PRIVATE EQUITY IN LUXEMBOURG - Your guide to set up and manage your Private Equity and Venture Capital structure in Luxembourg - IPEM
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
PRIVATE EQUITY IN LUXEMBOURG Your guide to set up and manage your Private Equity and Venture Capital structure in Luxembourg
2 LPEA 2020
DISCLAIMER
LPEA believes the information document. The information and data
contained in this document to be provided in this document are for
reliable and correct. However, LPEA general information purposes. It does
makes no representation or warranty not constitute legal, tax or investment
(express or implied) as to the accuracy, advice nor can it take account of your
completeness or continued availability own particular circumstances. If you
of the information and data available require any advice, you should contact
from this document. To the fullest extent a financial or other professional adviser.
permissible under applicable law, LPEA No material in this documentation is
does not accept any responsibility an offer or solicitation to buy or sell
or liability of any kind, with respect any professional services, financial
to the accuracy or completeness of products or investments.
the information and data from this
Contributions provided by the following LPEA members:
Elvinger Hoss Prussen, Etude Loesch, EY, GSK Stockmann, Intertrust and PwC Legal.
© LPEA, January 2020
LPEA | 12, rue Erasme | L-1468 Luxembourg
E-mail: lpea-office@lpea.lu | Telephone: (+ 352) 28 68 19 - 602 | www.lpea.lu
Follow us on: www.twitter.com/lpea_lux | www.linkedin.com/company/lpea
CONTENTS
Foreword by the CEO of LPEA and
Message from the Minister of Finance
1. Executive Summary
2. Luxembourg – a Conducive Environment to
the development of private equity
3. The LPEA GP Survey
4. Private Capital – Legal
Framework
5. Private Debt
6. The Luxembourg Tax
Environment
ABOUT LPEA 7. Accounting Framework for
The Luxembourg Private Equity and Luxembourg PE Vehicles
Venture Capital Association (LPEA) is the
representative body of private equity and 8. The Alternative Investment Fund Managers
venture capital practitioners with a presence Directive (AIFMD)
in Luxembourg.
With over 250 members, LPEA plays a leading 9. The Regulations on European Venture
role locally and actively promotes PE and VC Capital Funds (EuVECA)
in Luxembourg.
LPEA is the go-to platform for PE and VC 10. Regime for European Long-Term
investors and advisers, with a focus on the Investment Funds (ELTIF)
latest trends in the industry. International by
nature, it allows members to discuss and 11. Private Equity Services Provision
exchange while learning via workshops and
networking events held on a regular basis
and often with distinguished partners. 12. How to Set Up a Private Equity Fund in
Luxembourg
Appendix 1: Double Tax Treaty Network
Appendix 2: Glossary
Appendix 3: Useful References
Appendix 4: LPEA Members
4 LPEA 2020
Foreword by the CEO of LPEA • Choose from a wide range of legal entities, to suit
their AuM size, strategy and end investor base
At the heart of Luxembourg´s success as an • Work from an EU-compliant jurisdiction that stays
international PE hub lies the ability to reconcile long- abreast of the latest legal and tax developments
term stability with short-term adaptability. Since the
last edition of this brochure (November 2016), the • Benefit from the support of public stakeholders
most notable development is the tremendous success who are well aware of the strategic importance of
of the RAIF, the latest addition to our Luxembourg our industry for the local economy
toolbox, which has attracted investors of all types to
launch investment vehicles out of Luxembourg. This • Get support from a professional and international
is to be seen in the perspective of the gradual shift pool of advisers who are able to work in different
towards dealmaking substance in Luxembourg- languages, all phsyically present in Luxembourg.
based structures, as driven by more stringent OECD
requirements. PE in Luxembourg thus employs a
several thousand people today, some of whom are Our growing base of members, especially GPs and LPs,
middle or front office positions.” is a demonstration of Luxembourg´s dynamism as a PE
hub that can cater to a wide range of needs. With over
In practice, this ability to combine stability and agility 250 members, 50% of whom are end investors, LPEA
means that PE investors who elect Luxembourg as a also offers a great exchange platform for newcomers
domicile for their structure and/or teams, be they GPs, to Luxembourg - and intends to continue its work as
LPs or Family Offices, are able to: “thought leader” and “matchmaker” between talent and
money.
