Setting up a Luxembourg RAIF
Factsheet RAIF
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A detailed guide to the Luxembourg RAIF
For a detailed and in-depth understanding of RAIFs in Luxembourg, we have prepared a comprehensive brochure in English. Click here to download our RAIF brochure and gain valuable insights into the features, benefits, and regulatory aspects of RAIFs. Empower yourself with the knowledge to make informed investment decisions in the world of RAIFs.
Comparison table of Luxembourg alternative investment funds (AIFs) and other investment vehicles
Compare two vehicles:
| UCITS | Part II UCI | ELTIF | SIF | SICAR | RAIF | SPF | Securitisation vehicle | Unregulated SCS/SCSp | Ordinary Luxembourg company | |
|---|---|---|---|---|---|---|---|---|---|---|
| Practical use | Highly regulated vehicle which can be sold through a EU passport to all types of investors (such as retail investors, professional investors, institutional investors). | Investment funds which could be used for investment strategies that do not meet the criteria set by the UCITS directives. | EU marketing label for long-term investment funds, private equity funds, infrastructure funds, debt funds, funds of funds, sustainable finance, debt funds, co-investments, securitisation, debt funds, investments in fintechs, real assets. | Hedge funds, private equity funds, venture capital funds, real estate funds, infrastructure funds, distressed debt funds, Islamic finance funds, microfinance funds, socially responsible investment funds, tangible assets funds and any other type of alternative funds. | Private equity and venture capital transactions. | Hedge funds, private equity funds, venture capital funds, real estate funds, infrastructure funds, distressed debt funds, Islamic finance funds, microfinance funds, socially responsible investment funds, tangible assets funds and any other type of alternative funds. | Individuals wishing to optimise their personal tax planning (private wealth management purposes). | • True sale and synthetic securitisations. • Securitisation of a portfolio of securities. • Securitisation as structure for intra group financing activities. • Securitisation of non-performing loans. • Securitisation of leasing receivables. • Securitisation of both tangible and intangible assets. • CLOs (possibility of active management). | Private equity, venture capital and real estate investments and any other alternative investments. | Holding and financing activity, commercial activity, holding of IP, etc. |
| Applicable legislation | Law of 17 December 2010 - Part I (“UCITS Law”). | Law of 17 December 2010 - Part II (“UCI Law”). | Regulation (EU) 2015/760 of 29 April 2015 on European long-term investment funds (“ELTIF Regulation”). The ELTIF Regulation has been amended on 15 March 2023 with significant changes which favour the fund market participants, fund financing and investors, in particular, the process of retailization and the amendments will apply from 10 January 2024. The ELTIF column has been drafted according to the amended ELTIF Regulation ("ELTIF 2 Regulation"). | Law of 13 February 2007 (“SIF Law”). | Law of 15 June 2004 (“SICAR Law”). | Law of 23 July 2016 (“RAIF Law”). | Law of 11 May 2007 (“SPF Law”). | Law of 22 March 2004 (“Securitisation Law”). | Law of 10 August 1915 (“Company Law”). | Law of 10 August 1915 (“Company Law”). |
| Authorisation and supervision by the CSSF | Yes. | Yes. | Yes. | Yes. | Yes. | Non. | Non. | No, unless issue on a continuous basis of financial instruments offered to the public. The securitisation vehicle issues on a continuous basis when it carries out more than three issuances of financial instruments offered to the public during the financial year. All the issuances by the compartments should be added up. The issuance of financial instruments is offered to the public when it is not intended for professional clients, the denominations are less than 100,000 euros and it is not distributed as private placement. | Non. | Non. |
| Qualification as an AIF | No. | Always an AIF. | Always an AIF. | Yes, unless exempt. It is exempt if it does not raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors. | Yes, unless exempt. It is exempt if it does not raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors. | Always an AIF. | In principle, no (as it would not be considered as “raising” capital from a number of investors as the structure generally serves for the investment of the private wealth of a “pre-existing group” (as defined in the Esma guidelines on key concepts of the AIFMD)). | No, in case • such vehicle meets the definition of “securitisation special purpose vehicle ” under the AIFM Law; • it issues collateralised debt obligations; • it only issues debt instruments; • such entity is not managed according to an investment policy within the meaning of the AIFM Law. | Non-AIF, unless activities fall within the scope of article 1 (39) of the AIFM Law. | Non-AIF, unless activities fall within the scope of article 1 (39) of the AIFM Law. |
| Exemption from AIFMD full regime under lighter regime (AIFMD registration regime) | Not applicable. | Possible. | No. | Possible. | Possible. | No. | Not applicable. | Possible. | Possible. | Possible. |
| External authorised AIFM requirement | Not applicable. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. | Required in case the entity is an AIF that is not self-managed. Always an authorised EU AIFM. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. | Always required. | Not applicable. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. | Required in case the entity is an AIF that is not self-managed and above the AIFMD threshold. |
| Eligible investors | Unrestricted. | Unrestricted. | Unrestricted. | Well-informed investors. | Well-informed investors. | Well-informed investors. | Restricted to: • natural persons acting in the context of the management of their personal wealth; • management entities acting solely in the interest of the private wealth (e.g. trusts, private foundations); and intermediaries acting for the account of the above mentioned eligible investors (e.g. bank acting under a fiduciary agreement). | Unrestricted. | Unrestricted. | Unrestricted. |
| Eligible assets | Restricted to transferable securities admitted or dealt on a regulated market, investment funds, financial derivative instruments, cash and money market instruments that are in compliance with article 41 of the Ucits law and the relevant EU directives and regulations. Please note that the eligibility of the asset must be ascertained on a case-by-case basis in view of the applicable laws and regulatory practice. | Unrestricted. The investment objective and strategy of the fund is subject to the prior approval of the CSSF. | Restricted to: - equity or quasi-equity instruments and debt instruments issued by a qualifying portfolio undertaking; -loans granted by the ELTIF to a qualifying portfolio undertaking with a maturity that does not exceed the life of the ELTIF, - units or shares of one or several other ELTIFs, EuVECAs, EuSEFs, UCITS and EU AIFs managed by EU AIFM provided that those ELTIFs, EuVECAs, EuSEFs¸ UCITS and EU AIFs invest in eligible investments (this wording) and have not themselves invested more than 10% of their assets in any other UCI; - real assets; - certain STS securitisations (where the underlying exposures are residential mortgage-backed securities, commercial loans backed by mortgages on commercial immovable property, credit facilities, trade receivables and other underlying