What is the Luxembourg SCSp (Special Limited Partnership)?
The Luxembourg Special Limited Partnership (SCSp), also known as the SLP (Société en Commandite Spéciale), provides a cornerstone vehicle for alternative investment funds. The 2013 Law on Alternative Investment Fund Managers (AIFM Law) introduced the SCSp, modelling it on the Anglo-Saxon limited partnership. As a result, the SCSp offers contractual flexibility and tax transparency. International fund managers, institutional investors, and family offices widely adopt it for private equity, venture capital, real assets, and debt strategies.
The SCSp does not have separate legal personality. Instead, the partnership contract governs relations between partners and the structure itself. This design mirrors English law partnerships and appeals to global investors. For further technical details, refer to the Luxembourg Special Limited Partnership guide.
Key structural features of the SCSp
Legal framework and contractual flexibility
The Law of 10 August 1915 on Commercial Companies, as amended, governs the Luxembourg SCSp. The SCSp does not require minimum capital. Instead, partners define capital contributions in the partnership agreement. The law recognises two types of partners: at least one general partner (GP) with unlimited liability and one or more limited partners (LPs) with liability limited to their contribution.
The partnership agreement (LPA) governs internal organisation, voting rights, profit allocation, and exit procedures. Accordingly, managers can tailor economic and governance rights. In particular, the LPA can grant voting rights, veto rights, or preferred returns to selected partners. Many fund sponsors use this flexibility to design bespoke carried interest and distribution waterfalls.
SCSp legal personality and registration
The Luxembourg SLP lacks legal personality. Consequently, the SCSp cannot own assets in its own name. Instead, the GP holds assets on behalf of the partnership. The partnership must register with the Luxembourg Trade and Companies Register (RCS). However, the LPA itself remains confidential, with only key information disclosed publicly. This confidentiality benefits private capital strategies requiring discretion.
Management and governance
General partners manage the SCSp and represent it towards third parties. They bear unlimited liability for the partnership’s obligations. Limited partners typically do not participate in management. However, the law now permits certain reserved acts for LPs without risking their limited liability. For example, LPs may approve annual accounts, amend the LPA, or vote on distributions. As a result, institutional investors often negotiate strong governance rights without losing their liability protection.
Tax transparency and fiscal treatment of the SCSp
SCSp tax transparency
The SCSp benefits from full tax transparency for Luxembourg tax purposes. The partnership does not pay corporate income tax, municipal business tax, or net wealth tax. Instead, tax authorities treat the profits and losses as accruing directly to the partners. Each partner reports their share of income in accordance with their own tax status and jurisdiction.
The SCSp’s tax transparency applies provided the partnership does not carry out a commercial activity in its own right. In practice, most SCSp structures qualify as tax-transparent, especially when used for private equity, venture capital, or real estate holding. Consequently, the vehicle avoids entity-level taxation and offers efficient profit repatriation. For investors, this means the SCSp can accommodate a wide range of cross-border tax profiles.
VAT and withholding tax implications
The SCSp does not qualify as a taxable person for VAT purposes, unless it performs taxable economic activities. Most SLPs acting as investment vehicles do not fall within the scope of VAT. Additionally, Luxembourg does not levy withholding tax on profit distributions to partners. This treatment further enhances the attractiveness of the SCSp for global fund sponsors and investors.
SCSp and international tax treaties
Luxembourg SLPs, as tax-transparent entities, generally do not access Luxembourg’s double tax treaty network directly. Instead, the partners may claim treaty benefits depending on their own tax residency. Fund structuring professionals must assess treaty access on a case-by-case basis. Nevertheless, the SCSp’s neutrality, combined with the absence of local taxation, often outweighs this point for private capital funds.
SCSp in private equity and venture capital structuring
Use of SCSp in fund structuring
The Luxembourg SCSp dominates private equity and venture capital fund structuring in Luxembourg. Sponsors favour the SLP for its contractual flexibility, confidentiality, and alignment with investor expectations. The SCSp can serve as a standalone fund, a compartment of a Reserved Alternative Investment Fund (RAIF), or a feeder or co-investment vehicle. As a result, sponsors deploy SCSp structures across buyout, growth capital, venture, infrastructure, private credit, and real estate strategies.
Carry, distribution waterfalls, and investor protection
Fund managers design sophisticated carried interest and distribution arrangements within the LPA. The law imposes no restrictions on economic rights. Consequently, sponsors can allocate carried interest (SCSp carried interest) or preferred returns to selected partners, subject to investor negotiations. In addition, the SCSp structure allows for bespoke governance, reporting, and exit mechanisms tailored to institutional investor requirements.
Alignment with AIFMD and regulatory status
Most SCSp funds qualify as alternative investment funds (AIFs) under the AIFM Law of 12 July 2013. When the SCSp qualifies as an AIF and its manager exceeds the relevant thresholds, an authorised AIFM must manage the fund and comply with AIFMD requirements. This framework provides passporting rights for marketing to professional investors across the EU. However, the SCSp itself does not require CSSF approval, unless it forms part of a regulated vehicle such as a SICAR or SIF. This regime enables fast time-to-market and operational flexibility. Meanwhile, the manager ensures regulatory compliance and investor protection.
Setting up a Luxembourg SCSp: requirements and process
Formation and documentation
Partners create the SCSp by executing an LPA, which may take the form of a private deed. Notably, a notarial deed is not required. The partners must register the partnership and file certain information with the RCS. Only the names of the partners, the partnership’s purpose, and related details become public; the LPA itself remains confidential. This confidentiality appeals to fund sponsors and investors seeking discretion.
Key steps in setting up an SCSp
- Draft the limited partnership agreement, defining governance, profit allocation, and partner rights.
- Appoint at least one general partner and one limited partner (which may be entities within the sponsor group).
- Register the SCSp with the Luxembourg Trade and Companies Register (RCS), providing statutory disclosures.
- Put in place substance, accounting, and AML compliance processes, especially when the SCSp acts as an AIF.
- If the SCSp qualifies as an AIF, appoint the AIFM, depositary, and other service providers in accordance with the AIFM Law.
- Luxembourg RAIF: Reserved Alternative Investment Fund Formation, Tax, and Structuring
Practical considerations for international sponsors
International sponsors should consider the SCSp’s lack of legal personality when structuring asset ownership, banking, and contracting. The general partner holds legal title to assets and enters into contracts on behalf of the partnership. Therefore, sponsors usually establish a special purpose vehicle as the GP, often with limited liability. This approach ring-fences liability and meets investor expectations. Furthermore, sponsors should ensure the SCSp maintains sufficient substance in Luxembourg to support tax transparency and regulatory compliance. In turn, robust governance and AML processes protect both sponsors and investors.
Damalion supports institutional investors, fund managers, and family offices with compliant Luxembourg structuring solutions. Contact your Damalion experts now.
Related Luxembourg structuring insights
- Luxembourg Special Limited Partnership (SCSp)
- Luxembourg RAIF: Reserved Alternative Investment Fund Formation, Tax, and Structuring