Rajaa Mekouar-Schneider
PRIVATE EQUITY IN LUXEMBOURG 5
Message from the Minister of
Finance of Luxembourg
Private equity continues to grow in popularity as an
asset class. Searching for yield in a low-interest rate
environment and looking for more consistent returns,
many institutional investors are increasing their
allocations to alternative asset classes. Over the past
five years, the industry has had to adapt to a regulatory
and tax environment, driven by BEPS and regulations
such as AIFMD in Europe, and has been impacted by
Brexit.
Luxembourg did not wish for Brexit and regrets
seeing the UK leave the European Union. However, for
Luxembourg’s financial centre, the prospect of Brexit
has so far also been a “real-live test” of the country’s
attractiveness as a pan-European hub for financial
services. More than half of the 60 firms relocating
activities or strengthening existing operations in
Luxembourg as a result of Brexit are from the asset
management industry, including private equity firms
and alternative fund managers.
In fact, Luxembourg continues to stand out as a highly
stable, open but also reliable partner in the heart of the As the success of the Reserved Alternative Investment
European Union and the euro area. Fund (RAIF) and the limited partnership regime
have shown, the government can play a key role in
Very few nations have such a long tradition of establishing a conducive environment for the growth of
openness and stability and Luxembourg’s AAA rating the PE/VC and alternative fund industry.
is a key asset for global financial institutions and asset
managers as well as their investors, bolstering their The government is committed to continue developing
confidence in Luxembourg. this important growth sector, and has identified it as a
key priority in the coalition agreement.
In a changing global tax environment, Luxembourg
has proactively embraced the latest principles put At the European level, the strengthening and further
forward by the OECD and G20, and is committed to completion of the European Single Market for financial
maintaining a competitive tax regime within this new services as well as the European Capital Markets Union
international landscape. This has been welcomed by will be beneficial for the development of Luxembourg’s
financial players and institutional investors, who are PE/VC sector. The EU will need to continue breaking
increasingly insisting on regulated onshore jurisdictions down regulatory as well as digital barriers in order to
like Luxembourg. Today investors and financial players increase its attractiveness and compete globally with
consider Luxembourg as a leading jurisdiction when the US and China, which are already home to the
it comes to transparency and compliance but also for world’s tech and Fintech giants as well as the leading
sustainability. VC firms.
While it is widely known as being home to the world’s Finally, I would like to underline that the strong support
second largest fund industry and a prime location for of the LPEA and its 220 members have contributed
international wealth management, Luxembourg has also greatly to the success of the Luxembourg PE/VC
further consolidated its position as a leading European industry. I encourage them to continue in their efforts,
hub for the PE/VC industry, having seen increased for which they have my full support.
diversification of fund managers and specialisation.
It is only by working together with the private sector
The world’s top 19 Private Equity players today have that Luxembourg will be able to further strengthen its
operations in Luxembourg and 9 out of 12 top PE role as a leading hub for innovative companies looking
players have substantially reinforced their presence in to develop and grow their business all across the
Luxembourg over the last couple of years. The whole European Single Market and beyond.
sector now counts thousands of PE/VC professionals
and represents EUR 400 billion of assets under
management. H.E. Pierre Gramegna
6 LPEA 2020
1. EXECUTIVE SUMMARY
Luxembourg has become one of the distribution worldwide. With AIFMD
leading jurisdictions worldwide and Luxembourg is able to leverage on
the leading hub for setting up Private this unprecedented expertise.
Equity and Venture Capital funds.
Luxembourg can combine unique Sophisticated infrastructure of
strengths that cannot be found service providers with a multilingual
elsewhere: and technically skilled work-force.
The right structures – the large Established and proven concepts
range of available structures ensures such as third part AIFMs and
that all fund promoters will find the outsourcing of back - and middle -
suitable vehicle for their investors. office functions.
Funds can be set up as regulated
or unregulated vehicles for all asset Luxembourg is a worldwide recog-
classes with different corporate nised brand for investment which
forms to choose from, as limited results from the combination of its
partnerships or mutual funds. In history as a banking and funds cen-
accordance with the type chosen, tre and an innovative approach that
the tax status will vary accordingly. embraces financial sustainability and
Luxembourg is an onshore EU the adoption of financial technology.
jurisdiction, a prerequisite for many
investors. In summary, Luxembourg provi-
des an investment environment
AIFM distribution capabilities driven by innovation and by the
– following the introduction of ever - changing requirements of in-
UCITS in 1988, Luxembourg turned vestors and fund managers.
into the most recognised hub for
PRIVATE EQUITY IN LUXEMBOURG 7
2. LUXEMBOURG – A CONDUCIVE
ENVIRONMENT TO THE DEVELOPMENT
OF PRIVATE EQUITY
Choosing the right location for Private Equity firms large number of support entities such as central ad-
means taking into consideration many different fac- ministrators, domiciliary agents, law firms, auditors,
tors. The following features are Luxembourg’s stren- consultants, depositaries and many more; it is an in-
gths – and the combination of these strengths ma- dustry that continues to develop dynamically and is
kes Luxembourg attractive to Private Equity. multilingual.
