Foreign investors who are interested in how to start a fund in Luxembourg should know that the procedure may vary depending on the vehicle chosen for registration. One of the ways to invest in this jurisdiction is by opening a specialized investment fund (SIF), which is addressed to investors with a high degree of knowledge in the field.
SIF law in Luxembourg
A SIF vehicle follows the regulations applicable under the Law of 12 July 2013, which introduced the Alternative Investment Fund Managers Directive on the local market. The legislation amended the previous regulation, the Law of 13 February 2007.
Businessmen interested in how to start an investment fund in Luxembourg may register a SIF qualified as:
• SIFs under the general provisions applicable for such vehicles;
• SIFs which qualify as alternative investment funds.
Legal forms for SIFs in Luxembourg
A SIF in Luxembourg may set up under one of the following vehicles:
• investment company with variable capital (SICAV);
• investment company with fixed capital (SICAF);
• common fund.
The SIF is addressed to qualified investors, which can be represented by specific categories of investors:
• institutional investors;
• professional investors;
• well-informed investors.
This is a type of investment fund that can invest in multiple types of assets, which is why it addresses professional investors only. Also known as sophisticated investors, these are defined as:
- investors who can confirm in writing their acknowledgment of this status;
- investors who can inject at least EUR 100,000 in the chosen assets;
- investors who are recognized as such by EU financial institutions, investment companies, or AIFM managers.
At the same time, qualified investors may start a hedge fund in Luxembourg, as this type of fund is available for the same category of businessmen.
The vehicles may be registered under the next legal entities:
• public limited company;
• limited liability company;
• partnership limited by shares;
• cooperative established as a public limited company.
Registration requirements for SIFs in Luxembourg
An advantage of the SIF structure refers to the fact that the investors may set up compartments within the fund, through which they can carry out multiple investment strategies at the same time. A compulsory requirement when registering a SIF in Luxembourg refers to the capital, which has to be of minimum EUR 1,250,000 in net assets.
The capital can be deposited in a period of 12 months since the registration; during the incorporation procedure the investors are required to pay only 5% of this sum.
Authorization of SIFs in Luxembourg
If you want to know how to start an investment fund as a SIF in Luxembourg, you should pay attention to the authorization requirements. This type of fund must obtain its operational license from the Financial Supervisory Commission in the Grand Duchy before starting its activities. The following aspects must be respected in this sense:
- Articles 42, 42 bis, and 42ter in the SIF law provide for the information and the content of the prospectus to be filed with the Commission;
- the SIF must also have a risk management system in place, and its content must be submitted to the CSSF for approval, according to Regulation 15-07;
- details about the manager or investment management company must also be supplied upon authorization;
- another requirement is for the SIF to have a Luxembourg custodian.
It is useful to note that Luxembourg SIFs can also operate under the AIFM regulations, which grant them passporting rights. We also have various articles on these regulations.
Investment principles for SIFs in Luxembourg
The SIF can also be used for starting a hedge fund in the jurisdictions where such funds are legally acknowledged, which also means Luxembourg. However, there are several investment principles it needs to abide by, among which:
- it cannot invest more than 30% of the assets in similar securities launched by the same issuer;
- it cannot be a short seller of more than 30% of similar securities put on the market by the same issuer;
- when presenting derivative financial instruments to investors, it must offer appropriate diversification for the underlying assets of the respective instruments.
There are also exceptions to these rules, which is why we invite you to reach out to our affiliates who can offer more information.
The video below offers a short presentation on the specialized investment fund in Luxembourg:
Taxation of SIFs in Luxembourg
With a stable economy and an attractive taxation system, Luxembourg became the top European market for the registration of an investment fund. Here are the main aspects to consider about SIFs in Luxembourg:
- they are not subject to the income tax, but must pay a 0.01% annual subscription tax computed on the value of the total net assets of the fund;
- depositary banks can also benefit from a reduced VAT rate of 14% in relation to the services provided to SIFs;
- technical services related to the operations of SIFs are taxed at the standard 15% VAT rate.
From a taxation point of view, we can also recommend offshore jurisdictions, such as the Cayman Islands, where the Cayman SPC (segregated portfolio company) is tax efficient.
Businessmen are invited to contact our team of affiliates in Luxembourg for more details on the registration of a specialized investment fund.