Eternity Law International — News — How to set up an investment fund in Luxembourg

How to set up an investment fund in Luxembourg

Published:
August 23, 2024

Luxembourg is considered the most popular jurisdiction for the establishment and official launch of investment funds in the EU, and the best globally after the United States. There are approximately 15 thousand funds in the Luxembourg financial industry with assets under management amounting to US$4.6 trillion. The main regulator of the financial sector is the CSSF, which is widely recognized for its innovative and flexible approach to the regulatory framework. This authority is also responsible for the inspection of each investment fund Luxembourg. This jurisdiction offers good tax rates, especially for businessmen who are not citizens of the country.

Our company is first-class specialists in the field of establishing and licensing businesses around the world. We work in a variety of commercial areas, in particular helping interested entrepreneurs obtain a license for an investment fund in any of the world’s jurisdictions. There are no unsolvable tasks for our lawyers.

Luxembourg investment regulations: types of investment funds and features of their functioning

Two main categories of these structures can be distinguished.

  1. Regulated – funds authorized and supervised by the CSSF. They are subject to strict regulation and supervision. Such organizations must comply with established reporting standards and internal governance arrangements.
  2. Unregulated – structures that are not subject to regulation by the CSSF. They have fewer bureaucratic obstacles and more flexibility in asset management.

There are two types of collective investment organisations: UCITS and AIFs. Let’s look at each of them.

Investments in transferable securities (UCITS)

  1. These Luxembourg investment funds are retail funds.
  2. Once approved in any European country, they can operate in all other European countries using an EU commercial passport.
  3. High standards of depositor protection.
  4. Restrictions on the types of assets in which you can invest.

Alternative investment funds (AIF)

  1. Such organizations are intended for more experienced investors and those already present in the market.
  2. AIFs accept a variety of investment types, including real estate, hedge funds and private equity.
  3. Flexible investment strategies.
  4. Opportunity to raise capital through private placements.

Our company is ready to offer many ready-made and licensed options; in particular, we have an advantageous offer for the sale of an alternative investment fund in the Czech Republic.

Luxembourg fund setup: organizational and legal funds

Entrepreneurs wishing to implement Luxembourg fund management have to first become familiar with the forms of legal existence of such structures.

Société d’Investissement à Capital Variable (SICAV)

  1. Open plans and schemes for the distribution and investment of assets.
  2. An organization as a firm whose owners’ powers and profits are limited by shares.
  3. The main goal is investing in financial assets.
  4. Possibility of issuing and repurchasing shares upon request.

Société d’Investissement à Capital Fixe (SICAF)

  1. Closed plans and schemes for the distribution and investment of assets.
  2. Such a fund also operates as a limited liability company.
  3. These structures are mainly used for investments in private placements.
  4. Fixed starting capital.

Société d’Investissement en Capital à Risqué (SICAR)

  1. Such organizations are created to facilitate the raising of funds and investment in risk capital.
  2. This type of organization can be established in any form of legal entity.
  3. The focus is on venture capital and private equity investments.
  4. These funds are intended for professional and institutional investors.

All of the above and several other features make Luxembourg an attractive location for setting up and managing investment funds, while providing robust regulation and flexibility that contributes to the development and growth of the country’s financial sector.

Specialized Investment Fund (SIF)

This is a type of fund that requires a minimum authorized capital of 1.25 million euros, which is paid within 1 year. It is worth noting that such an organization is created as a firm or partnership and is exempt from capital tax, income tax on qualifying income and dividend withholding tax.

Société de Gestion de Patrimoine Familial (SPF)

Such a fund is designed to manage private capital, providing individuals with the opportunity to distribute and invest their own funds. An SPF can be established in any form, but cannot engage in business activities. Such a fund is exempt from income tax, net asset tax and municipal business tax.

Reserved Alternative Investment Fund (RAIF)

This fund does not require CSSF approval but must be managed by a licensed AIFM. A RAIF combines the flexibility of unregulated funds with the benefits of regulated structures.

Fonds Commun de Placement (FCP)

This is a mutual investment without a legal personality, managed by a management company.

Partnerships for the establishment of fund structures

  1. Limited Liability Partnership (LP): A partnership in which the partners’ liability is limited.
  2. Specialty Limited Partnerships (SLP): A more flexible form of partnership popular with private equity and venture capital.

Listing of funds

Funds such as AIF, RAIF and UCITS may be listed on the Luxembourg Stock Exchange and other recognized EU stock exchanges.

Holdings and securitization

Luxembourg is also a leader in holdings and securitization. The country’s securitization laws offer flexibility and legal certainty, allowing companies to be created with minimal cost and complexity. This attracts various institutions such as banks, insurance and asset management companies.

Securitization converts illiquid assets (such as private debt or real estate) into bankable securities with ISINs that can be easily traded and purchased by investors in financial markets. This process is especially attractive to institutions subject to lending regulation.

Our managers provide services for the creation of holdings and securitization vehicles (SVs) in various jurisdictions. We also handle financial instrument preparation and negotiations with financial regulators, paying agent(s) and tokenization issues (security or asset tokens – STO).

Benefits of Luxembourg investment funds

Starting a fund in Luxembourg provides many advantages for business owners.

  1. Stable economy and political side: a reliable basis for doing business.
  2. Low taxes: clear and predictable tax rules for funds.
  3. Protection of investors’ rights: high level of protection of the rights and interests of investors.
  4.  Attractive to corporate investors: Luxembourg is considered a reputable jurisdiction, making it attractive to corporate investors.
  5. Well-functioning legal system: effective and reliable rules.
  6. High reputation and ample opportunities.

Luxembourg investment fund taxation

Specialized investment funds pay almost no taxes here, with the exception of:

  • fixed amount for registration;
  • 0.05% of the net price of all fund assets.

There is also no stamp duty charged on transactions involving the issue or transfer of shares and interests.

As part of Luxembourg fund registration, one of the most popular types of investment funds among businessmen is the Specialized Investment Fund (SIF). It is different:

  • flexibility in management: the ability to adapt management to specific needs.
  • financial efficiency: advantages of the tax regime and low operating costs.

Investments in a Specialized Investment Fund (SIF) are available to various investors if one of the following conditions is met:

  • minimum contribution: willingness to invest at least 125 thousand euros;
  • risk understanding: confirmation of awareness of all risks associated with investments.

If you are interested in Luxembourg fund administration, our firm is ready to provide you with comprehensive legal support at all stages. Our specialists will solve any legal issues and help implement your project. We are also ready to provide you with comprehensive assistance and support in establishing an investment fund in SVG, in Portugal, Belgium, Malta and other countries. To contact our managers, please use the contact numbers of our company.

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