exposures; provided that, for the two last ones, the proceeds from the securitisation bonds are used for financing or refinancing long-term investments), - EU Green Bonds issued by a qualifying portfolio, and UCITS eligible assets. Qualifying portfolio undertaking is an undertaking that fulfils, at the time of the initial investment, the following requirements: - it is not a financial undertaking undertaking, unless it is a financial undertaking, other than a financial holding company or a mixed-activity holding company, that has been authorized or registered more recently than 5 years before the date of the investment (fintechs); - is not admitted to trading on a regulated market or on a multilateral trading facility; or is admitted to trading on a regulated market or on a multilateral trading facility and has a market capitalisation of no more than EUR 1 500 000 000; - it is established in a Member State, or in a third country provided that the third country is not identified as high-risk third and is not mentioned in the EU list of non-cooperative jurisdictions for tax prusposes. ELTIFs are not allowed to: - short sell - take direct or indirect exposure to commodities; - enter into securities lending, securities borrowing, repurchase transactions, or any other agreement which has an equivalent economic effect and poses similar risks, if more than 10 % of the assets of the ELTIF are affected; - use financial derivative instruments, except where the use of such instruments solely serves the purpose of hedging the risks inherent to other investments of the ELTIF. | Unrestricted. | Restricted to investments in securities representing risk capital. According to the CSSF Circular 06/241, investment in risk capital is to be understood as the direct or indirect contribution of assets to entities in view of their launch, their development or their listing on a stock exchange. The SICAR is not allowed to invest directly in real estate (except for its own use or through its participations). | Unrestricted, unless it invests in a portfolio of risk capital (such as a Sicar). | Restricted to acquisition, detention, management and realisation of financial assets. The SPF is not allowed to carry out commercial activities or to hold directly real estate (except for its own use or through its participations). | Unrestricted. The securitisation vehicle may acquire or assume, directly or through another undertaking, risks relating to claims, other assets, or obligations assumed by third parties or inherent to all or part of the activities of third parties and issues financial instruments or contracts, for all or part of it, any type of loan, whose value or yield depends on such risks. | Unrestricted. | Unrestricted. |
| Risk diversification requirements | Risk diversification requirements are provided by articles 42 et seq. of the UCITS Law, e.g. (not exhaustive): • a UCITS may not invest more than 10% of its assets in transferable securities or money market instruments issued by the same body; • a UCITS may not invest more than 20% of its net assets in deposits made with the same body; • the global exposure relating to derivative instruments does not exceed the total net value of the UCITS portfolio. | Risk diversification requirements are defined by IML Circular 91/75 (as amended by CSSF Circular n° 05/177). Such requirements are less stringent than the ones applicable to UCITS. In particular, a UCI is not allowed to invest more than 20% of its net assets in securities issued by any one issuer. Specific restrictions concerning funds adopting an alternative investment strategy are contained in CSSF Circular n° 02/80. | Risk diversification requirements are provided by articles 13 and 17 of the ELITF Regulation (not exhaustive): ELTIFs marketed to retail investors shall not invest more than: - 20 % of its capital in instruments issued by, or loans granted to, any single qualifying portfolio undertaking; - 20 % of its capital in a single real asset; - 20 % of its capital in units or shares of any single ELTIF, EuVECA, EuSEF, UCITS, or EU AIF managed by an EU AIFM; - 10 % of its capital in UCITS (liquid) assets where those assets have been issued by any single body; or 25 % where bonds are issued by a credit institution which has its registered office in a Member State and is subject by law to special public supervision designed to protect bond-holders; - The aggregate value of STS Securitisations in an ELTIF portfolio shall not exceed 20% of the value of the capital of the ELTIF; - The aggregate risk exposure to a counterparty of the ELTIF stemming from OTC derivative transactions, repurchase agreements, or reverse repurchase agreements shall not exceed 10 % of the value of the capital of the ELTIF. | Risk diversification requirements are defined by CSSF Circular n° 07/309. Such requirements are less stringent than the ones applicable to UCITS and UCI. In particular, a SIF is not allowed to invest more than 30% of its net assets in securities of the same type issued by the same issuer. | No risk diversification requirements. | Risk diversification requirements are aligned with those applicable to SIFs, unless the RAIF chooses to invest in risk capital only and such choice is mentioned in its constitutive documents. | No risk diversification requirements. | No risk diversification requirements. | No risk diversification requirements. | No risk diversification requirements. |
| Legal Form | • FCP • SICAV (SA) • SICAF (SA,SCA) All of these entities must be open-ended. | • FCP • SICAV (SA) • SICAF (SA, Sàrl, SCA, SCS, SCSp) The entities may be open-ended or closed-ended. | • FCP, SICAV and SICAF in various legal forms, Soparfis, SCS, SCSp, SCA and future forms entitling an AIF to be authorized as an ELTIF. In principle closed-ended, but may be open-ended provided certain safeguards are set up, inter alia: - redemptions are not granted before the end of a minimum holding period or before the date specified in the rules or instruments of incorporation - at the time of authorisation and throughout the life of the ELTIF, the manager is able to demonstrate that the ELTIF has an appropriate redemption policy and LMTs compatible with the long-term strategy of the ELTIF. | • FCP • SICAV (SA, Sàrl, SCA, SCoSA, SCS, SCSp) • SICAF (SA, Sàrl, SCA, SCoSA, SCS, SCSp) The entities may be open-ended or closed-ended. | • SA • Sàrl • SCA • SCS • SCSp • SCoSA The entities may be open-ended or closed-ended. | • FCP • SICAV (SA, Sàrl, SCA, SCoSA, SCS, SCSp) • SICAF (SA, Sàrl, SCA, SCoSA, SCS, SCSp) The entities may be open-ended or closed-ended. | • SA • Sàrl • SCA • SCSA | A securitisation vehicle may be set up in one of the following forms: • a securitisation company (SA, Sàrl, SCS, SCSp, SENC, SCA, SAS, SCSA); or • a securitisation fund consisting of one or several co-ownerships or one or several fiduciary estates and managed by a management company. | • SCS • SCSp | • SA, Sàrl, SCA • SAS • SCoSA • SCS • SCSp |
| Umbrella structure | Yes. | Yes. | Yes. Application for authorisation as ELTIF of one or more compartments may be submitted | Yes. | Yes. | Yes. | No. | Yes. | No. | No. |
