CSSF Circular 25/901: Consolidated supervisory framework for SIFs, SICARs and Part II UCIs in Luxembourg

Executive Summary (at a glance)

  • Scope:
    Applies to SIFs, SICARs and Part II UCIs (and their compartments), excluding ELTIFs, MMFs, EuVECAs, EuSEFs and certain closed-ended funds or compartments authorised before 19 December 2025.
  • Continuity:
    The circular does not call into question the rules adopted by the funds or compartments authorised by the CSSF before 19 December 2025.
  • Application going forward:
    New funds, new compartments and material changes are expected to comply with Circular 25/901 as from 19 December 2025 (except for those outside the scope of the Circular).
  • Risk-spreading:
    Investment limits and borrowing parameters are calibrated to the target investor base, with higher flexibility for funds reserved to well-informed or professional investors.
  • SICARs:
    The criteria for qualifying investments as risk capital are consolidated and clarified.
  • Single reference text:
    Circular 25/901 replaces several prior CSSF and IML circulars, consolidating the supervisory framework.

1. Introduction / Background

On 19 December 2025, the CSSF published (i) Circular CSSF 25/901 (the “Circular”) and (ii) a separate Concepts Compilation (the “Concepts Compilation”).

The Circular consolidates and modernises the CSSF’s supervisory expectations applicable to specialised investment funds (SIFs), investment companies in risk capital (SICARs) and undertakings for collective investment subject to Part II of the Law of 17 December 2010 (Part II UCIs), including their compartments. It brings together, in a single reference text, a number of existing supervisory positions previously set out in separate CSSF and IML circulars.

2. Scope and continuity

 Circular 25/901 applies to SIFs, SICARs and Part II UCIs and their compartments, with exclusions notably for funds/compartments that qualify as ELTIFs, MMFs, EuVECAs or EuSEFs, as well as certain closed-ended funds/compartments authorised before 19 December 2025.

Importantly, the Circular expressly states that it does not call into question the rules already adopted by funds or compartments authorised by the CSSF prior to its entry into force, which may continue to apply those rules.

Below you can see a recap table:

In scope of Circular 25/901 Out of scope of Circular 25/901
·       SIFs (and their compartments) ;

·       SICARs (and their compartments) ; and

·       Part II UCIs (and their compartments)

 

 

 ·       UCITS ;

·       Money Market Funds (MMFs) ;

·       ELTIFs ;

·       EuVECA ;

·       EuSEF

·       Closed-ended funds or compartments that were authorised before 19 December 2025.

 
NOTE

·       While the Circular does not apply to closed-ended funds or compartments authorised before 19 December 2025, it also confirms, more broadly, that the rules already adopted by funds or compartments authorised prior to its entry into force are not called into question; ¨

·       RAIFs are not within the scope of Circular 25/901; however, as further discussed in Section 10 below, the parliamentary works of the RAIF Law indicate that the principles applicable to SIFs and SICARs should be taken into account when interpreting the risk-spreading requirement for SIF like RAIFs under the RAIF regime and the risk capital concept for SICAR like RAIFs.

3. Concept of assets (SIFs and Part II UCIs)

The Circular clarifies the concept of “assets” referred to in the SIF Law and the UCI Law. In principle, the concept of assets encompasses any type of investment that may be entrusted to the depositary of the SIF or of the Part II UCI for safekeeping.

Where the main objective of a SIF or a Part II UCI is to invest in assets eligible under the UCITS Directive, the Circular specifies that such fund must have an investment and borrowing policy that is different from that of a UCITS, in order to fall within the exemption provided for under the UCITS Directive.

4. Risk-spreading and diversification calibrated to the target investor base

The Circular sets out a differentiated approach to risk-spreading depending on whether a fund/compartment may be marketed to unsophisticated retail investors or whether its securities are reserved to well-informed or professional investors.

While Circular 25/901 formally applies to SIFs, SICARs and Part II UCIs, the situation where securities may be marketed to unsophisticated retail investors will, in practice, primarily concern Part II UCIs, given that SIFs and SICARs are reserved to well-informed investors under their respective product laws.

In principle, concentration limits are set at:

  • 25% per issuer/undertaking for collective investment/other asset for funds or compartments whose securities may be marketed to unsophisticated retail investors; and
  • 50% per issuer/undertaking for collective investment/other asset for funds or compartments whose securities are reserved to well-informed or professional investors.

For a single infrastructure investment, higher thresholds apply (up to 50% and 70% respectively), and the CSSF may grant further derogations on the basis of a duly motivated justification.

For funds or compartments whose securities may be marketed to unsophisticated retail investors, the Circular specifies that, when using financial derivative instruments, a comparable level of risk-spreading must be ensured through an appropriate diversification of the underlying assets and that counterparty risk which is not cleared by a clearing institution or not mitigated by collateral must be limited having regard to the quality and qualification of the counterparty.

Where investments are made through intermediary vehicles, regardless of their legal form, the investment limits apply to the investments made through such vehicles and not to the vehicles themselves.

5. Ramp-up and wind-down periods for private investment strategies

 Recognising the realities of portfolio construction and realisation, the Circular confirms that the sales document may provide that investment limits do not apply during certain periods.

In principle:

  • where the main objective of the fund or compartment is to invest in UCITS-eligible assets, the ramp-up period may last up to 12 months from launch; and
  • where the fund or compartment pursues private investment strategies, the ramp-up period may be longer but may not, in principle, exceed four years, subject to a possible duly justified extension accepted by the CSSF.

Where the objective of the fund or compartment is to make private investments, the sales document may also provide that investment limits cease to apply during the wind-down period.

During these periods, the fund or compartment must not be exposed to excessive risks or conflicts of interest that had not been previously identified, and available cash may only be invested in accordance with the sales document.

6. Borrowing

SIFs and Part II UCIs may borrow cash to make investments, cover costs and expenses or meet redemptions, and may encumber assets when borrowing.

Where a fund or compartment may be marketed to unsophisticated retail investors, borrowing for investment purposes must, in principle, not exceed 70% of assets or commitments to subscribe. Where securities are reserved to well-informed or professional investors, no fixed borrowing cap applies, and the fund or compartment sets its own maximum borrowing limit.

Temporary borrowing arrangements that are fully covered by investors’ capital commitments are, in principle, not regarded as borrowings.

Any intended borrowing must be disclosed in the sales document, including the applicable borrowing limit.

7. SICARs: clearer articulation of the “risk capital” assessment

For SICARs, the Circular consolidates and clarifies the CSSF’s approach to assessing whether investments qualify as risk capital, including:

  • an intention to contribute to the development of the target entity;
  • the existence of a specific risk exceeding mere market risk;
  • an exit strategy; and
  • where appropriate, a degree of control or supervision over the target entity.

The Circular emphasises that a purely passive holding approach is not acceptable and that the assessment of risk capital is driven by the economic substance of the investment and the development objective, rather than by purely formal or legal criteria.

