Features of Investment Fund Functioning in Luxembourg

Published:
February 10, 2022
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Luxembourg is the most optimal jurisdiction in terms of conditions (after the States) for those entrepreneurs who are interested in opening a fund. Investment fund functioning, established in Luxembourg, includes the right to operate indefinitely in the EU, and a flexible structure and great prospects for entering international markets.

These criteria make Luxembourg ideal for setting up funds such as umbrellas, hedge funds, private institutions, real estate funds and others.

Below we will consider the general conditions for registering a fund in this jurisdiction, the features of taxation and the main requirements for these structures.

The Main Advantages of Jurisdiction

Let’s start by noting the advantages of investment fund functioning in Luxembourg.

  • The jurisdiction is able to adapt to the goals of the entrepreneur, offering a wide variety of business assets, in particular, simple bonds and stocks, innovative infrastructure developments, a developed Forex market, the opportunity to work with precious metals, and more.
  • Uncomplicated operating conditions: compliance with EU standards and general rules.
  • Low percentage of taxation. There is no income tax or capital gains tax.

Among other things, Luxembourg is also the largest center for investment funds in all of Europe, and is the second most preferred in the world after the United States. The financial sector regulator CSSF is globally recognized for its flexible regulatory framework and innovative regulatory practices.

Thus, the fund industry in Luxembourg provides entrepreneurs with the opportunity to get the best experience in managing these structures, as well as access to the best conditions for European cooperation.

Characteristics of an Investment Fund Functioning as a Commercial Structure

  • Funds such as RAIF, AIF and UCITS, which can be listed within the stock exchange jurisdiction of Luxembourg, will also be recognized on other EU stock exchanges.
  • Favorable tax environment, especially for non-resident companies.
  • Effective rules, favorable conditions and flexibility.
  • Huge variety of accounting, legal and banking services.
  • Ranked first among EU member countries in terms of doing business and complying with relevant EU regulations.

Most Popular Fund Structures

  • Specialized Fund – SIF.

SIFs are fairly easy to regulate and tax efficient. In addition, these are multi-purpose structures that are designed to work with all types of investments.

These funds can be formed through contractual obligations or as an officially registered investment fund with variable or fixed capital. Among other things, SIFs enjoy some tax benefits, such as exemption from capital gains tax and company formation tax, and in addition, investors are not required to pay tax on their net worth.

Almost 40% of all collective investments of Luxembourg, in accordance with the data obtained for 2019; fall on this particular fund structure. Prior to the introduction of the RAIF type, the SIF was the most popular organizational form for foundations.

  • Reserve Alternative Fund – RAIF.

This form was introduced in 2016. RAIF combines the features of the functioning of the most popular fund structures, in particular, SICAR and SIF. Such companies offer the activation of several investment strategies at once and excellent diversification of resources due to the fact that they have an umbrella structure that implies the presence of several “divisions”.

RAIF can be registered and launched through a simplified procedure that usually takes no more than 4-6 weeks. This is because these structures are not controlled by CSSF. Among other things, RAIFs enjoy all the marketing benefits available to companies established in the EU and those provided by compliance with European law.

This form is the most preferred option for new funds. At the end of 2019, the number of registered RAIFs increased to almost a thousand.

Regulatory Nuance to Be Taken Into Account

There is another alternative type of investment funds called AIF and has two forms – a company that has certain assets, and a company that manages such assets – AIFM.

Together, these two structures are regulated by EU regulations. These funds have the right to offer their services throughout the European Union, subject to the availability of an appropriate license and passport. Although an entrepreneur, regardless of whether he is a resident of Luxembourg or not, can register his own AIFM, this is a rather long and laborious process. That is why most investors prefer to purchase a ready-made license, which saves them from most of the administrative work, and allows them to concentrate on the most important thing – the development of their structure.

If you are interested in involving investment niche, ELI Deal is ready to provide you with hundreds offers in the category “Investment Banks“. In particular, we recommend you to consider the following variants:

Our team will help you to choose the reliable jurisdiction and advice you on all aspects. Contact us whenever you want.

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