| Capital requirements | • FCP: EUR 1,250,000 to be reached no later than 6 months following the authorisation by the CSSF. • Self managed SICAV / SICAF: EUR 300,000 at the date of authorisation and EUR 1,250,000 within 6 months following its authorisation. | • FCP: EUR 1,250,000 to be reached no later than 12 months following the authorisation by the CSSF. • Self managed SICAV / SICAF: EUR 300,000 at the date of authorisation and EUR 1,250,000 within 12 months following its authorisation. | As ELTIF is an EU label, the capital requirements applicable to an ELTIF are the capital requirements applicable to fund, in particular due to the national product law. | EUR 1,250,000 to be reached no later than 24 months following the authorisation by the CSSF. | EUR 1,000,000 to be reached no later than 24 months following the auhorisation by the CSSF. | • FCP: EUR 1,250,000 to be reached within 24 months from the entry into force of the management regulations. • SICAV: EUR 1,250,000 to be reached within 24 months from the incorporation of the SICAV. | Depends on the form: • SA / SCA: EUR 30,000 • Sàrl: EUR 12,000 • SCSA: no minimum capital. | If the securitisation vehicle is set up as a company, it depends on the form: • SA / SCA: EUR 30,000 • Sàrl: EUR 12,000 If the securitisation vehicle is set up as a fund, there is no minimum capital requirement. | No minimum capital requirement. | Depends on the form: • SA / SCA: EUR 30,000 • Sàrl: EUR 12,000 No minimum capital requirement for other legal forms. |
| Required service providers | • Management company in case of an FCP. • Depositary institution. • Administrative agent. • Registrar and Transfer Agent. • Approved statutory auditor. | • Management company in case of an FCP. • Depositary institution. • Administrative agent. • Registrar and Transfer Agent. • Approved statutory auditor. | • As ELTIF is an EU label, the required service providers for an ELTIF depend on the applicable national product law. • Management company in case of an FCP. • Depositary bank or professional of the financial sector providing depositary services, subject to conditions. However, if the ELTIF is marketed to retail investors, the Depositary shall comply with the UCITS depositary requirements and be a Depositary institution • Administrative agent. • Registrar and Transfer Agent. • Other service providers required by the relevant product rules. | • Management company in case of an FCP. • Depositary bank or professional of the financial sector providing depositary services, subject to conditions. • Administrative agent. • Registrar and Transfer Agent. • Approved statutory auditor. | • Depositary bank or professional of the financial sector providing depositary services, subject to conditions. • Administrative agent. • Registrar and Transfer Agent. • Approved statutory auditor. | • Management company in case of an FCP • Depositary bank or professional of the financial sector providing depositary services, subject to conditions. • Administrative agent. • Registrar and Transfer Agent. • Approved statutory auditor. | Registered auditor in principle not required unless two of the following criteria are met: (i) net turnover above EUR 8.8 million, (ii) balance sheet above EUR 4.4 million and (iii) average number of employees above 50. However, depending on the legal form of the company, there may be an obligation to appoint a commissaire aux comptes. | • Alternative Investment Fund Manager (if the securitisation vehicle qualifies as an AIF). • Management company (if the securitisation vehicle is set up in the form of a fund). • Independent auditor. • No depository institution (unless for regulated securisation vehicles). • No administrative agent. | For SCS: • Alternative Investment Fund Manager (if the SCS qualifies as an AIF). • No requirement to appoint a depositary (except if the SCS qualifies as an AIF and is managed by a duly authorised AIFM). For SCSp: • Alternative Investment Fund Manager (if the SCSp qualifies as an AIF). • No requirement to appoint a depositary (except if the SCSp qualifies as an AIF and is managed by a duly authorised AIFM). | Registered auditor in principle not required unless the company is an AIF managed by an AIFM with AUM above the threshold or two of the following criteria are met: (i) net turnover above EUR 8.8 million, (ii) balance sheet above EUR 4.4 million and (iii) average number of employees above 50. However, depending on the legal form of the company, there may be an obligation to appoint a commissaire aux comptes. On 28 July 2023, draft bill 8286 (the Draft Bill) was released, aiming to overhaul Luxembourg accounting law applicable to undertakings (the New Law). It is expected to be adopted in 2025. |
| Possibility of listing | Yes. | Yes. | Yes. | Yes. | Yes, but difficult in practice. | Yes. | No. | No. | In principle, no. The SCS/SCSp may however issue debt securities that are eligible to be listed on the stock exchange. | Yes. |
| European passport | Yes. | No, unless it falls under the scope of the full AIFMD regime. | Yes. | No, unless it falls under the scope of the full AIFMD regime. | No, unless it falls under the scope of the full AIFMD regime. | Yes. | No. | No, unless it falls under the scope of the full AIFMD regime. | No, unless it falls under the scope of the full AIFMD regime. | No, unless it falls under the scope of the full AIFMD regime. |
| Net asset value (NAV) calculation and redemption frequency | The UCITS must make public the issue, sale and repurchase price of their units each time they issue, sell and repurchase their units, and at least twice a month. | The UCIs must make public the issue, sale and repurchase price of their units each time they issue, sell and repurchase their units, and at least once a month. | The UCIs must make public the issue, sale and repurchase price of their units each time they issue, sell and repurchase their units, and at least once a month. As ELTIF is an EU label, the NAV computation and redemption frequency depend on applicable national product law and the AIFM law. At least once a year for reporting purposes. Redemption frequency: In principle closed-ended, but may be open-ended provided certain safeguards are set up, inter alia: - redemptions are not granted before the end of a minimum holding period or before the date specified in the rules or instruments of incorporation - at the time of authorisation and throughout the life of the ELTIF, the manager is able to demonstrate that the ELTIF has an appropriate redemption policy and LMTs compatible with the long-term strategy of the ELTIF; - redemptions are limited to a percentage of the UCITS (liquid) assets of the ELTIF. An ELTIF may offer, under certain conditions, early redemption rights to its investors according to the ELTIF's investment strategy. | At least once a year for reporting purposes. | Not required. | At least once a year for reporting purposes. | Not required. | Not required. | Not required. | Not required. |
| Overall income tax (corporate income tax and municipal business tax) | No income tax. | No income tax. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | No income tax. | • General aggregate rate: 23.87%. In certain cases, reduced corporate income tax rates may apply. Income derived from transferable securities (e.g. dividends received and capital gains realised on the sale of shares) is exempt. Income on cash held for the purpose of a future investment is also exempt (for one year). | No income tax, unless investing only in risk capital, then SICAR tax regime applicable. | No income tax. | • General aggregate rate for taxable securisation companies: 23.87%. Securitisation vehicles should be able to deduct from their gross profits their operational costs and the dividends or interests distributed to the shareholders/creditors. Therefore securitisation companies should not generate significant taxable profits and should therefore to a large extent be tax neutral. | No corporate income tax applicable. Municipal business tax of 6.75% applicable in very limited circumstances, namely in case the SCS/SCSp (i) carries out a commercial activity or (ii) is deemed to carry out a commercial activity. A SCS/SCSp is deemed to carry out a commercial activity if its general partner is a Luxembourg public or private limited liability company holding at least 5% of the partnership interests. With a proper structuring of the GPs partnership interest it should be possible to avoid the deemed commercial characterisation of the SCS/SCSp. | General aggregate rate: 23.87%, but 100% exemption for dividends, liquidation proceeds and capital gains from qualifying participations. |