8. Consolidation: fewer legacy references, one supervisory point of reference

Circular 25/901 repeals and replaces several earlier CSSF and IML circulars, consolidating the relevant supervisory expectations into a single reference text for these regulated fund regimes.

9. The Concepts Compilation – explanatory reference

As stated in Circular CSSF 25/901, for the illustration of the general concepts underlying the Circular, reference is made to the document entitled “Compilation of the key concepts and terms used in the area of investment funds other than UCITS and MMFs and how the CSSF understands them”, which is updated on a regular basis.

The Concepts Compilation is an explanatory document published by the CSSF that clarifies certain commonly used concepts and terms and explains how the CSSF understands them. It is neither a regulation nor a CSSF circular, does not purport to be exhaustive and does not prejudge the acceptability of any application for authorisation, without prejudice to the applicable European and Luxembourg legal and regulatory framework and to the relevant sales documents.

10. Considerations for Luxembourg RAIFs

Reserved alternative investment funds (RAIFs) are not within the scope of Circular CSSF 25/901, as they are not subject to prior authorisation or direct supervision by the CSSF.

That being said, the Law of 23 July 2016 on reserved alternative investment funds (the “RAIF Law”) was drafted by reference to the SIF and SICAR regimes and incorporates the same core product concepts.

SIF-like RAIFs – Risk-spreading

Article 1(1)(b) of the RAIF Law provides that a RAIF must have as its sole object the collective investment of its funds in assets “with the aim of spreading the investment risks and giving investors the benefit of the results of the management of their assets.”

The RAIF Law does not further define the concept of spreading investment risks.

The parliamentary works clarify that, in the absence of specific statutory guidance, RAIFs and/or their representatives may refer to the framework developed for SIFs, notably the diversification guidance previously set out in Circular CSSF 07/309, for the interpretation of this concept.

SICAR-like RAIFs – Risk capital

Article 48(1) of the RAIF Law provides that a RAIF may state in its constitutive documents that its exclusive object is the investment of its funds in assets representing risk capital. In that case, by way of derogation from Article 1, the RAIF is not required to spread investment risks.

Investment in risk capital is defined, in wording identical to Article 1(2) of the SICAR Law, as the direct or indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange.

The RAIF Law does not provide further clarification of this notion. The parliamentary works indicate that RAIFs, their representatives and their approved statutory auditor may refer to the framework developed for SICARs, notably Circular CSSF 06/241, for the interpretation of the concept of risk capital.

Relevance of Circular 25/901 for RAIFs

Circular CSSF 25/901 repeals and replaces, inter alia, Circulars 07/309 (SIF risk-spreading) and 06/241 (SICAR risk capital), consolidating the supervisory framework applicable to SIFs and SICARs into a single reference text.

Although Circular 25/901 does not formally apply to RAIFs, the legislative structure of the RAIF regime which mirrors the substantive product concepts of the SIF and SICAR frameworks while dispensing with product-level CSSF authorisation  suggests that the interpretation of the notions of risk-spreading and risk capital under the RAIF Law is expected to remain aligned with the consolidated framework now applicable to SIFs and SICARs.

 11. Practical implications for fund sponsors and managers

Circular CSSF 25/901 aims to provide greater clarity and consistency in the supervisory framework applicable to SIFs, SICARs and Part II UCIs.

As expressly stated in the Circular, funds and compartments authorised by the CSSF prior to 19 December 2025 are not required to amend their existing arrangements and may continue to apply the rules previously approved by the CSSF.

As from 19 December 2025, the Circular will serve as the primary supervisory reference for the CSSF. In practice, it will be particularly relevant in the context of:

  • the launch of new SIFs, SICARs or Part II UCIs;
  • the creation of new compartments; and
  • material changes implemented after that date, including changes to investment policies, risk-spreading parameters, borrowing arrangements or related disclosures.

The Circular also confirms a calibrated approach based on the target investor base, allowing greater flexibility for products reserved to well-informed or professional investors, while setting clearer parameters where a fund or compartment may be marketed to unsophisticated retail investors.

Overall, Circular CSSF 25/901 should be viewed as a consolidation and clarification exercise, preserving continuity for existing structures while providing a clearer supervisory framework for future developments.

12. How can we assist you?

We would be pleased to assist you in assessing the implications of Circular CSSF 25/901 for your existing or planned structures, including in the context of new fund launches, the creation of new compartments or changes to existing products, and in aligning documentation and operational policies with the CSSF’s consolidated supervisory framework.

Please feel free to contact our Investment Management team should you wish to receive further information or discuss the impact of Circular CSSF 25/901 on your structures.

 

by Olivier Sciales

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April 10, 2025

Comparison table of Luxembourg alternative investment funds (AIFs) and other investment vehicles

Compare two vehicles:

UCITSPart II UCIELTIFSIFSICARRAIFSPFSecuritisation vehicleUnregulated SCS/SCSpSOPARFI
English name/descriptionUndertakings for collective invesment in transferable securitiesPart II Undertaking for Collective InvestmentEuropean long-term investment fundSpecialised Investment FundInvestment Company in Risk CapitalReserved Alternative Investment FundPrivate Wealth Management CompanySecuritisation vehicleUnregulated common limited partnership/special limited partnershipSOPARFI
Practical useHighly regulated investment vehicle authorised by the CSSF and eligible for cross-border marketing within the EU under the UCITS passport, which may be marketed to retail, professional and institutional investors, subject to applicable requirements.CSSF-authorised regulated investment vehicle used for investment strategies that fall outside the the UCITS eligibility criteria, including strategies involving less liquid or non-UCITS-eligible assets, while remaining subject to full CSSF product supervision.EU long-term investment fund label applicable to investment vehicles investing in long-term assets forming part of the real economy, such as private equity, infrastructure, real assets and private debt, and designed to facilitate long-term investment strategies, including, subject to applicable conditions, access by retail investors.CSSF-authorised regulated alternative investment vehicle reserved to well-informed investors and commonly used as an AIF for a broad range of alternative investment strategies, including private equity, hedge funds, real estate, infrastructure and private debt.CSSF-authorised regulated investment vehicle dedicated to private equity, venture capital and other investments qualifying as risk capital, targeting the development and value creation of portfolio companies.Alternative investment vehicle reserved to well-informed investors, used for the same range of alternative investment strategies as SIFs, including hedge funds, private equity, venture capital, real estate, infrastructure and private debt, and structured without prior CSSF product authorisation, with regulatory supervision exercised by the CSSF at the level of the authorised AIFM.Unregulated investment vehicle used by individuals for private wealth structuring and the holding of financial assets, limited to passive asset management and excluded from any commercial or professional investment activity.Investment vehicle used for securitisation transactions, including true sale and synthetic securitisations, securitisation of portfolios of securities or receivables (such as loans, leasing receivables and non-performing loans), securitisation of tangible and intangible assets, intra-group financing structures, and structured finance transactions such as collateralised loan obligations (CLOs), including, where applicable, actively managed structures.
Unregulated partnership investment vehicle commonly used for private equity, real estate, venture capital and other alternative strategies, offering significant contractual flexibility and frequently used in fund structuring, co-investment arrangements and carried interest vehicle structures.Ordinary Luxembourg corporate vehicle commonly used for holding, financing and investment activities, including the holding of participations, intra-group financing, intellectual property holding and other investment activities, depending on the structure and purpose.
Applicable legislationLaw 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”), amended on 15 March 2023 .
("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 CSSFYes.Yes.Yes.Yes.Yes.No.No.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 EUR 100,000 and it is not distributed as private placement.Non.Non.
Qualification as an AIFNo.Always an AIF.Always an AIF.Yes, unless it falls outside the AIF definition (i.e. 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 it falls outside the AIF definition (i.e. 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 requirementNot 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 investorsUnrestricted.Unrestricted.Unrestricted.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.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 assetsRestricted 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. The investment objective and strategy of the fund is subject to the prior approval of the CSSF. Restricted to investments in securities
representing risk capital as specified in CSSF Circular 25/901 which has replaced Circular 06/241.

