FACTS AND FIGURES
Top Reasons to Come to Luxembourg
Background and historic evolution
Building on the infrastructure, expertise and knowledge that Luxembourg has developed in the retail fund industry over the past 30 years, combined with a favorable environment for Private Equity, for many years now Luxembourg has been used for the structuring of international acquisitions via unregulated vehicles such as SOPARFIs. Today Luxembourg is the domicile of over 25,000 registered holding companies, of which a considerable number is used to structure Private Equity acquisitions.
For the regulated vehicles: SICAR and SIF, the following are the most recent figures, as published by the Luxembourg supervisory authority of finance, the CSSF. (Commission de Surveillance du Secteur Financier):
- SICARs can be created using different corporate forms:
- SICARs in the form of a limited partnership (S.C.S. or S.C.Sp.). The SICAR, organised in the form of an S.C.S./ S.C.Sp., is tax transparent and thus is not subject to corporate, municipal business and net wealth tax. Income and gains received or realised are thus not subject to tax in the hands of the SICAR. Income and gains may furthermore be paid to investors without any Luxembourg withholding taxes.
- SICARs in the form of a corporate partnership limited by shares (S.C.A.). The SICAR organised as an S.C.A. is a fully taxable company; income from transferable securities is however exempt under specific conditions; the SICAR in the form of an S.C.A. is not subject to net wealth tax. Dividend distributions are not subject to any Luxembourg withholding taxes.
- SIFs whether organised as a limited partnership or a corporate partnership limited by shares are not subject to any Luxembourg taxes on capital gains or income; the sole tax due is a subscription tax of 0.01% based on the quarterly net asset value. Certain exemptions are available. SIFs in corporate form can moreover claim access to certain double tax treaties (currently at least 43 tax treaties). Profit distributions by SIFs as well the redemption of shares/units in SIFs are not subject to any Luxembourg withholding taxes.
(*) Number of SIFs as of February 2019
Source: Commission de Surveillance du Secteur Financier
Limited Partnerships (SCSp)
- Besides the existing S.C.S., the AIFMD Law introduced a new legal form, the Special Limited Partnership (S.C.Sp., in French the Société en Commandite Spéciale or SLP) a limited partnership without legal personality.
- This legal form provides for a modernised legal framework for the organisation of the GP-LP relationship. It is comparable to the common law limited partnership and can also be set up under a specific regulatory wrapper regime such as the SICAR or SIF regimes, or without.
- A non-regulated limited partnership is transparent for Luxembourg income tax and net wealth tax purposes. However, it may be subject to municipal business tax (i) if one if its GPs is a Luxembourg joint stock company holding at least 5% of the partnership interests or (ii) if it carries out commercial activities.
- According to an administrative circular dated 9 January 2015, non-regulated limited partnerships that are AIFs are never considered as carrying out commercial activities and are thus completely tax transparent in Luxembourg, provided none of the GPs is a Luxembourg joint stock company holding at least 5% of the partnership interests.
- For non-regulated limited partnerships that are not AIFs, the nature of their activities needs to be analysed on a case-by-case basis in light of all the facts and circumstances (e.g. the investment policy of the limited partnership), it being understood that the volume of the assets or the disposal of certain assets within a short period of time are not decisive factors on a stand-alone basis. Non-regulated limited partnerships not qualifying as AIFs with a private equity investment policy should under normal circumstances not be considered as carrying out commercial activities given that they hold their assets for extended periods of time (i.e. no frequent trading of assets).
- Profit distributions by non-regulated limited partnerships to their partners are not subject to any Luxembourg withholding taxes. Nonresident partners should not have a permanent establishment in Luxembourg merely as a result of holding shares in a limited partnership where such limited partnership is not a business enterprise for municipal business tax purposes.
Source: Registre de Commerce et des Sociétés via PwC Luxembourg
RAIF – Reserved Alternative Investment Fund
- The RAIF is a flexible, multipurpose alternative investment fund that can be marketed quickly. It is regulated through its relevant manager, under de Alternative Investment Fund Manager Directive (AIFMD).
- To a large extent, the RAIF vehicle offers similar structuring flexibilities as Luxembourg specialised investment funds (“SIFs”). However, in contrast to SIFs, RAIFs are not subject to supervision of the Luxembourg supervisory authority of the financial sector (the “CSSF”).
- In addition, RAIFs adopting a corporate form are, unless it is derogated therefrom by the RAIF Law, subject to the general provisions of the 1915 Law. Moreover, as RAIFs qualify as AIFs managed by a duly authorised AIFM subject to the full AIFMD requirements, RAIFs will be subject to the so-called “AIFMD Product Rules” applicable to them. These AIFMD Product Rules include, among others, specific AIFMD requirements in terms of (i) appointment of the RAIF’s depositary, (ii) appointment of the RAIF’s approved statutory auditor, (iii) minimum content of the RAIF’s annual report, (iv) valuation of the RAIF’s assets, and (v) investment and leverage rules regarding certain types of assets.
- However, in exchange for complying with all the conditions laid down in the AIFMD and provided that their AIFM is fully licensed, RAIFs may benefit from the AIFMD passport under certain conditions in order to be marketed to professional investors (and retail investors if permitted by the relevant Member States) in the EU.