| Subscription tax (NAV: net asset value) | • Rate: 0.05% of the NAV annually. • Reduction: 0.01% of the NAV annually in certain specific cases. • Where the proportion of net assets of a UCITS or one of its compartments in certain Taxonomy-sustainable activities represents at least 5 per cent of the aggregate net assets of the UCITS or of its relevant compartment, the subscription tax rate is 0.04 per cent. Where the proportion of such assets is at least 20 per cent, this rate amounts to 0.03 per cent. Where the proportion is at least 35 %, the subscription tax rate amounts to 0.02 per cent. Where the proportion is at least 50 per cent, this rate amounts to 0.01 per cent. However, net assets in nuclear energy and fossil gaseous fuel are excluded from such decreased rates. • Tax exemptions: special institutional money market cash funds, special pension funds (including pension pooling vehicles) and funds investing in other funds which are already subject to subscription tax. | • Rate: 0.05% of the NAV annually. • Reduction: 0.01% of the NAV annually in certain specific cases. • Where the proportion of net assets of a UCITS or one of its compartments in certain Taxonomy-sustainable activities represents at least 5 per cent of the aggregate net assets of the UCITS or of its relevant compartment, the subscription tax rate is 0.04 per cent. Where the proportion of such assets is at least 20 per cent, this rate amounts to 0.03 per cent. Where the proportion is at least 35 %, the subscription tax rate amounts to 0.02 per cent. Where the proportion is at least 50 per cent, this rate amounts to 0.01 per cent. However, net assets in nuclear energy and fossil gaseous fuel are excluded from such decreased rates. • Tax exemptions: special institutional money market cash funds, special pension funds (including pension pooling vehicles) and funds investing in other funds which are already subject to subscription tax. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | • Rate: 0.01% of the NAV annually. • Tax exemptions: certain money market and pension funds or SIFs investing in other funds which are already subject to subscription tax. | No subscription tax. | • Rate: 0.01% of the NAV annually. • Exemptions apply. | Annual subscription tax of 0.25% on the amount of paid up capital and issue premium (if any). | No subscription tax. | No subscription tax. | No subscription tax. |
| Wealth tax | No wealth tax. | No wealth tax. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | No wealth tax. | No wealth tax. | No wealth tax. | No wealth tax. | No wealth tax. | No wealth tax. | 0.5% on a taxable base of up to EUR 500 million. As of 1 January 2025, there is progressionve net wealth tax based solely on the company's total balance sheet size, regardless of asset composition: • €535 for companies with a total balance sheet up to and including €350,000 • €1,605 for companies with a total balance sheet between €350,001 and €2,000,000 • €4,815 for companies with a total balance sheet exceeding €2,000,000 |
| Withholding tax on dividends | Not subject to withholding tax. | Not subject to withholding tax. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | Not subject to withholding tax. | Not subject to withholding tax. | Not subject to withholding tax. | Not subject to withholding tax. | Not subject to withholding tax. | Not subject to withholding tax. | Dividends distributed by a Luxembourg company are in principle subject to withholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty rate applies. |
| Benefit from Double Tax Treaty network | • SICAV/SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 8 December 2017). • FCP: see circular L.G.-A n°61 of the tax administration of 8 December 2017. | • SICAV/SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 8 December 2017). • FCP: see circular L.G.-A n°61 of the tax administration of 8 December 2017. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | • SICAV/SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 8 December 2017). • FCP: see circular L.G.-A n°61 of the tax administration of 8 December 2017. | Yes in case the SICAR is set-up as a corporate entity (except if set-up under the form of a SCS/SCSp). | • RAIFs investing in a portfolfio of risk capital (such as a SICAR) Access if set-up as a corporate entity (except if set-up under the form of a SCS/SCSp). • RAIFs not investing in a portfolio of risk capital (such as a SICAR), but set-up as: SICAV / SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 8 December 2017). FCP: see circular L.G.-A n°61 of the tax administration of 8 December 2017. | No. | Yes for securitisation companies. | No. | Yes. |
| Benefit from the EU Parent Subsidiary Directive | No. | No. | As ELTIF is an EU label the tax treatment depends on the national product rules applicable to the AIF. | No. | In principle yes, but certain jurisdictions where the target companies are located may challenge the application of the directive. | No, unless RAIF that invests in a portfolio of risk capital (such as a SICAR). | No. | Yes. | No. | Yes. |
| Thin capitalization rules (debt-toequity ratio) | Borrowings of up to 10% of net assets to finance redemptions (it should be a short term borrowing and cannot be for investment purposes) or to buy real estate for its business. The total borrowing under the above may not exceed 15% of net assets. | Borrowings of up to 25% of net assets without any restrictions are allowed. | As ELTIF is an EU label, the debt-to-equity ratio depends on the national product rules applicable to the AIF. Borrowings of cash of up to 50% of the NAV of the ELTIF marketed to retail investors and up to 100% for the ELTIF marketed solely to professional investors. | No debt-to-equity ratio. | No debt-to-equity ratio. | No debt-to-equity ratio. | Tax of 0.25% on the debt that exceeds 8 times the paid-up capital increased by the issue premium. | No debt-to-equity ratio. | No debt-to-equity ratio. | No provision in Luxembourg law. However, there is a specific administrative practice. |
Law of 21 July 2023: Modernizing Luxembourg's Investment Fund toolbox and its impact on RAIF, SIF, SICAR, AIFM & UCI
Luxembourg has taken a significant stride towards modernizing its investment fund laws with the entry into force of the law of 21 July 2023 on 28 July 2023. It adopted Bill 8183 by the Luxembourg Parliament. This law introduces amendments to several pivotal fund laws, including the Law of 2010 on Undertakings for Collective Investment (UCI Law), the Law of 2007 on Specialized Investment Funds (SIF Law), the Law of 2004 on Investment Companies in Risk Capital (SICAR Law), the Law of 2013 on Alternative Investment Fund Managers (AIFM Law), and the Law of 2016 on Reserved Alternative Investment Funds (RAIF Law). These amendments are designed to update and strengthen the country’s fund-related regulations, bolstering the competitiveness and attractiveness of Luxembourg’s financial centre.
