American investors use the Luxembourg Special limited partnership as master feeder fund

American investors are increasingly turning to Luxembourg Special Limited Partnerships (SLP or ScSp) as master-feeder fund structures for their real estate investments, particularly in multi-family housing, senior living, and luxury villa acquisitions for rental purposes. This structure offers significant advantages in terms of flexibility, tax efficiency, and attractiveness to a diverse range of investors, including U.S. taxable, U.S. tax-exempt, and non-U.S. investors.

Luxembourg SCSp as a Master-Feeder Fund

The Luxembourg Special Limited Partnership (SCSp) has become a popular choice for structuring master-feeder funds due to its versatility and tax transparency. In a typical setup, the SCSp acts as the master fund, with various feeder funds investing into it5. This structure allows for efficient capital pooling while accommodating different investor types and their specific tax requirements.

Key Features of the SCSp

Tax Transparency: The SLP or ScSp is generally considered tax-transparent, meaning it’s not subject to corporate income tax or net worth tax in Luxembourg. This feature is crucial for avoiding double taxation and allows for tax-efficient structuring for various investor types.

Flexibility: The SCSp offers great flexibility in terms of governance and profit sharing, making it ideal for complex investment strategies and diverse investor bases.

Confidentiality: Limited partners’ names are not publicly registered, providing a level of privacy that many investors appreciate.

Regulatory Options: The SLP or ScSp can be set up as either a regulated or unregulated entity, depending on the specific needs of the fund and its investors.

Accommodating Different Investor Types

The master-feeder structure using a Luxembourg SCSp can effectively cater to U.S. taxable, U.S. tax-exempt, and non-U.S. investors in a tax-efficient manner. Here’s how:

• For U.S. Taxable Investors

Pass-Through Taxation: The tax transparency of the SLP or ScSp allows U.S. taxable investors to be taxed directly on their share of the fund’s income, avoiding an additional layer of taxation at the fund level.

Qualifying Income: For opportunity funds focusing on rental income from multi-family housing, senior living facilities, and luxury villas, the income generated typically qualifies as passive income for U.S. tax purposes, which can be advantageous for certain investors.

• For U.S. Tax-Exempt Investors

Avoiding Unrelated Business Taxable Income (UBTI): By structuring investments through a “blocker” entity within the master-feeder structure, U.S. tax-exempt investors can avoid generating UBTI, which would otherwise be taxable.

Maintaining Tax-Exempt Status: The structure allows these investors to participate in real estate investments without compromising their tax-exempt status.

• For Non-U.S. Investors

Treaty Benefits: Luxembourg‘s extensive network of double tax treaties can provide non-U.S. investors with potential tax benefits, depending on their country of residence.

Avoiding U.S. Tax Filing Requirements: By investing through the Luxembourg structure, non-U.S. investors can often avoid direct U.S. tax filing requirements, simplifying their tax compliance obligations.

Structuring the Master-Feeder Fund

To effectively accommodate these diverse investor groups, the master-feeder structure might be set up as follows:

Master Fund: A Luxembourg SCSp serving as the master fund, holding the real estate investments directly or through subsidiary entities.

• U.S. Taxable Feeder: A U.S. limited partnership or LLC that invests directly into the master SCSp, allowing for pass-through taxation.
• U.S. Tax-Exempt Feeder: A Luxembourg corporate entity (e.g., S.à r.l.) that acts as a blocker, investing into the master SCSp and distributing income to tax-exempt investors in a tax-efficient manner.
• Non-U.S. Investor Feeder: Another Luxembourg entity, potentially an SCSp or corporate entity, depending on the specific needs of the non-U.S. investors.

Advantages for Real Estate Opportunity Funds

This structure is particularly beneficial for opportunity funds focusing on multi-family housing, senior living, and luxury villa acquisitions for rental purposes:

Scalability: The master-feeder structure allows for easy addition of new feeder funds or investors as the opportunity fund grows.

Asset Protection: Luxembourg’s legal framework provides strong asset protection, which is crucial for high-value real estate investments.

Regulatory Compliance: Luxembourg’s well-established fund industry ensures compliance with various regulatory requirements, including AIFMD for European investors.

Flexibility in Exit Strategies: The structure allows for flexibility in exit strategies, whether through asset sales or potential public listings, catering to different investor preferences.