Political and economic stability Business-friendly environment
The political stability of Luxembourg is marked by a Luxembourg has a unique system of social dialogue
political culture of consensus where the traditional that involves regular meetings between the govern-
parties co-exist within the context of broad agree- ment, employers’ representatives and unions, which
ment on key issues. The business-friendly political is key to avoiding social conflicts and to reaching
environment is conducive to welcoming Private consensus on important decisions regarding econo-
Equity promoters and entrepreneurs. Attracting in- mic and social affairs.
ternational players is considered paramount in buil-
ding an efficient business framework and economic The government promotes a regular exchange with
growth and has enabled Luxembourg to establish a associations representing the financial sector, organi-
permanent and innovative business community. ses and takes part in economic missions abroad and
creates a long-term dialogue with companies which
With the UK exiting the EU in 2020, numerous pla- are critical to the sector.
yers of the financial sector have already re-asses-
sed their current set-up. A considerable number of Historic development
AIFMs and management companies have decided Luxembourg is not only at the forefront in implemen-
to set up an own entity or to appoint a third party ting new EU directives into national law, as was the
AIFM in an EU jurisdiction, such as Luxembourg. case with UCITS in 1988 and AIFMD in 2013, but also
Against that background, Luxembourg has become in creating new, innovative structures that respond to
the distribution hub for an ever-increasing number of market demand. The SICAR and the SIF, two entities
reputed PE houses, which may have previously had introduced in 2004 and 2007 respectively, were the
these functions based in London. It is expected that first regulated PE fund structures with oversight from
this trend will continue. a depositary. While many promoters shied away from
this regulation, AIFMD introduced certain features
that SICAR and SIF had already applied well before
The strength of the Luxembourg financial servi- the arrival of the AIFMD. Similarly, the need for a li-
ces industry mited partnership structure lead to the introduction
Luxembourg is the largest financial centre for investment of the Luxembourg unincorporated Special Limited
funds in Europe and the second largest worldwide. Lu- Partnership (“SCSp”) and the revamping of the exis-
xembourg-domiciled investment funds are distribu- ting incorporated limited partnership in 2013, remo-
ted in more than 70 countries: 62% of authorisations ving all inconvenient features inherent in other limi-
for distribution granted to worldwide funds are allo- ted partnership structures existing in the market. In
cated to Luxembourg funds1. Luxembourg has been line with AIFMD requirements, Luxembourg was one
able to turn retail EU funds, i.e. UCITS funds, into a of the first financial centres to have a considerable
brand that stands on its own, not only within Euro- number of regulated and highly qualified Alternative
pe but worldwide. In view of the fact that more than Investment Fund Managers (“AIFM”) providing third
47,000 people are employed in the financial servi- party management services to PE funds. Last but
ces industry which contributes around 26% of the not least, 2016 saw the introduction of the Reserved
gross domestic product2 it is easy to understand Alternative Investment Fund (“RAIF”), a fund struc-
how the financial industry and government are wor- ture with the legal and tax features of the well-esta-
king closely and smoothly together to ensure conti- blished SICAR and SIF, without those being subject
nued efficiency. Today Luxembourg hosts more than to direct regulation from the Luxembourg financial
265 authorised AIFMs and Management Companies supervisory authority but requiring the appointment
and 600 registered AIFMs3. In addition, it hosts a of an AIFM, itself a regulated entity.