The adopted amendments encompass several significant changes, including inter alia:
1. Undertakings for Collective Investment (UCITS and UCI Part II)
| New regime introduced by the law of 21 July 2023 | Previous regime under UCI Law | |
|---|---|---|
| Timeframe for reaching the minimum capital | The period for achieving subscribed capital has been extended to 12 months for UCIs Part II. | The period for achieving subscribed capital was 6 months for UCIs Part II. |
| Replacement of depositary | The depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary. | A 2-month maximum period was previously foreseen to replace a depositary. |
| Suspension of subscription and/or redemption | Subscriptions and/or redemptions of a SICAV are prohibited: - for the period during which there is no depositary; or - when the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision. | The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime. |
| Formation | UCIs Part II opting for a corporate form as SICAV may take the form of a public limited liability company (SA), corporate partnerships limited by shares (SCA), common and special limited partnerships (SCS/SCSp), private limited liability companies (SARL), as well as cooperatives organized as public companies limited by shares (SCoSA). | UCIs Part II opting for a corporate form as SICAV may take the form of a public limited liability company (SA). |
| Issuance share/interests | Closed-ended UCIs Part II may issue shares/interests at a price other than the NAV, provided it is stated in the constitutive documents. | Closed-ended UCIs Part II may issue shares/interests at a NAV price. |
| Tax | i. UCIs Part II authorized as ELTIF are exempted from subscription tax ii. UCIs Part II reserved to PEPPs are exempted from subscription tax iii. UCIs Part II may benefit from the reduced subscription tax of 0.01% provided that certain conditions are met. |
2. Specialized Investment Funds (SIFs)
| New regime introduced by the law of 21 July 2023 | Previous regime under SIF Law | |
|---|---|---|
| Eligibility of well-informed investor | The investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned. | The investment threshold was set at EUR 125,000. |
| Timeframe for reaching the minimum capital | The period for achieving subscribed capital has been extended to 24 months for SIFs. | The period for achieving subscribed capital was 12 months for SIFs. |
| Replacement of depositary | The depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary. | A 2-month maximum period was previously foreseen to replace a depositary. |
| Suspension of subscription and/or redemption | Subscriptions and/or redemptions of a SICAV are prohibited: - for the period there is no depositary; - the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision | The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime. |
| Marketing | Marketing of AIFs in the form of a SIF to well-informed investors in Luxembourg is permissible (see further point E below). | Marketing of AIFs in the form of a SIF was permissible only to professional investors. |
| Tax | SIFs authorized as ELTIF are exempted from subscription tax as well when they are authorized as MMFs considering some certain conditions apply. |
3. Investment Companies in Risk Capital (SICARs)
| New regime introduced by the law of 21 July 2023 | Previous regime under SICAR Law | |
|---|---|---|
| Eligibility of well-informed investor | The investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned. | The investment threshold was set at EUR 125,000. |
| Timeframe for reaching the minimum capital | The period for achieving subscribed capital has been extended to 24 months for SICARs. | The period for achieving subscribed capital was 12 months for SICARs. |
| Replacement of depositary | The depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary. | A 2-month maximum period was previously foreseen to replace a depositary. |
| Suspension of subscription and/or redemption | Subscriptions and/or redemptions of a SICAV are prohibited: - for the period there is no depositary; - the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision. | The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime. |
| Marketing | Marketing of AIFs in the form of a SICAR to well-informed investors in Luxembourg is permissible (see further point E below). | Marketing of AIFs in the form of a SICAR was permissible only to professional investors. |
| Tax | All in-kind contributions in a SICAR should be backed up by a valuation report drawn by an auditor. | Under the previous regime, there was no explicit obligation for the contributions in kind to be backed up by a valuation report drawn by an auditor. |
4. Reserved Alternative Investment Funds (RAIFs)
| New regime introduced by the law of 21 July 2023 | Previous regime under RAIF Law | |
|---|---|---|
| Eligibility of well-informed investor | The investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned. | The investment threshold was set at EUR 125,000. |
| Timeframe for reaching the minimum capital | The period for achieving subscribed capital has been extended to 24 months for RAIFs. | The period for achieving subscribed capital was 12 months for RAIFs. |
| Formation formalities | The formation formalities for RAIFs have been streamlined. The requirement for a Luxembourg notary to acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days has been eliminated for RAIFs established through a notarial deed, though it still applies to RAIFs established through a private deed. | Luxembourg notary shall acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days for RAIFs established through a notarial deed or a private deed. |
| Marketing | Marketing RAIFs to well-informed investors in Luxembourg is permissible (see further point E below). | Marketing of RAIFs was permissible only to professional investors. |
| Replacement of depositary | The depositary agreement must include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary. | A 2-month maximum period to replace a depositary was previously foreseen. |
| Suspension of subscription and/or redemption | Subscriptions and/or redemptions of a SICAV are prohibited: - for the period there is no depositary; - the depositary is in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision | The prohibition of subscription and/or redemption of a SICAV for the period during which there was no depositary or when the depositary was in liquidation, declared bankrupt or undergoing a suspension of payments, an arrangement with its creditors or some other type of management supervision was not foreseen under the previous regime. |
| Tax | RAIFs authorized as ELTIF are exempted from subscription tax. |
5. Alternative Investment Fund Managers (AIFMs)
| New regime introduced by the law of 21 July 2023 | Previous regime under AIFM Law | |
|---|---|---|
| Tied Agents | Authorized alternative investment fund managers are permitted to utilize tied agents as defined by article 1, point 1 of the law of 5 April 1993 on the financial sector. Where an AIFM decides to use tied agents, the AIFM shall, within the limits of the activities permitted under this law, comply with the same rules as those applicable to investment firms under Article 37-8 of the amended law of 5 April 1993 on the financial sector. | The appointment of tied agents was foreseen under the previous regime for pre-marketing purposes. |
| Marketing | AIFMs may market shares/units of AIF SIFs, RAIFs and AIF SICARs to well-informed investors established or residing in Luxembourg even if they do not fall in the scope of the definition of a professional investor. | AIFMs may market shares/units of AIF SIFs, RAIFs and AIF SICARs only to professional investors. |
Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you.