The circular clarifies the criteria applied by the CSSF when assessing whether investments pursued by a SICAR qualify as risk capital, notably the intention to develop the target entity, the existence of a specific risk going beyond mere market risk, an exit strategy and, where appropriate, a degree of control or supervision

A SICAR may use derivatives for hedging purposes or if such transactions are necessary to the realisation of its investment policy. However, investments in derivatives may not be the object of its investment policy, as they are not used, in principle, to create value in itself or to contribute to the development of the target entity.

The investment of a SICAR in real estate is only possible through intermediary vehicles (such as SPVs) or real-estate funds. The underlying real-estate assets must meet the criteria of risk capital set out in CSSF circular 25/901.
Unrestricted, unless the RAIF is established as a SICAR-type RAIF investing exclusively in risk capital.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 requirementsRisk 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 applicable to Part II UCIs are set out in CSSF Circular 25/901, which specifies the concept of risk-spreading referred to in Articles 89(1), 93(1) and 97 of the Law of 17 December 2010.
In principle, Part II UCIs marketed to unsophisticated retail investors may not invest more than 25% of their assets or commitments to subscribe in a single issuer, entity or asset, subject to specific derogations. For Part II UCIs reserved to well-informed or professional investors, this limit is raised to 50%, and up to 70% for a single infrastructure investment.
The circular allows for duly justified derogations and provides for ramp-up and, where applicable, wind-down periods during which investment limits may not apply, subject to CSSF acceptance.
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 set out in CSSF Circular 25/901.

For SIFs and compartments thereof reserved for well-informed or professional investors, the following concentration limits apply
- a maximum of 50% of assets may be invested in a single issuer, entity, or asset;
- a higher limit of up to 70% applies to a single infrastructure investment.

The circular also allows a defined ramp-up period and a wind down period up to 4 years for private investments, during which limits may not apply as described in the sales document. 		No risk diversification requirements.


A SICAR may set investment limits in its sales document and may include ramp up and wind down periods during which those self-imposed limits do not apply.
Aligned with SIF risk diversification rules, unless the RAIF has opted to invest exclusively in risk capital and is therefore subject to the SICAR regime, as stated 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 structureYes.Yes.Yes. Application for authorisation as ELTIF of one or more compartments may be submittedYes.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 authorisation 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.
• Registered AIFM or Authorised AIFM in case of an AIF above threshold.		• 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.
• Authorised AIFM.
• Other service providers required by the relevant product rules.
• Registered AIFM or authorised AIFM in case of an AIF above threshold.
• 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 AIFM or authorised AIFM in case of AIF above threshold.
• Depositary bank or professional of the financial sector providing depositary services, subject to conditions.
• Administrative agent.
• Registrar and Transfer Agent.
• Approved statutory auditor.
• Authorised AIFM.
• 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 listingYes.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 passportYes.Yes, but needs to fall under the scope of the full AIFMD regime.Yes.Yes, but needs to fall under the scope of the full AIFMD regime.Yes, but needs to fall under the scope of the full AIFMD regime.Yes (always under the full AIFMD regime).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 frequencyThe 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.The valuation of the assets of the company is based on the "fair value".At least once a year.Not required. Not required. Not required.Not required.
Borrowings / leverage limitsBorrowings 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.Part II UCI may borrow cash. Where borrowing is used for investment purposes and the fund or compartment is marketed to unsophisticated retail investors, borrowing must, in principle, not exceed 70% of its assets or commitments to subscribe. Where the fund or compartment is reserved to well-informed or professional investors, this limit does not apply and the maximum borrowing level is determined by the fund and disclosed in its sales document.As ELTIF is an EU label, there is no harmonised EU-level debt-to-equity ratio and any product-specific leverage constraints depend on the national 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.

According to circular 25/901, SIFs may borrow cash for investment and operational purposes. The Fund or compartment may set its own borrowing limits.
No debt-to-equity ratio.

CSSF Circular 25/901, limits the use of borrowing in consideration to the specific objective of the SICAR. Reference should be made to the general principles laid down in Chapter 5 of the circular. When borrowing cash, the fund or the compartment may encumber assets.
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.
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 taxNo 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 progressive 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 dividendsNot 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 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		• SICAV/SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		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 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		In principle 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 24 December 2024).
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 DirectiveNo.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.

by leohil

Luxembourg SIF (specialised investment fund)

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SIF
English name/descriptionSpecialised Investment Fund
Practical useCSSF-authorised regulated alternative investment vehicle reserved to well-informed investors and commonly used as an AIF for a broad range of alternative investment strategies, including private equity, hedge funds, real estate, infrastructure and private debt.
Applicable legislationLaw of 13 February 2007 (“SIF Law”).
Authorisation and supervision by the CSSFYes.
Qualification as an AIFYes, unless it falls outside the AIF definition (i.e. 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).
Exemption from AIFMD full regime under lighter regime (AIFMD registration regime)Possible.
External authorised AIFM requirementRequired in case the entity is an AIF that is not self-managed and above the AIFMD threshold.
Eligible investorsWell-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.
Eligible assetsUnrestricted. The investment objective and strategy of the fund is subject to the prior approval of the CSSF.
Risk diversification requirementsRisk diversification requirements are set out in CSSF Circular 25/901.

For SIFs and compartments thereof reserved for well-informed or professional investors, the following concentration limits apply
- a maximum of 50% of assets may be invested in a single issuer, entity, or asset;
- a higher limit of up to 70% applies to a single infrastructure investment.