Considerations and Compliance

While the Luxembourg SCSp master-feeder structure offers numerous advantages, fund managers must be aware of certain considerations:

Substance Requirements: Ensuring sufficient substance in Luxembourg to benefit from its tax treaty network and avoid challenges from tax authorities.

Anti-Hybrid Rules: As of January 1, 2022, Luxembourg has implemented anti-hybrid rules that may affect the tax treatment of certain SCSp structures. However, the 2023 Luxembourg budget law provides clarifications that may mitigate these concerns for many fund structures.

Regulatory Compliance: Depending on the fund’s size and investor base, compliance with regulations such as AIFMD may be necessary.

The Luxembourg Special Limited Partnership as a master-feeder fund structure offers a compelling solution for American investors looking to attract a diverse range of investors to real estate opportunity funds. Its tax efficiency, flexibility, and ability to accommodate various investor types make it an ideal vehicle for investments in multi-family housing, senior living facilities, and luxury villa rentals.
By carefully structuring the master-feeder arrangement, fund managers can create a tax-efficient, scalable, and attractive investment platform that appeals to U.S. taxable, U.S. tax-exempt, and non-U.S. investors alike.

Damalion helps USA investors to structure their master feeder funds in luxembourg. Please contact your Damalion expert now.

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.

The information provided is for informational purposes only and does not constitute an offer or solicitation to buy or sell shares or securities of any type of investment vehicle. The content herein is not intended to serve as the basis for any investment decision, nor does it include specific investment recommendations. As such, this document does not constitute investment advice, counsel, or a solicitation to invest in any security. It should not be interpreted as an offer to sell, a subscription invitation, or a request to purchase or subscribe to any securities. Furthermore, no part of this document should form the foundation of or be relied upon in connection with any agreement, contract, or commitment of any kind. Damalion explicitly disclaims all liability for any direct or indirect loss or damage arising from: (i) reliance on the information provided herein, (ii) errors, omissions, or inaccuracies within this information, or (iii) actions taken based on this information.

American investors use the Luxembourg Special Limited Partnership (SCSp) as a master–feeder fund — clear setup options, documents, governance, tax points, timelines, and current 2025 rules.

For U.S. sponsors, LPs, family offices, pension plans, and global co-investors • This page explains how a Luxembourg SCSp can act as the master fund, with U.S. and non-U.S. feeders investing into it. Decisions by banks, service providers, and authorities remain their own.

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Why the SCSp works for a master–feeder

The Luxembourg Special Limited Partnership (SCSp) is contract-based, flexible, and generally tax-transparent in Luxembourg. It is widely used as the master fund while separate feeders admit different investor types (U.S. taxable, U.S. tax-exempt, and non-U.S.). This helps align tax and regulatory needs without duplicating the portfolio.

Typical structure at a glance

Layer	Common form	Purpose
Master	SCSp (unregulated or within a RAIF/SIF/SICAR)	Holds the portfolio or SPVs; single investment policy.
U.S. taxable feeder	U.S. LP/LLC	Pass-through for U.S. taxable investors.
U.S. tax-exempt feeder	Luxembourg blocker (e.g., S.à r.l.)	Helps manage UBTI/ECI exposure from certain assets.
Non-U.S. feeder	SCSp or company	Caters to treaty access or local needs of non-U.S. investors.

Core documents and roles

• Limited Partnership Agreement (LPA): governance, commitments, distributions, GP powers.
• Offering materials: strategy, risks, fees, target investors.
• GP and AIFM: GP manages the partnership; an AIFM may be required depending on scope and regime.
• Administrator, depositary (if applicable), auditor: based on the chosen regime (e.g., RAIF/SIF/SICAR vs unregulated SCSp).
• AML/KYC: investor identification, source of funds, sanctions and PEP checks.

Regulatory routes

• Unregulated SCSp: fast to set up; still subject to AIFMD framework if it is an AIF; may appoint a registered or authorized AIFM depending on size and activities.
• RAIF (SCSp form): no prior CSSF product approval; indirect supervision via an authorized AIFM; depositary and reporting apply.
• SIF or SICAR (SCSp form): CSSF product authorization and ongoing supervision.

Timelines and running costs

• Formation: weeks from complete file to first close, depending on chosen route and providers.
• Ongoing: administration, audit, legal, AIFM, depositary (if applicable), and regulatory filings.
• Banks: onboarding time varies by profile; expect standard due diligence and account fees.