Bill of Law 8183 adopted: Examining the impact on Luxembourg's RAIF, SIF, SICAR, AIFM, and UCI Laws
Luxembourg has taken a significant stride towards modernizing its investment fund laws with the recent adoption of Bill 8183 by the Luxembourg Parliament. This bill introduces amendments to several pivotal fund laws, including the Law of 2010 on Undertakings for Collective Investment (UCI Law), the Law of 2007 on Specialized Investment Funds (SIF Law), the Law of 2004 on Investment Companies in Risk Capital (SICAR Law), the Law of 2013 on Alternative Investment Fund Managers (AIFM Law), and the Law of 2016 on Reserved Alternative Investment Funds (RAIF Law). These amendments are designed to update and strengthen the country’s fund-related regulations, bolstering the competitiveness and attractiveness of Luxembourg’s financial centre.
On March 24, 2023, a bill of law proposing amendments to the Luxembourg fund laws was submitted to the Luxembourg Parliament. The first constitutional vote, held on July 11, 2023, resulted in the adoption of Bill 8183, with an overwhelming majority of 55 votes in favour out of 60. To expedite the implementation of the law, a request was made to dispense with the second vote, which was accepted on 14 July with unanimity.
The adopted amendments encompass several significant changes, including:
Definition of “Well-informed Investor” and marketing RAIFs to well-informed investors in Luxembourg
The definition of a “well-informed investor” has been harmonized across the SIF, SICAR, and RAIF Laws as well as the possibility to market shares or units of such vehicles to retail investors within the meaning of “well-informed investor”. The investment threshold has been lowered to EUR 100,000, and the list of entities authorized to certify the experience of other well-informed investors has been aligned.
Time limit for reaching minimum capital
The period for achieving subscribed capital has been extended to 24 months for SICARs, SIFs, and RAIFs and to 12 months for UCIs (Part II). This extension grants fund managers increased flexibility in meeting the minimum capital requirement.
Harmonization of legal form for Part II UCIs
The available legal forms for Part II SICAVs have been aligned with the legal forms permitted under the SIF, SICAR, and RAIF Laws. This harmonization ensures consistency among various types of investment funds.
Simplification for RAIFs
The formation formalities for RAIFs have been streamlined. The requirement for a Luxembourg notary to acknowledge the establishment and appointment of an external Alternative Investment Fund Manager (AIFM) within five business days has been eliminated for RAIFs established through a notarial deed, though it still applies to RAIFs established through a private deed. Furthermore, the amendment clarifies that marketing RAIFs to well-informed investors in Luxembourg is permissible.
Amendments to the AIFM Law
Authorized managers of alternative investment funds are now permitted to utilize tied agents, as defined by the 1993 law on the financial sector. This amendment provides them with additional operational flexibility.
Replacement of a depositary
Previously, SICARs, SIFs, UCITS, and Part II funds had an automatic two-month period to replace a depositary in the event of resignation or termination. However, under the new rules, this automatic de-listing provision has been eliminated. Instead, the depositary agreement must now include prior notice provisions, and a replacement depositary must be appointed before the expiry of this notice period. During this transition period, outgoing depositaries are still required to safeguard the interests of investors. This change mitigates the risk of automatic de-listing, considering the necessary time for conducting due diligence and onboarding a new depositary.
Main tax amendments
The newly introduced exemptions from the subscription tax, as part of the Bill of Law 8183, offer benefits to specific structures. These include (i) Part II UCIs, SIFs, RAIFs and their respective sub-funds, provided they are authorized as ELTIFs under the ELTIF Regulation, and (ii) UCITS/Part II UCIs and their sub-funds that cater specifically to investors saving under a pan-European Personal Pension Product (PEPP) established as per the PEPP Regulation. This is a concerted effort to stimulate the creation and growth of ETIFs and PEPPs.
The adoption of these amendments by the Luxembourg Parliament signifies a momentous development in the country’s investment fund legislation. The reforms aim to modernize and enhance the toolbox for Luxembourg funds, fostering a more consistent and practical approach. These changes not only strengthen the regulatory framework but also contribute to the competitiveness and allure of Luxembourg’s financial center. The anticipation is that the legislation will soon be published in the Luxembourg Official Gazette. It will become effective on the fourth day following its publication in the Luxembourg Official Gazette.
Should you have any inquiries or require expert guidance pertaining to the information provided, our investment management team is available to assist you. Please feel free to contact us.
Luxembourg Fund Law Reforms: Key proposed changes to RAIF, SIF, SICAR, AIFM, and UCI Laws
On March 24, 2023, a bill of law was submitted to the Luxembourg Parliament, proposing amendments to the Luxembourg fund laws, namely the Law of 2010 on UCIs (UCI Law), the Law of 2007 on SIFs (SIF Law), the Law of 2004 on SICARs (SICAR Law), the Law of 2013 on AIFMs (AIFM Law), and the Law of 2016 on RAIFs (RAIF Law).
Below is a summary of the main changes:
Definition of “Well-informed Investor”
The proposed amendments aim to harmonize the “well-informed investor” definition in the SIF, SICAR, and RAIF Laws by reducing the investment threshold to EUR 100,000 and aligning the list of entities that can certify the experience of other well-informed investors.
Time Limit for Reaching Minimum Capital
The proposed amendments suggest increasing the subscribed capital time limit for SICARs, SIFs, and RAIFs to 24 months, while for Part II funds, the time limit is proposed to be extended to 12 months.
Harmonization of Legal Form for Part II UCI
The proposed amendments aim to align the available legal forms for Part II SICAVs with the legal forms permitted under the SIF, SICAR, and RAIF Laws.
Simplification for RAIFs
The proposed amendments also seek to simplify the formation formalities for RAIFs where a RAIF is set up by virtue of articles of association, by eliminating the requirement for a Luxembourg notary to acknowledge the establishment and appointment of an external AIFM within five business days if established through notarial deed, although this requirement still applies to RAIFs established through private deed. Moreover, it clarifies that marketing RAIFs to well-informed investors in Luxembourg is permitted.
Amendments to the AIFM Law
The proposed amendments would allow authorized alternative investment fund managers to have recourse to tied agents as defined by the 1993 financial sector law.
In conclusion, the proposed amendments represent a significant step towards modernizing and improving Luxembourg’s fund toolbox by providing a more consistent and practical approach. It remains to be seen how the proposed amendments will be received by the Luxembourg Parliament and whether they will ultimately be adopted. The bill of law is subject to the lawmaking procedure and may undergo further changes. We will keep you updated on the evolution of the Luxembourg funds rules.
If you have any questions regarding the information above, our investment management team is here to help. Please do not hesitate to contact us for expert guidance.