The circular also allows a defined ramp-up period and a wind down period up to 4 years for private investments, during which limits may not apply as described in the sales document.
Legal form• FCP
• SICAV (SA, Sàrl, SCA, SCoSA, SCS, SCSp)
• SICAF (SA, Sàrl, SCA, SCoSA, SCS, SCSp)
The entities may be open-ended or closed-ended.
Umbrella structureYes.
Capital requirementsEUR 1,250,000 to be reached no later than 24 months following the authorisation by the CSSF.
Required service providers• Registered AIFM or authorised AIFM in case of an AIF above threshold.
• 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.


Possibility of listingYes.
European passportYes, but needs to fall under the scope of the full AIFMD regime.
Net asset value (NAV) calculation and redemption frequencyAt least once a year.
Borrowings / leverage limitsNo debt-to-equity ratio.

According to circular 25/901, SIFs may borrow cash for investment and operational purposes. The Fund or compartment may set its own borrowing limits.
Overall income tax (corporate income tax and municipal business tax)No income tax.
Subscription tax (NAV: net asset value)• 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.
Wealth taxNo wealth tax.
Withholding tax on dividendsNot subject to withholding tax.
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 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.
Benefit from the EU Parent Subsidiary DirectiveNo.

The Specialised Investment Fund is a lightly regulated and tax-efficient regulatory regime aimed mainly but not exclusively at promoters and managers of alternative investment products including hedge funds, private equity funds, real estate and infrastructure funds, but also financial advisers and private investment managers, family offices and high net worth individuals. At the end of November 2023, 1,259 SIFs with total assets under management of approximately €714 bn were authorised by the Luxembourg regulator, the Financial Sector Supervisory Authority (CSSF).

The SIF regime was established in 2007 to offer fund promoters and managers an onshore, regulated alternative to traditional offshore fund jurisdictions such as the Cayman Islands, British Virgin Islands and Bermuda when deciding on the jurisdiction in which to set up a fund and the type of fund vehicle to use.

The SIF regime offers broad flexibility in terms of eligible assets and investment strategy, as well as less restrictive rules on eligible investors than earlier regimes designed for institutional investors. SIFS may be created as investment companies with variable capital (SICAVs), investment companies with fixed capital (SICAFs) or contractual funds (FCPs), and take any legal form available under Luxembourg law.

SIFs that qualify as alternative investment funds and that are managed by an EU authorised AIFM benefit from the European passport allowing to market fund’s shares to professional investors. The Luxembourg law of 21 July 2021 which transposes Directive EU 2019/1160 on cross-border distribution of Collective investment schemes and the directly applicable cross border funds regulation (CBRD), aim to enhance the cross-border distribution of alternative investment funds by harmonising rules governing the launch and discontinuation of marketing, retail marketing and the content and supervisory review of marketing communications. It notably creates a new harmonised regulatory regime defining and implementing a notification process for pre-marketing of AIFs throughout the EU. Pre-marketing was not defined in the original AIFMD and was left to rules and guidance applicable in individual member states, leading to inconsistencies and uncertainty.

SIFS are also a privileged private wealth solution falling in this case outside of the scope of the AIFMD.

The implementation of the European Union’s UCITS III directive in Luxembourg through the
collective investment legislation on December 20, 2002, resulted in the replacement of the previous legal framework for collective investment undertakings, dating back to the law of March 30, 1988. This resulted in the need to create a new regulatory framework for funds aimed at institutional and other sophisticated investors before the expiry of a transition period in February 2007.

The legislation of February 13, 2007, introduced a new investment vehicle to Luxembourg in the
Specialised Investment Fund, providing a more flexible framework than the previous regime for
institutional funds under Part II of the December 2002 legislation, as well as broadening the potential investor base.

The SIF legislation was amended just over five years later by the law of March 26, 2012, adapting the regime to European and international developments regarding regulation and transparency of alternative investments, including the EU’s Directive on Alternative Investment Fund Managers, in areas including delegation, risk management and the handling of actual or potential conflicts of interest.
The revisions also aligned the SIF rules in some areas with the UCITS IV directive and the Luxembourg legislation of December 17, 2010 transposing it into national law. The SIF regime was also modified in some areas by the law of July 12, 2013 adopting the AIFMD directive in
Luxembourg.

The SIF legislation was amended on 21 July 2023 to facilitate retail investors access and providing a more consistent and practical approach.

The SIF legislation offers a broader scope of application regarding investor eligibility than the 1991 law on institutional funds that it replaced, replacing the notion of institutional investors with that of well-informed investors.

A well-informed investor is defined as:
• Any institutional investor;
• Any professional investor; or
• Any other investor that confirms in writing that they are a well-informed investor and either invests a minimum of €100,000 in the SIF or is certified by a credit institution, investment firm, management company (as defined by EU directives), or an authorized AIFM as possessing expertise, experience and knowledge to conduct an adequate appraisal of an investment in the SIF. These restrictions do not apply to directors and other individuals involved in management of the SIF.

The SIF Law, therefore, extends access to these funds beyond institutional and professional investors to other investors capable of taking an informed decision to accept a lower level of protection than that offered to retail investors through their status, wealth, experience or understanding of the risks investment in a SIF can entail.

SIFs must receive approval from the regulator before they can be launched, based on approval of its constitutional documents, of its managers or directors, and of its choice of depositary bank.

Managers and directors (who do not need to be Luxembourg residents) must be able to demonstrate their professional qualifications and experience, good standing and reputation. However, there is no requirement for approval of the promoter – indeed, there is no requirement for a promoter at all.

There is no requirement either for approval of the investment manager, but the CSSF does require notification of the persons responsible for management of the SIF’s investment portfolio, so that the regulator can ensure they are of good reputation and have the experience necessary to manage the type of alternative investment strategy followed by the SIF. The investment manager shall be regulated in its home jurisdiction and there shall be a memorandum of understanding signed between Luxembourg and the relevant third country. Any changes in the identity of the fund’s portfolio managers must also be reported to the regulator.

The CSSF’s approval is required for any substantive change made to the SIF’s offering documents, such as the name of the AIFM fund or sub-funds, the replacement of the custodian, administrator, auditor or investment manager, the creation of new sub-funds or a significant change to its investment policy. The regulator may withdraw authorisation for one or more sub-funds of a SIF while maintaining the authorisation for other sub-funds within the same structure.

The 2012 amendments to the legislation stipulate that the activity of management of a SIF must comprise at a minimum management of the investment portfolio. This excludes from the SIF regime passive funds that seek to create value solely by the long-term holding of assets and to create a distinction between SIFs and private wealth management companies governed by Luxembourg’s law of May 11, 2007, but not private equity or real estate funds.

A Luxembourg depositary bank, administrator and auditor must be appointed. The depositary bank only needs to know at any time of how the assets of the SIF are invested and where, and how the assets are available. Unlike with other Luxembourg funds, the depositary (unless the SIF is managed by an authorised alternative investment fund manager and is subject to the full scope of the country’s AIFM legislation) does not have to monitor that the sale, issue, redemption and cancellation of shares or units are carried out in accordance with the law and the articles of incorporation, or that the fund’s income is allocated in accordance with the management regulations or the articles of association.

