What is SIF in Luxembourg?
A Specialized Investment Fund (SIF) is an investment fund that can invest in almost any asset. It is normally classified as an alternative investment fund (AIF) and can be sold to well-informed investors. SIFs that have designated an EU AIFM can market their shares, units, or partnership interests to well-informed investors throughout the EU using a particular passport. SIF is different from Reserved Alternative Investment Funds. (To learn more about the RAIF)
Specialized Investment Fund : Legal framework
The SIF is a multipurpose investment fund regime that is regulated, flexible, and fiscally sustainable for an international, institutional, and qualified investor base. SIFs are subject to the Luxembourg Legislation of 13 February 2007 (SIF Law). The Act of Alternative Investment Fund Managers of July 12, 2013, modified the SIF regulation (AIFM Law).
As a result, the SIF Law has been split into two parts:
- General provisions that apply to all SIFs; and
- particular provisions that apply to SIFs that qualify as Alternative Investment Funds (AIFs) and must be administered by an approved Alternative Investment Fund Manager (AIFM). Most SIFs qualify as AIFs due to their broad definition of AIFs.
SIFs that invest in short-term assets and have distinct or additive objectives such as providing returns in line with money market rates or maintaining the value of the investment must also comply with the provisions of Money Market Fund Regulation (EU) 2017/1131.
Some extra rules must be followed at the national and/or EU levels (e.g. concerning AML, MiFID, market abuse, derivatives, securities financing transactions, shareholder rights).
Specialized Investment Fund : Capital base
A Luxembourg SIF‘s net assets cannot be less than EUR 1.250.000. This minimum must be met within twelve months of its authorization. At the time of subscription, at least 5% of the capital must be paid in advance.
Why to set up and manage a SIF?
- The very first advantage of this form of funds is that there are no restrictions on the types of assets in which it can invest. There are no limits on qualifying assets and investments, which can even be divided into multiple compartments. The rules for risk diversification are extremely flexible.
- Another important element is the presence of a lighter supervisory regime in Luxembourg, which benefits from the designation of a regulated fund.
- They benefit from more flexible activity regulation. They don’t require a promoter.
- Specialized funds have much more adaptable publication responsibilities than funds for the general public.
- Last but not least, the above-mentioned favourable tax environment has made the SIF one of the most popular fund platforms in Luxembourg (more than 1.600 SIF active in 2016).
Specialized Investment Funds : Tax regime/Fiscal advantages
The SIF is exempt from both corporate income and net wealth tax. Moreover, no withholding tax applies in Luxembourg on the SIF’s distribution unless EU saving Directive appears to apply (i.e. if it is an FCP)
SIF capital contributions are subjected to a one-time capital investment duty charge of €1,250 as well as an annual subscription tax of 0.01 percent, determined and payable in quarterly instalments based on total net asset value. However, the subscription tax does not apply to
- SIFs that invest in other collective undertakings and have already paid an annual subscription tax
- SIFs that invest in certain money market instruments
- SIFs that implement pension pooling schemes
- SIFs that invest in microfinance funds
- SIFs that invest in certain institutional cash funds.
SIFs are eligible to take advantage from such Luxembourg’s double taxation treaties and thus are qualified as taxable persons for purposes of VAT.
For international investors, profits derived from SIFs are not subject to taxation in Luxembourg.
How to incorporate a Specialized Investment Fund?
- Many factors determine the timeframe for establishing a SIF, including the development of the fund’s offering memorandum, the selection of and entering into agreements with service providers, and the establishment of bank and brokerage accounts, as well as the CSSF approval process.
- The drafted documents and information must be submitted to the CSSF for approval by e-file (see www.e-file.lu) or email (firstname.lastname@example.org).
- Generally, the paperwork and information are collected and submitted to the CSSF with the help of lawyers/auditors and/or a Luxembourg bank.
- The approval of a new SIF or additional sub-funds is also contingent on the payment of a one-time charge.
- The CSSF will provide initial feedback and, if necessary, ask questions or request additional information about the proposed prospectus.
- Once all remaining points have been addressed, the CSSF will offer an oral and then written confirmation of its agreement (which will be formalized by the prospectus being granted a written CSSF VISA).
Once confirmed, the SIF will have to appoint:
- A central administration agent in Luxembourg (liable for the SIF domiciliation, net asset value computation and financial reporting, the regulatory reporting, the registrar and transfer agent role as well as the day-2-day management).
- A custodian bank in Luxembourg that is responsible for the SIF’s assets.
- A third-party auditor. The SIF’s board members will also be selected.
The total process normally takes between 8 and 10 weeks, with a minimum cost of €30.000/35.000. (excluding taxes but including legal and notary fees). This budget can vary depending on the complexity of the submission. These start-up costs may be amortized within the fund over a 3-5-year period.
The administration of the fund
A minimum of three board members, including local directors, should be specified (such local directors may be either provided or selected among local independent directors). CSSF clearance will be required for SIF board members (such process will occur at the same time as the filing process, based on CV justifying the expertise in the specific investment field of the SIF, criminal records, etc.).
If you require more information on the Specialized Investment Funds (SIF) in Luxembourg, please contact our financial consultants, who can assist you in establishing a fund based on your business interests.
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