New reporting obligations for RAIFs and unregulated AIFs - Update of the CRS FAQ by the Luxembourg tax administration
Key takeaway
RAIFs and unregulated AIFs (e.g. SCSp and SCS) are now considered reportable financial institutions since they can no longer benefit from the exempt CIV status. They must file a (nil) report by 30 June 2022 to avoid penalties.
Introduction
On 4 April 2022, the Luxembourg direct tax administration (“ACD”) updated its frequently asked questions (“FAQ”) on the common reporting standard (“CRS”). Such FAQ now includes two new questions, providing a list of Investment Entities (I) and a clarification relating to the scope of the exempt Collective Investment Vehicle (“exempt CIV”) status (II). They are important, in particular, for reserved alternative investment funds (“RAIFs”) and unregulated alternative investment funds (“AIFs”). As a reminder, CRS is an automatic exchange of information relating to financial accounts in tax matters with the Member States of the European Union and the other partner jurisdictions of Luxembourg as implemented by the amended law of 18 December 2015 relating to the automatic exchange of information in tax matters (“CRS Law”). The CRS Law requires Reporting Financial Institutions (“RFIs”) to declare some information in relation to certain accounts and the holders of such accounts. The RFIs are defined as all financial institutions which are not non-reporting financial institutions (“NRFIs”). One element of the definition of the NRFIs is the exempt CIV status. Therefore, such exempt CIVs do not have to report to the ACD concerning CRS matters. The updated FAQ narrows the scope of the exempt CIV status, which was interpreted as including RAIFs and other unregulated AIFs until now.
Please find below the two Q&A of the ACD in the updated FAQ on CRS.
I) A non-exhaustive list of Investment Entities (Q 2.3)
Except in special circumstances, the following entities are, in principle, considered Investment Entities:
– any undertaking for collective investment subject to Part I or II of the amended law of 17 December 2010 relating to undertakings for collective investment;
– any specialized investment fund subject to the amended law of 13 February 2007 relating to specialized investment funds;
– any venture capital company governed by the amended law of 15 June 2004 relating to venture capital companies (SICAR);
– any securitisation undertaking subject to the authorisation and supervision of the Commission de Surveillance du Secteur Financier (the “CSSF”) in accordance with the amended law of 22 March 2004 relating to securitisation;
– any RAIF falling within the scope of the amended law of 23 July 2016 relating to reserved alternative investment funds;
– any AIF whose management falls within the scope of the amended law of 12 July 2013 relating to alternative investment fund managers;
– any pension fund governed by the amended law of 13 July 2005 relating to institutions for occupational retirement provision in the form of SEPCAV and ASSEP;
– any pension fund governed by the amended Grand-Ducal Regulation of 31 August 2000 implementing Article 26, paragraph 3, of the amended law of 6 December 1991 on the insurance sector and relating to pension funds subject to the prudential supervision of the Commissariat aux assurances;
– any management company subject to part IV of the amended law of 17 December 2010 relating to undertakings for collective investment;
– any manager of alternative investment funds governed by the amended law of 12 July 2013 relating to managers of alternative investment funds; and
– any investment firm governed by the amended law of 5 April 1993 relating to the financial sector which carries out any of the following activities: (i) execution of orders on behalf of clients, (ii) portfolio management.
II) Unregulated entities such as RAIFs and other unregulated AIFs and the exempt CIV status (Q 2.4)
The ACD indicates in the FAQ that unregulated entities can no longer benefit from the exempt CIV status, as only entities directly supervised by the CSSF may opt for this status if the other applicable conditions are fulfilled.
As a result of the answers mentioned above, the RAIFs and the unregulated AIFs should now submit every year a nil report to the ACD if there is no CRS reportable account. Indeed, RAIFs and unregulated AIFs may not qualify as NRFI anymore. Therefore, RAIFs and unregulated AIFs qualifying as RFI must respect the reporting and due diligence CRS obligations. They should review their CRS qualifications and applicable CRS reporting obligations.
Based on the fact that neither the CRS law nor the ACD refer to the legal form of the entities, the same reasoning applies to unregulated AIFs under the form of a common limited partnership (société en commandite simple – SCS) or a special limited partnership (société en commandite spéciale – SCSp). RAIFs and unregulated AIFs should, in principle, have no CRS reportable accounts. If so, a nil report should be filed by 30 June 2022 for the two fiscal years 2020 and 2021 in order to avoid any penalties.
There are two types of penalties:
– a Luxembourg RFI omitting to comply with due diligence rules or to introduce procedures in view of reporting is liable to a penalty up to EUR 250,000; and
– a Luxembourg RFI omitting to file the required report or if it files a late, incomplete or inaccurate report, it may be liable to a penalty of 0,5% of the amounts that should have been reported, with a minimum of EUR 1,500.
AED guide on the AML/CFT professional obligations for RAIFs
In order to prevent and raise awareness among reserved alternative investment funds (“RAIFs”) which are all subject to the law on the fight against money laundering and terrorist financing of 12 November 2004, as amended from time to time (the “AML/CFT law”), the Administration de l’enregistrement, des domaines et de la TVA (“AED”), in its capacity as supervisory and control authority, has just published a guide, in order to better assist RAIFs in the implementation of their AML/CFT professional obligations (the “Guide”). The Guide has an indicative nature describing the minimum requirements for RAIFs. The purpose of the Guide is first and foremost to raise awareness among FIARs of the risks of money laundering and terrorist financing, but also to provide guidance to RAIFs to avoid transactions linked to risk of money laundering and terrorist financing, which could result in liability.
Access to the Guide (in French): https://pfi.public.lu/content/dam/pfi/pdf/blanchiment/prevention-et-sensibilation/guides/pour-en-savoir-plus/guide-version-2022-fonds-dinvestissement-alternatif-reserve.pdf
Should you need our assistance in respect of AML_CFT requirements for RAIF including RR and RC requirements, please contact our investment management team.
Mandatory reporting for the real estate income levy for Luxembourg RAIFs, SIFs and Part II UCIs
Following the introduction of a real estate income levy has been introduced as of January 1, 2021, a reporting obligation applies to all reserved alternative investment funds (RAIFs), specialised investment funds (SIFs) and alternative investment funds (AIFs) that have legal personality (see below).
The real estate levy applies to the funds of these types that receive or realise income from real estate (immovable property as defined by the Civil Code) located in Luxembourg. The levy is an exemption from the tax provisions set out in the SIF law of February 13, 2007, the investment fund law of December 17, 2010, in particular Part II funds, and the RAIF law of July 23, 2016.