The SIF regime offers a broad scope of eligible assets; any type of asset can be held by a SIF and any type of investment strategy can be pursued. Assets may include equities, bonds, derivatives, structured products, real estate and shareholdings in unlisted companies. There are no leverage restrictions.

 

The approach to risk spreading is more flexible than for other types of investment scheme, under regulatory guidelines set out in CSSF Circular 07/309 of August 3, 2007, which states that in principle, a SIF may not invest more than 30% of its assets or commitments in securities of the same type issued by the same issuer, subject to certain exceptions. Equally, in principle, short sales may not result in the SIF holding a short position in securities of the same type from the same issuer representing more than 30% of its assets.

 

This restriction does not apply to securities issued or guaranteed by an OECD member state or its regional or local authorities, or by EU, regional or global supranational institutions and bodies, nor to investment in other funds subject to risk-spreading requirements at least comparable with those applicable to SIFs. Each sub-fund of an umbrella structure is considered as a separate issuer as long as the liabilities of individual sub-funds toward third parties are segregated.

 

The SIF must ensure a similar level of risk-spreading when investing through derivatives via appropriate diversification of the underlying assets. The counterparty risk in an OTC derivative transaction must, where applicable, be limited with regard to the quality and qualification of the counterparty.

 

In principle, these guidelines apply to all SIFs. The CSSF may grant exemptions where justified, although in practice it does not permit a higher level of concentration than 40%. In certain cases, the regulator may require the SIF to comply with additional investment restrictions.

 

The revised SIF law follows the 2010 fund legislation in allowing one sub-fund of a SIF to invest in another, clarifying that the rules set out in Luxembourg’s 1915 company law regarding a company’s investment in its own shares do not apply to SIFs. Sub-funds of the same SIF may not cross-invest in each other, and voting rights of shares held by one sub-fund in another are suspended.

Furthermore, the CSSF clarified in its FAQ on virtual assets (UCIs) that an AIF with an authorised AIFM may invest in virtual assets directly or indirectly as long as the fund’s shares or units are marketed only to professional investors, and the AIFM obtains an extension of authorisation from the CSSF for the new investment strategy.

A SIF can be created in different forms, notably as a contractual fund (fonds commun de placement or FCP), an investment company with variable capital (société d’investissement à capital variable or SICAV) or an investment company with fixed capital (société d’investissement à capital fixe or SICAF). The FCP has no legal personality and must be managed by a management company, while a SICAV or SICAF can be either self-managed or have an external management company.

 

A SICAV or SICAF may adopt most of the corporate and partnership forms available in Luxembourg, including public limited liability company (société anonyme or S.A.), private limited liability company (société à responsabilité limitée or S.àr.l.), corporate partnership limited by shares (société en commandite par actions or S.C.A.), common limited partnership (société en commandite simple or SCS), special limited partnership (société en commandite spéciale of SCSp), or co-operative company organised as a public limited liability company (société coopérative organisée comme une société anonyme or SCoSA).

 

This flexibility of form and structure means, for example, that a private equity fund can be established with a structure and attributes familiar to managers and investors familiar with the Anglo-Saxon limited partnership model.

These entities may be set up as a single fund or as an umbrella fund with multiple sub-funds, each with a different investment policy, if this is authorised by the SIF’s constitutional documents, denominated in different currencies, available to different types of investors or subject to different liquidity rules. A fund or sub-funds may have an unlimited number of share classes, according to the needs of the promoter or investors.

 

Unless otherwise provided for in the SIF’s constitutional documents, sub-funds within an umbrella fund are governed by the principle of compartment segregation, which means that each sub-fund is treated as a separate entity making distinct transactions, and the rights of creditors are applicable only to the particular sub-fund incurring the liabilities in question.

The SIF legislation sets a minimum capital requirement of €1.25m, which must be reached within 24 months following authorisation by the CSSF, compared with 12 months for other funds governed by the 2010 fund legislation. An S.A. must have a minimum capital of €30,000 on incorporation and an S.àr.l €12,000.

At least 5% of the value of each share must be paid up, in cash or in kind, upon subscription. SIFs do not have to comply with any debt/equity ratio, nor are they subject to issue, redemption or distribution restrictions, but the net assets or capital may not fall below €1.25m.

The revised law requires SIFs to put in place systems to monitor, measure and manage the investment risk of its individual positions and their contribution to the portfolio’s overall risk profile. They must also be structured and organised to minimise the risk of conflicts of interest that could arise between the SIF and any person involved in its business activity, or linked to it directly or indirectly, that could have a negative impact on investors’ interests; procedures must be drawn up to manage such conflicts as do arise.

The delegation of tasks and functions to third-party providers will not affect regulation of the fund. As a rule, external providers of portfolio management services to the SIF must be approved for that function and subject to prudential regulation, although the CSSF may grant exemptions to this requirement.

The board of directors of the SIF must be able to ensure that the delegated provider is qualified and capable and must retain ultimate control over the fund’s activities. Delegation should not create conflicts of interest – investment management may not be delegated to the fund’s custodian, for instance – and the delegation of functions must be made clear in the fund’s offering documents.

SIF promoters have a choice between a tax-transparent SIF, set up in the form of an FCP, or a non-tax transparent SIF, set up in the form of a SICAV or SICAF. SIFs are subject to an annual subscription tax (taxe d’abonnement) of 0.01% on their net asset value, calculated at the end of each quarter, compared with a rate of up to 0.05% for other types of fund. The tax does not apply to SIFs investing in other funds that are subject to the subscription tax, that invest only in money-market instruments, or that are pension pooling schemes.

 

They are not subject to corporate income tax nor net worth tax in Luxembourg, and they enjoy an exemption from VAT on management fees. Non-resident SIF investors are not subject to Luxembourg capital gains tax; distributions are generally exempt from withholding tax.

 

SIFs may enjoy access to the benefits of certain double taxation avoidance treaties signed by Luxembourg that cover investment companies with fixed or variable capital.

Furthermore, the Luxembourg law of 19 December 2020, provided for a reduction in subscription tax by progressively reducing the tax from the standard rate of 0.05% of assets to just 0.01% for funds in which at least 50% of assets are classified as sustainable.

The SIF must issue an offering document and an audited annual report. The offering document, which may be a private placement memorandum, offering memorandum or prospectus, is not subject to minimum content requirements, but it must include all information necessary to enable investors to make an informed judgment about the proposed investment and in particular its risks. It is recommended that the offering document meet all legal requirements imposed on prospectuses.

 

SIFs are exempt from the obligation to consolidate their accounting. Valuation of the assets is based on fair value. There is no obligation to publish a half-yearly report, only an annual one, which must be provided to investors and the CSSF within six months of the end of the period to which it relates. A SIF does not have to publish its net asset value.

