Luxembourg Fund Structures

Luxembourg is Europe’s most important cross-border investment funds domicile, both for mutual (UCITS) as well as for alternative investment funds (AIF). The Luxembourg investment funds model has traditionally been based on sound regulation at product level but the AIFM Directive introduced a manager regulation with certain product regulation features. By June 2017, there were more than 4,000 UCIs, comprising 14,674 compartments (often referred to as sub-funds), with net assets of approximately €4 trillion.

1. Securitized Fund (Luxembourg law of 22 March 2004 on securitisation). Most flexible, lightly regulated and tax efficient regime.Not under the supervision of CSSF (financial authority in Luxembourg)

• Investment in all types of assets possible; no diversification required;
• Segregation of assets possible with compartments within the fund; may act as an umbrella fund;
• No legal form; Has to be managed by a Luxembourg-based management company;
• Active marketing not allowed, fund only open to professional investors; 2 public issuances / year possible without becoming regulated;
• No limitation for assets under management (AuM);
• Assets may not be entrusted for custody to a credit institution with registered office in Luxembourg;
• Accounts have to be audited by one or more independent auditors on a yearly basis;
• AIFMD does not apply to securitisation vehicles;
• Tax neutral;
• Subject to annual net wealth tax ranging from €535 to €3,210 depending on the vehicle’s total gross assets.
• Management services, collateral management fees, investment advisory fees provided to this vehicle benefit from VAT exemption;

2. RAIF (Reserved Alternative Investment Fund) – Luxembourg law of 23 July 2016 – combines the characteristics and structuring flexibilities of Luxembourg regulated specialised investment funds (SIFs) and investment companies in risk capital (SICARs).

• Not subject to CSSF approval before it is launched and do not fall under the direct ongoing supervision of the CSSF;
• No restriction in terms of eligible assets; no diversification required only if RAIF’s constitutional documents provide for exclusive investments in risk capital (like SICARs); if not, the principle of risk-spreading applies;
• Segregation of assets possible with compartments within the fund; may act as an umbrella fund;
• RAIF with no legal form is possible (Fonds Commun de Placement – FCP – regime) but the fund must be managed by a Luxembourg registered management company (with an initial capital of at least €250,000), or the fund can be constituted as an investment company (SICAV Societe d’investissement a capital variable or SICAF Societe d’investissement a capital fixe) and have six possible legal forms: SA; SARL; SCA; SCS; SLP or SCoSA;
• Can only be managed by an authorised AIFM which has its registered office in an EU member state and is fully compliant with the AIFMD; A RAIF cannot be internally managed.
• The RAIF’s shares/units can be distributed to professional investors across Europe by way of the marketing passport;
• Fund only open to professional investors (minimum €125,000 subscription)
• The net assets of a RAIF may not be less than €1,250,000. This minimum must be reached within one year following its authorisation.
• RAIFs must appoint a depositary responsible for both safekeeping of assets and the supervision of the fund and its management company.
• Subject to a reduced subscription tax of 0.01% p.a. of its NAV, unless tax exempt under different circumstances;
• Accounts have to be audited by one or more independent auditors on a yearly basis;

3. UCI (Part II of the Luxembourg Law of 17 December 2010, Law of 13 February 2007 on SIFs, Law of 15 June 2004 of SICARs) – Undertakings for collective investment –

• A UCI fund must be authorised by the CSSF before it can start its activities. It is supervised by the CSSF and must fulfil detailed reporting requirements.
• There is no restriction in terms of eligible assets of a UCI. However, the investment objective and strategy is subject to prior approval by the CSSF. Risk diversification requirements are defined by IML Circular n° 91/75 and are less stringent than the ones in application for Part I funds (UCITS).
• Segregation of assets possible with compartments within the fund; may act as an umbrella fund;
• UCI with no legal form is possible but the fund must be managed by a EU registered management company (with an initial capital of at least €125,000), or the fund can be constituted as an investment company (SICAV Societe d’investissement a capital variable or SICAF Societe d’investissement a capital fixe) and have six possible legal forms: SA; SARL; SCA; SCS; SLP or SCoSA;
• Can only be managed by an authorised AIFM (unless they benefit from the limited exemptions provided by the AIFM law) which has its registered office in an EU member state and is fully compliant with the AIFMD;
• In principle, marketing to retail investors is permitted. Shares/units can be distributed across Europe by way of the marketing passport;
• The net assets of a UCI may not be less than €1,250,000. This minimum must be reached within 6 months following its authorisation.
• UCIs must appoint a depositary responsible for both safekeeping of assets and the supervision of the fund and its management company.
• Subject to a subscription tax of 0.05% p.a. of its NAV, unless reduced to 0.01% or exempt under different circumstances;
• UCIs prepare an annual and semi-annual report. The annual report is audited by an authorised external auditor.

4. UCITS (Luxembourg Law of 17 December 2010) – Undertakings for Collective Investment in Transferable Securities –

• UCITS must be authorised by the CSSF before it can start its activities. It must provide a series of documents and specific information to the Luxembourg supervisory authority CSSF.
• UCITS must invest in “eligible assets” such as transferable securities, money market instruments or bank deposits. The Law of 17 December 2010 provides the full list of eligible investments, and defines detailed risk diversification requirements.
• Segregation of assets possible with compartments within the fund; may act as an umbrella fund;
• UCITS with no legal form is possible but the fund must be managed by a EU registered management company (with an initial capital of at least €125,000), or the fund can be constituted as an investment company (SICAV Societe d’investissement a capital variable or SICAF Societe d’investissement a capital fixe) and have six possible legal forms: SA; SARL; SCA; SCS; SLP or SCoSA;
• Can only be managed by an authorised AIFM which has its registered office in an EU member state and is fully compliant with the AIFMD;
• Risk-management process must be employed which enables the UCITS to monitor and measure at any time all the material risk of its positions.
• Marketing to retail investors is permitted. Shares/units can be distributed across Europe by way of the marketing passport;
• The net assets of a UCI may not be less than €1,250,000. This minimum must be reached within 6 months following its authorisation.
• UCITSs must appoint a depositary responsible for both safekeeping of assets and the supervision of the fund and its management company.
• Subject to a subscription tax of 0.05% p.a. of its NAV, unless reduced to 0.01% or exempt under different circumstances;
• UCITS prepares an annual and semi-annual report. The annual report is audited by an authorised external auditor. The fund’s NAV must be calculated at least twice a month.