Related reading

• Launching your Master–Feeder Fund Structure in Luxembourg
• Special Limited Partnership (SCSp) — Investment Funds
• How American investment funds set up master–feeder funds in Luxembourg
• Comprehensive guide to the SCSp

Frequently asked legal questions

1) Is an SCSp usually tax-transparent in Luxembourg?

Yes. By default an SCSp is tax-transparent for corporate income tax and net wealth tax in Luxembourg. Municipal business tax may apply if the partnership is considered commercially active or certain GP thresholds are met. This is subject to specific facts and current guidance.

2) Can a Luxembourg SCSp be the master fund with U.S. and non-U.S. feeders?

Yes. It is standard to use a Luxembourg SCSp as master with separate feeders for U.S. taxable investors, U.S. tax-exempt investors (often via a blocker), and non-U.S. investors.

3) Do reverse-hybrid rules affect SCSp structures?

They can. Luxembourg’s reverse-hybrid rules include an exclusion for qualifying collective investment vehicles. Clarifications issued in 2025 set tests for this exclusion. Each fund must check if it meets those conditions.

4) What changed under AIFMD II for 2025?

The EU adopted AIFMD II with a national implementation deadline of 16 April 2026 (some reporting from 2027). Luxembourg has published a draft law to implement these rules. Sponsors should plan for the upcoming changes.

5) When must a registered AIFM notify the CSSF?

Registration must be submitted without delay. The CSSF considers two months from the start of management of the first AIF as a reasonable maximum.

6) Can the SCSp be unregulated and still fall under AIFMD?

Yes. An unregulated SCSp may qualify as an AIF depending on its features. AIFM requirements then apply (registered or authorized), including reporting and, if applicable, depositary.

7) What investor types fit a master–feeder using an SCSp?

U.S. taxable investors (via U.S. pass-through feeders), U.S. tax-exempt investors (often via a Luxembourg blocker to manage UBTI/ECI), and non-U.S. investors (via treaty-friendly vehicles).

8) Are there minimum capital rules for an SCSp?

No statutory minimum for the SCSp itself. Minimums may apply in regulated wrappers (RAIF/SIF/SICAR) and under offering terms.

9) Do limited partners appear in public records?

Limited partners are not listed in public registers. The GP and a short form of the LPA are typically published.

10) Is a depositary always required?

It depends on the regime. RAIF/SIF/SICAR require a depositary. An unregulated SCSp outside product regimes may not, but AIFMD conditions and investor protection rules must be assessed.

11) Can the SCSp hold real estate directly or through SPVs?

Yes. Both are common. Choice depends on tax, financing, governance, and local law for the asset location.

12) What are typical governance points in the LPA?

Commitment mechanics, drawdowns, GP powers, conflicts management, valuation, distributions, key-person, removal and termination rules.

13) How are carried interest and management fees handled?

They are set in the LPA and agreements with the AIFM/manager. Tax treatment depends on the jurisdictions of the manager and partners.

14) How do U.S. tax-exempt investors manage UBTI risk?

Commonly via a Luxembourg corporate blocker feeder that invests into the SCSp master. This helps address UBTI or ECI exposure from certain assets (for example, leveraged or operating income streams).

15) Does FIRPTA affect non-U.S. investors if the strategy includes U.S. real estate?

FIRPTA may apply to U.S. real estate or REIT positions. Sponsors should obtain dedicated U.S. tax advice and model FIRPTA outcomes at feeder or SPV level.

16) Are there marketing rules when approaching EU investors?

Yes. AIFMD governs marketing in the EU, including pre-marketing and notifications. Requirements differ for EU and non-EU AIFMs and depend on the investor category.

17) How fast can banking be arranged for the fund or SPVs?

Timing depends on the profile and documentation. Expect full AML/KYC, source-of-funds checks, and verification of the investment plan before accounts are opened.

18) Which financial statements and audits are expected?

Annual accounts and audits are standard for regulated products and often required by investors for unregulated structures. The exact scope depends on the chosen route and the AIFM.

19) Do substance expectations apply in Luxembourg?

Yes. Decision-making, records, and genuine activity in Luxembourg should match the selected regime and treaty objectives. This is tested by administrators, the AIFM, banks, and tax authorities.

20) Can this page replace legal or tax advice?

No. This is general information, not advice. Sponsors and investors should take independent legal and tax advice in all relevant jurisdictions before closing.