As result of its flexibility, the SIF offers the possibility to be used to structure a hedge fund, private equity fund, venture capital fund, real estate fund, infrastructure fund, distressed debt fund, Islamic finance fund, socially responsible investment fund, tangible assets fund, and any other type of alternative fund. SIFs are also a good vehicle for private wealth management.

The SIF legislation offers a regime for the establishment of onshore, regulated alternative funds that has been tried, tested and refined over more than seventeen years, and that is now aligned with the requirements for regulation of alternative managers, and, indirectly their funds, under the AIFM Directive as of July 22, 2013.

SIFs can also benefit from the EuVECA, EuSEF and ELTIF regime.

With the broad flexibility available to promoters regarding the fund’s investment policy and the range of qualifying options opening up a wide investor base, the SIF offers a well-established vehicle for promoters targeting European institutions and individuals while offering investors sound and effective oversight.

Our investment management team:

  • Helps you find the most suitable investment vehicle to meet your requirements and your goals from a marketing, regulatory, legal and tax perspective.
  • Introduces you to suitable service providers to meet your requirements, namely custodian bank, AIFM, administration agent, registrar and transfer agent, and auditor.
  • Provides assistance with the establishment of the fund, including drafting of the private placement memorandum, assistance with the incorporation of the fund and its general partner, and regulatory filings with the CSSF.
  • Assists with the conversion of offshore funds into SIFs.
  • Provides corporate support services throughout the lifetime of the fund, including amendment of fund documentation, restructuring, or launching and closing of sub-funds.
  • Provides help with changes of service providers including the custodian bank, fund administrator, auditor or registrar and transfer agent.
  • Assists with the listing of the fund’s shares or units on the Luxembourg Stock Exchange’s regulated or EURO MTF market.
  • Provides support with the registration of the fund in other jurisdictions, in co-operation with local service providers.
  • Provides advice on AIFMD-related issues.
  • Provides advice to fund promoters on local private placement rules for marketing their funds in Luxembourg.
  • Keeps you up to date on the latest legal and regulatory developments,

 

For further information, please contact Olivier Sciales at oliviersciales@cs-avocats.lu

Compare two vehicles:


UCITSPart II UCIELTIFSIFSICARRAIFSPFSecuritisation vehicleUnregulated SCS/SCSpSOPARFI
English name/descriptionUndertakings for collective invesment in transferable securitiesPart II Undertaking for Collective InvestmentEuropean long-term investment fundSpecialised Investment FundInvestment Company in Risk CapitalReserved Alternative Investment FundPrivate Wealth Management CompanySecuritisation vehicleUnregulated common limited partnership/special limited partnershipSOPARFI
Practical useHighly regulated investment vehicle authorised by the CSSF and eligible for cross-border marketing within the EU under the UCITS passport, which may be marketed to retail, professional and institutional investors, subject to applicable requirements.CSSF-authorised regulated investment vehicle used for investment strategies that fall outside the the UCITS eligibility criteria, including strategies involving less liquid or non-UCITS-eligible assets, while remaining subject to full CSSF product supervision.EU long-term investment fund label applicable to investment vehicles investing in long-term assets forming part of the real economy, such as private equity, infrastructure, real assets and private debt, and designed to facilitate long-term investment strategies, including, subject to applicable conditions, access by retail investors.CSSF-authorised regulated alternative investment vehicle reserved to well-informed investors and commonly used as an AIF for a broad range of alternative investment strategies, including private equity, hedge funds, real estate, infrastructure and private debt.CSSF-authorised regulated investment vehicle dedicated to private equity, venture capital and other investments qualifying as risk capital, targeting the development and value creation of portfolio companies.Alternative investment vehicle reserved to well-informed investors, used for the same range of alternative investment strategies as SIFs, including hedge funds, private equity, venture capital, real estate, infrastructure and private debt, and structured without prior CSSF product authorisation, with regulatory supervision exercised by the CSSF at the level of the authorised AIFM.Unregulated investment vehicle used by individuals for private wealth structuring and the holding of financial assets, limited to passive asset management and excluded from any commercial or professional investment activity.Investment vehicle used for securitisation transactions, including true sale and synthetic securitisations, securitisation of portfolios of securities or receivables (such as loans, leasing receivables and non-performing loans), securitisation of tangible and intangible assets, intra-group financing structures, and structured finance transactions such as collateralised loan obligations (CLOs), including, where applicable, actively managed structures.
Unregulated partnership investment vehicle commonly used for private equity, real estate, venture capital and other alternative strategies, offering significant contractual flexibility and frequently used in fund structuring, co-investment arrangements and carried interest vehicle structures.Ordinary Luxembourg corporate vehicle commonly used for holding, financing and investment activities, including the holding of participations, intra-group financing, intellectual property holding and other investment activities, depending on the structure and purpose.
Applicable legislationLaw 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”), amended on 15 March 2023 .
("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 CSSFYes.Yes.Yes.Yes.Yes.No.No.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 EUR 100,000 and it is not distributed as private placement.Non.Non.
Qualification as an AIFNo.Always an AIF.Always an AIF.Yes, unless it falls outside the AIF definition (i.e. 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 it falls outside the AIF definition (i.e. 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 requirementNot 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 investorsUnrestricted.Unrestricted.Unrestricted.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.Well-informed investors, namely institutional or professional investors (MiFID II), or other investors who confirm their status in writing and either invest at least EUR 100,000 or are assessed by a credit institution, investment firm, UCITS ManCo or authorised AIFM as having sufficient expertise, experience and knowledge.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 assetsRestricted 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. The investment objective and strategy of the fund is subject to the prior approval of the CSSF. Restricted to investments in securities
representing risk capital as specified in CSSF Circular 25/901 which has replaced Circular 06/241.

The circular clarifies the criteria applied by the CSSF when assessing whether investments pursued by a SICAR qualify as risk capital, notably the intention to develop the target entity, the existence of a specific risk going beyond mere market risk, an exit strategy and, where appropriate, a degree of control or supervision

A SICAR may use derivatives for hedging purposes or if such transactions are necessary to the realisation of its investment policy. However, investments in derivatives may not be the object of its investment policy, as they are not used, in principle, to create value in itself or to contribute to the development of the target entity.

The investment of a SICAR in real estate is only possible through intermediary vehicles (such as SPVs) or real-estate funds. The underlying real-estate assets must meet the criteria of risk capital set out in CSSF circular 25/901.
Unrestricted, unless the RAIF is established as a SICAR-type RAIF investing exclusively in risk capital.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 requirementsRisk 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 applicable to Part II UCIs are set out in CSSF Circular 25/901, which specifies the concept of risk-spreading referred to in Articles 89(1), 93(1) and 97 of the Law of 17 December 2010.
In principle, Part II UCIs marketed to unsophisticated retail investors may not invest more than 25% of their assets or commitments to subscribe in a single issuer, entity or asset, subject to specific derogations. For Part II UCIs reserved to well-informed or professional investors, this limit is raised to 50%, and up to 70% for a single infrastructure investment.
The circular allows for duly justified derogations and provides for ramp-up and, where applicable, wind-down periods during which investment limits may not apply, subject to CSSF acceptance.
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 set out in CSSF Circular 25/901.

