exceed 15% of net assets. |
| Required Luxembourg service providers | A Luxembourg management company or a management company based in another EU Member State. A Luxembourg depositary which is among other aspects responsible for the safeguarding of the fund’s assets administrative agent An independent auditor with appropriate professional experience. Registrar and Transfer Agent |
The UCITS is frequently a popular choice due to the advantages that it offers. For one, investors enjoy added risk protection due to strict rules on fund management, diversification, service provider administration, and protection of assets.
What’s more, it also benefits from a double tax treaty network although it’s limited to funds set up in the form of a SICAV / SICAF only.
To set up your investment fund in Luxembourg, let’s go ahead and contact your Damalion expert now.