The Prélèvement immobilier circular from the director of the Direct Taxation Authority (PRE_IMM n°1) was published on January 20, 2022, informing investment vehicles about the levy and the related reporting obligation. The authority is in charge of supervision, assessment and collection of the levy.
Which investment funds are covered by the real estate levy?
The investment funds covered by the levy are those with a legal personality distinct from that of their partners (SA, SCA or Sàrl), covered by Luxembourg’s legislation on Part II funds, SIFs and RAIFs, except for those constituted as a common limited partnership (SCS). Funds in the form of an SCS, SCSp or FCP are outside the scope of the levy.
What is the scope of the levy?
The levy applies to income from real estate located in Luxembourg, as defined below, received or earned by one of these investment vehicles, including when the income is received or realised indirectly by a fund through an FCP or transparent entity in which the investment vehicle holds shares or a stake in the course of the calendar year.
In addition, the receipt or realisation of income by a FCP or a transparent entity is also assessed directly and indirectly, as the income may be received directly or indirectly through one or more tax-transparent entities or FCPs.
What does income from real estate in Luxembourg mean?
Income from real estate is defined as income from the rental of real estate located in Luxembourg, any capital gain resulting from the sale of a property in Luxembourg, or income from the disposal of shares.
What are the reporting and payment obligations?
The rate of the real estate levy is 20%. Investment funds subject to the levy must declare all income from real estate subject to the real estate levy, received or realised during the calendar year, to the interest income withholding tax office by May 31 of the following year. Thus reporting on income for 2021 must be made by May 31, 2022 at the latest and the levy paid by June 10, with no possibility of deduction or offsetting.
What does the notification obligation contain?
RAIFs, SIFs and Part II AIFs with legal personality (except for those constituted as SCS) have an obligation to report to the interest income withholding tax office for the years 2020 and 2021. They must report whether or not, during any time in 2020 or 2021, they owned real estate in Luxembourg, either directly or indirectly, through one or more tax-transparent entities or FCPs. The reporting obligation applies to funds even if they did not invest directly or indirectly in real estate.
The reporting obligation also apply to funds with a legal personality separate from that of their partners and covered by Luxembourg’s Part II fund, SIF or RAIF legislation (except for SCSs) that changed their form during 2020 or 2021 to a fiscally transparent entity or to an FCP while they held at least one property in Luxembourg, either directly or indirectly through fiscally transparent entities or FCPs.
What is the penalty for non-compliance with the information obligation?
A fund that falls within the scope of the reporting obligation but fails to comply may be fined a flat-rate penalty of €10,000.
The Direct Taxation Authority’s Circular PRE_IMM n°1 (in French) can be found at: https://impotsdirects.public.lu/dam-assets/fr/legislation/legi22/2022-01-20-PRE-IMM-1-du-2012022.pdf
CSSF issues circular 21/788 on AML/CFT external reporting
On December 22, 2021, the CSSF issued guidelines for the fund industry regarding the new external report on anti-money laundering and financing of terrorism measures that must be drawn up by an external expert.
To whom does the circular apply, and who is exempt?
According to the circular, all Luxembourg investment fund managers, including registered alternative fund managers and Luxembourg funds supervised by the CSSF for AML/CFT purposes, must provide the external report. It is not required from Luxembourg funds that have appointed a fund manager, whether established in Luxembourg or abroad. In these cases, the external auditor of the funds must nevertheless perform an AML assessment as prescribed by Article 49 (1) of CSSF Regulation No 12-02 of December 12, 2012 on combating money laundering and the financing of terrorist financing.
Who should draft the report?
All investment fund managers required to appoint an approved statutory auditor (réviseur d’entreprises agrée / REA) to audit their annual accounts shall designate the same REA to prepare the external report.
The registered AIFMs, which do not have the legal requirement to appoint a REA for the audit of their annual accounts, must appoint an REA for the specific purpose of preparing the AML/CFT external report.
What should the report contain?
The report is divided into two sections. The first concern the corroboration of answers given by the AIFMs as part of the CSSF annual AML/CFT online survey. The second deals with sample testing or specific work to be performed by the external expert.
Who should submit the report to the CSSF, when and how?
The report must be submitted to the CSSF via the eDesk platform within six months of the closing of the annual accounts. This should be carried out by the Responsable du Contrôle du respect des obligations professionnelles en matière de lutte contre le blanchiment et contre le financement du terrorisme (compliance officer, or RC); the Responsable du Respect des obligations professionnelles en matière de lutte contre le blanchiment d’argent et contre le financement du terrorisme (RR); or a member of the board of directors, or equivalent.
When does the circular come into force?
Luxembourg funds and managers must comply with the provisions of the circular for the financial years ending on or after December 31, 2021. For the financial year ending on December 31, 2021, an extension of three extra months is granted for the submission, up to the end of September 2022.
CSSF circular 21/788 is available here.
For more information, please get in touch with our investment management team.
Luxembourg law implementing EuVECA and ELTIF regulations and amending RAIF law
The Law of 16 July 2019 implementing the regulations on EuVECA, EuSEF, ELTIF and MMF (the “Regulations”) and amending the RAIF law entered into force on 22 July 2019 (the “Law of 16 July 2019”).
Although these Regulations are directly applicable to the EU member states, they do allow certain provisions to be regulated on a national level. In view of this, the Law of 16 July 2019 introduces inter alia the following:
Implementation of the EuVECA, EuSEF, MMF and ELTIF regulations
- Designation of the CSSF as the competent authority in respect of the proper application of the EuVECA, EuSEF, ELTIF and MMF regulations and describes the administrative sanctions that the CSSF could impose in case of breaches of these regulations;
- Designation of the CSSF as competent authority in respect of securitization regulation and specific power of supervision to the “Commissariat Aux Assurances” (the “CAA”) for ensuring the respect of the obligations laid down in articles 6 to 9 of the regulation 2017/2402/UE. Therefore, the CAA takes care of the correct application of the risk retention (article 6), the transparency requirements (article 7), the ban on resecuritisation (article 8) and the criteria for credit-granting (article 9) concerning the originator, the original lender of a securitisation or the securitisation special purpose entity (“SSPE”) established in Luxembourg.
Amendment of the RAIF law
Finally, the Law of 16 July 2019 amends the RAIF Law by introducing the possibility to modify a common fund (“FCP”) RAIF into a SICAV RAIF. Additionally, FCP-RAIFs may be managed by Luxembourg management companies authorised pursuant to chapters 15, 16 or 18 of the law of 17 December 2010 relating to undertakings for collective investment.
The law of 16 July 2019 can be accessed here.