For SIFs and compartments thereof reserved for well-informed or professional investors, the following concentration limits apply
- a maximum of 50% of assets may be invested in a single issuer, entity, or asset;
- a higher limit of up to 70% applies to a single infrastructure investment.

The circular also allows a defined ramp-up period and a wind down period up to 4 years for private investments, during which limits may not apply as described in the sales document. 		No risk diversification requirements.


A SICAR may set investment limits in its sales document and may include ramp up and wind down periods during which those self-imposed limits do not apply.
Aligned with SIF risk diversification rules, unless the RAIF has opted to invest exclusively in risk capital and is therefore subject to the SICAR regime, as stated 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 structureYes.Yes.Yes. Application for authorisation as ELTIF of one or more compartments may be submittedYes.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 authorisation 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.
• Registered AIFM or Authorised AIFM in case of an AIF above threshold.		•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.
•Authorised AIFM.
•Other service providers required by the relevant product rules.
• Registered AIFM or authorised AIFM in case of an AIF above threshold.
• 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 AIFM or authorised AIFM in case of AIF above threshold.
• Depositary bank or professional of the financial sector providing depositary services, subject to conditions.
• Administrative agent.
• Registrar and Transfer Agent.
• Approved statutory auditor.
• Authorised AIFM.
• 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 listingYes.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 passportYes.Yes, but needs to fall under the scope of the full AIFMD regime.Yes.Yes, but needs to fall under the scope of the full AIFMD regime.Yes, but needs to fall under the scope of the full AIFMD regime.Yes (always under the full AIFMD regime).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 frequencyThe 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.The valuation of the assets of the company is based on the "fair value".At least once a year.Not required. Not required. Not required.Not required.
Borrowings / leverage limitsBorrowings 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.Part II UCI may borrow cash. Where borrowing is used for investment purposes and the fund or compartment is marketed to unsophisticated retail investors, borrowing must, in principle, not exceed 70% of its assets or commitments to subscribe. Where the fund or compartment is reserved to well-informed or professional investors, this limit does not apply and the maximum borrowing level is determined by the fund and disclosed in its sales document.As ELTIF is an EU label, there is no harmonised EU-level debt-to-equity ratio and any product-specific leverage constraints depend on the national 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.

According to circular 25/901, SIFs may borrow cash for investment and operational purposes. The Fund or compartment may set its own borrowing limits.
No debt-to-equity ratio.

CSSF Circular 25/901, limits the use of borrowing in consideration to the specific objective of the SICAR. Reference should be made to the general principles laid down in Chapter 5 of the circular. When borrowing cash, the fund or the compartment may encumber assets.
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.
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 taxNo 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 progressive 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 dividendsNot 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 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		• SICAV/SICAF: Limited to certain double tax treaties (see circular L.G. -A n°61 of the tax administration of 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		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 24 December 2024).
• FCP: see circular L.G.-A n°61 of the tax administration of 24 December 2024.		In principle 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 24 December 2024).
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 DirectiveNo.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.

by leohil

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 capitalThe 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 depositaryThe 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.
Taxi. 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 2023Previous regime under SIF Law
Eligibility of well-informed investorThe 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 capitalThe 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 depositaryThe 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 redemptionSubscriptions 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.
MarketingMarketing 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.
TaxSIFs 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 investorThe 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 capitalThe 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 depositaryThe 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 redemptionSubscriptions 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.
MarketingMarketing 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. 
TaxAll 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 investorThe 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 capitalThe 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 formalitiesThe 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.
MarketingMarketing 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 depositaryThe 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 redemptionSubscriptions 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.
TaxRAIFs 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 AgentsAuthorized 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.
MarketingAIFMs 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.  

 

by Olivier Sciales

New CSSF FAQ on AML/CFT RC reports for Luxembourg investment funds and managers

The CSSF published on March 18 a new frequently-asked questions document on the completion and transmission of the AML/CFT compliance officer’s summary report, as defined in articles 42 (6) and 42 (7) of the amended CSSF Regulation 12-02 of December 14, 2012 on measures to curb money laundering and financing of terrorism.

Who is required to prepare and submit the report?

The compliance officer (in French, responsable du contrôle) of Luxembourg AIFMs, Luxembourg-domiciled investment funds that have appointed a foreign AIFM and self-managed funds are required to prepare the report and present it to the entity’s management board, and submit it to the CSSF. The report must be dated and signed by the compliance officer (RC). It must be prepared even if the inquiries and due diligence carried out by the RC revealed no shortcomings.

When and how should the report be submitted?

The AML/CFT RC report must be submitted within five months following the end of the entity’s financial year either via e-file or Sofie for entities subject to CSSF Circular 19/708, or via the edesk module for registered AIFMs.

What should the report contain?

The AML/CFT report should be a consistent and accurate description of the work performed by the RC and of related findings.

For entities subject to CSSF Circular 18/698, the report must at least:

  • Results of the identification and assessment of money laundering and financing of terrorism risks and measures taken to mitigate them, as well as the AIFM’s risk level tolerance.
  • Results of due diligence conducted on clients, fund initiators, portfolio managers to whom management is delegated and investment advisers, including ongoing due diligence.
  • Results of enhanced due diligence conducted on intermediaries acting on behalf of their clients in accordance with the provisions of article 3 of CSSF Regulation 12-02, including ongoing due diligence.
  • Results of enhanced due diligence on individuals identified as politically exposed persons in according to article 3-2(4)(d) of the amended law of November 12, 2004 on money laundering and financing of terrorism.
  • Results of due diligence conducted on fund assets, including ongoing due diligence.
  • Monitoring any positions blocked due to AML/CFT concerns in the registers of fund unit-holders and/or intermediaries involved in the marketing of funds.
  • Periodic review of all business relationships according to their risk level.
  • In cases of delegation of tasks relating to professional obligations to third parties, results of monitoring carried out on the compliance of services provided by the third parties, not only with legal and regulatory provisions but also the contractual provisions; and where relevant, reasons why the fund manager has chosen new third parties during the year.
  • Statistical history concerning transactions identified as suspicious that inform the number of suspicious transaction cases reported to the Financial Intelligence Unit by the fund manager, as well as the total volume of funds involved.
  • Statistical history concerning transactions reported due to financial sanctions relating to financing of terrorism and those relating to implementation of United Nations Security Council resolutions and acts adopted by the European Union as well as the volume of funds involved.
  • The number of identified breaches of AML/CFT professional obligations, even if the number is zero.
  • The number of AML/CFT actions carried out notably as a result of Circular CSSF 18/698, from the work of the RC, the internal audit, external audit or CSSF’s inspections., with a description of the main actions, and the deadline for their implementation, under article 7(2) of the Grand-Ducal Regulation of February 1, 2010 and article 42(5) of CSSF regulation 12-02. If the number is zero, this must be clearly stated.

The report must be accompanied by documentation on the identification, assessment and mitigation of money laundering and financing of terrorism risks.

For entities not subject to CSSF Circular 18/698, the AML/CFT RC report should cover at least cover the following:

  • Overall residual money laundering and financing of terrorism risk assessment, including risk appetite, identified risks and mitigation measures put in place, emerging risks and their severity in terms of impact.
  • Results of AML/CFT due diligence on investors.
  • Results of AML/CFT due diligence on high-risk clients such as politically exposed persons, if any.
  • Results of AML/CFT due diligence on fund initiators, including group initiators.
  • Results of AML/CFT due diligence on investment advisors, if any.
  • Results of AML/CFT due diligence on distributors, if any.
  • Results of AML/CFT due diligence on delegates and service providers such as registrars and transfer agents or external portfolio managers, if any.
  • Results of AML/CFT due diligence on cross-border intermediaries, if any.
  • Results of AML/CFT due diligence on assets.
  • Results of AML/CFT due diligence on blocked accounts, if any.
  • Results of targeted financial sanctions screening.
  • Outcome of verification by the RC that all appropriate staff have been trained on AML/CFT issues.
  • List of co-operation with Luxembourg authorities on AML/CFT issues.
  • Dedicated money laundering and financing of terrorism shortcomings section, including remediation plan, if any.

What is the RC’s liability in the event of failure to submit the report?

A professional who fails to provide the AML/CFT report may be subject to sanctions as detailed in article 8-4 of the amended AML law of November 12, 2004.

If a recently appointed RC identifies that the outgoing RC failed to file the annual AML/CFT report, the CSSF expects the incoming RC to ensure that the report is submitted. Additionally, if the new RC finds that the exiting RC has performed no AML/CFT due diligence, the CSSF expects the entity’s board to submit a letter to explain the situation and the oversight performed by the board or compliance manager (RR) on the work of the outgoing RC.

What about entities being dissolved and placed in non-judicial liquidation?

Entities being dissolved and placed in non-judicial liquidation must submit the AML/CFT report to the CSSF until the effective start date of liquidation. AML/CFT reports are no longer required after the start of liquidation. However, since money laundering and financing of terrorism risks remain present during the liquidation, the liquidator is responsible for the entity’s AML/CFT controls, notably regarding co-operation with the authorities.

The CSSF’s FAQ can be found at: https://www.cssf.lu/wp-content/uploads/FAQ_RC_Report.pdf

by Olivier Sciales

RAIF real estate

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

by Olivier Sciales

AML

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.

by Olivier Sciales

Authorisation requirements of Luxembourg investment advisers to Luxembourg funds (i.e. SIFs, UCITS, etc.)

Advisers to collective investment funds are henceforth included in the scope of application of the 1993 financial services legislation and must hold an investment adviser authorisation issued by the Finance Ministry, the CSSF has announced, following the entry into force of the law of December 21, 2012.
The legislation transposed into Luxembourg law the so-called ‘Omnibus I’ Directive 2010/78/EU of November 24, 2010, establishing the powers of the three EU financial regulatory agencies, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority and setting out the framework for reporting, notification and co-operation responsibilities of national regulators in these sectors. The legislation came into force on December 31.
The legislation notably amends Luxembourg’s 1993 legislation by ending the exclusion from authorisation requirements of investment advisers to UCITS and Part II funds established under the law of December 17, 2010 and advisers to Specialised Investment Funds regulated by the SIF law of February 2007. Investment adviser authorisation is carried out under Article 24 of the financial services legislation.
New entrants (i.e. investment advisers) must be authorised before taking up activity, while firms already active as investment advisers to these funds have until June 30 this year to comply with the provisions of the 1993 legislation (the deadline has been shifted from the end of 2012). The CSSF has invited such firms to file their authorisation request as soon as possible to ensure it can be processed by the deadline.
Beyond the submission of the authorisation application, firms will be subject to additional legal requirements comprising compliance with the CSSF’s requirements regarding their structure, administration and internal controls, periodic reporting to the regulator, including the annual long form report, and a mandatory annual audit if the firm is not already required to undergo one.
Otherwise the legislation brings Luxembourg’s law regarding regulation and oversight of investment funds as a whole into line with the requirements of the new EU supervisory structure for financial services introduced at the beginning of 2011.
In a statement issued on March 6, the CSSF states that most of firms submitting applications that the regulator has received to date in response to its announcement do not meet the definition of investment adviser in the meaning of Article 24 of the financial services legislation.
These entities do not provide personalised recommendations to investor clients and are not targeted by the stipulations relating to the provision of investment services stemming from the markets in financial instruments legislation. Such firms, which only advise collective investment funds under the 2010 legislation and Specialised Investment Funds, do not need to be authorised under Article 24.
Before taking matters further, the CSSF says it plans to send a questionnaire to 2010 legislation funds and SIFs regarding the advisers they use, in order to determine whether some of these need to be authorised under the financial services legislation, in particular if they provide advice outside the investment fund or SIF group of which they are part.
The CSSF press release can be found here [download id=”81″]

by Olivier Sciales

Luxembourg’s amended SIF law comes into force

Luxembourg’s legislation amending the February 2007 law on Specialised Investment Funds came into force on April 1, following publication in the country’s official gazette, the Mémorial, on March 30. It is now identified as the law of March 26, 2012, the date on which it received royal assent.
The revised legislation was submitted to Luxembourg’s Parliament, the Chamber of Deputies, on August 12 last year, and it was adopted on March 6. The law is designed to adapt the highly successful SIF regime to European and international developments regarding regulation and transparency of alternative investments, including the European Union’s Directive on Alternative Investment Fund Managers.
Existing SIFs must comply with the new requirements on risk management procedures, measures designed to avoid or mitigate conflicts of interest and methods of verifying investor eligibility by June 30 this year, while the rules regarding delegation must be implemented by June 30, 2013.
The legislation applies to new SIFs immediately. A total of 1,402 SIFs with assets of €249.4bn in assets under management were established in Luxembourg as of the end of February, according to the industry regulator, the Financial Sector Supervisory Authority (CSSF).
The revised legislation reflects the provisions not only of the AIFM Directive, which will take effect on July 22, 2013, but also some parts of Luxembourg’s funds legislation of December 17, 2010, which transposed the Ucits IV Directive into national law.
In addition to the measures dealing with delegation, risk management and the handling of actual or potential conflicts of interest, the legislation also allows sub-funds of a SIF umbrella structure to invest in other compartments of the same structure.
It also requires funds to be authorised by the CSSF before they can be launched, abolishing a provision of the 2007 law that allowed promoters up to a month after the launch of a fund to submit it to the regulator for approval. For further details of the new law, please see our article of March 9 entitled Luxembourg adopts AIFMD-ready amended SIF legislation which can be found by clicking on the below link

by Olivier Sciales

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