1
PwC/Lipper: Global Fund Distribution 2018
2
CSSF (March 2019 Newsletter) and Statec (Nov. 2018)
3
ALFI, December 2018
8 LPEA 2020
International distribution hub Skilled and multi-lingual workforce
The AIFMD requires a European marketing passport The Luxembourg labour market offers a pool of
for AIFs, similar to UCITS. While Luxembourg has highly skilled and multilingual resources. With more
become the leading jurisdiction in the world for retail than 170 nationalities represented, its workforce
fund cross-border distribution, it is currently building is truly international: almost 48% of residents
on this experience and repeating this success story and more than 70% of the active population are
for Alternative Investment Funds (“AIFs”). well-integrated foreigners. The Greater Region
represents a natural extension of Luxembourg’s
Proposed new EU legislation on cross-border domestic market and also provides a solid
distribution of UCITS and AIFs workforce for Luxembourg’s business. Around
In March 2018, the European Commission published 190,000 or 45% of the Luxembourg work force
a proposal for a directive amending Directive 2009/65/ commute from neighbouring countries France,
EC (“UCITS Directive”) and Directive 2011/61/ Germany and Belgium on a daily basis, contributing
EU (“AIFMD”) as well as a proposal of a regulation to the skillset available in Luxembourg. Many people
complementing the draft directive. These proposals in Luxembourg speak three or four languages
have been submitted to the European Parliament (Luxembourgish, German, French, English,
Committee on Economic and Monetary Affairs Portuguese, Italian, Spanish, etc.). This, combined
(ECON) which ssued its amendment proposals in with the high level of professional qualifications
December 2018. The purpose of these proposals held by staff has allowed Luxembourg to respond
is to facilitate the cross-border distribution of UCITS to the requirements of multilingual and multicultural
and AIF units and to better protect investors by (i) investors.
harmonising the regulatory framework in relation
to marketing communication to retail investors, (ii) Commitment to Europe
detailing a definition and rules for pre-marketing of Luxembourg is also well known for its role within
AIFs to professional investors (and by excluding the the European Union. As a founding member of ma-
recourse to reverse solicitation in the case of pre- jor international organisations such as BENELUX,
marketing), (iii) establishing notification procedures in the Council of Europe, the European Union, NATO,
relation to changes to the relevant fund documentation OECD and the United Nations, Luxembourg has in-
and in relation to the discontinuation of cross-border fluence that belies its physical size, especially within
marketing and (iv) standardising the publication of Europe. It is host to many European Union institu-
fees and charges regarding the notification of cross- tions amongst which are departments of the Com-
border marketing. ESMA is mandated to develop mission, the Council and the Parliament, the Court of
draft regulatory technical standards and draft Justice, the Court of Auditors and the Statistical Offi-
implementing technical standards and to create a ce. Luxembourg also welcomes the headquarters of
central database in respect of fees and charges of the European Investment Bank, the European Invest-
national authorities and national legislation regarding ment Fund and the European Stability Mechanism.
marketing.
High quality living standards
A highly innovative and dynamic market Luxembourg has one of the world’s highest per
Alongside one of its main pillars, namely the financial capita gross domestic products and is one of the top
services industry, the Luxembourg government has ranking countries in terms of Human Development,
identified other major industries as the core sectors Quality of Life, Personal Safety and Corruption
to be developed in Luxembourg over the coming Perceptions indices.4
years. Major efforts are made to attract innovative
companies to set up their FinTech business in
Luxembourg.
The Luxembourg government is investing heavily
in attracting talent from outside Luxembourg and in
leveraging on the expertise that existing specialists
of the local financial industry bring about.
4
IMF, UNDP, OECD Better Life Index, Transparency International 2018
PRIVATE EQUITY IN LUXEMBOURG 9
3. LPEA GP SURVEY
Every other year the LPEA conducts a survey among One of the key results of the survey is the adoption of
its PE and VC members operating in Luxembourg5. different legal structures. Over the years Luxembourg
The background to the survey are the changes that has developed a complete legal toolbox to answer the
the industry has been going though over the past different needs of GPs and investors. The answers
three years such as: to the survey show significant diversity, something
which will most certainly change in the future with the
• Increase of administrative burdens through BEPS growing adoption of RAIF and SCSp instead of SPVs
and AIFMD; and offshore structures.
• Increasing substance requirements;
• Impact of Brexit;
• Improvement of Luxembourg’s reputation due to
higher transparency regulations; Jurisdiction of Funds present in Luxembourg
• Large PE firms having established offices in
Luxembourg;
• Wider adoption of RAIF and SCSp in detriment of
SPVs and offshore structures.
1%
Luxembourg
4%
The profiles of the GPs differ widely; while there is
5%
no dominant strategy it was noted that infrastructure 7% Channel Islands
and buy-out strategies increased significantly. UK
8%
US
Key factors to choose Luxembourg were: 59%
Cayman
%
16
Other European Countries
1. Legal and regulatory environment;
2. Political and tax stability; Other
3. Investor’s request;
4. Reputation;
5. Availability of skilled workers;
6. Cost.
Other
Legal structures
Looking ahead, the industry’s Offshore (outside Luxembourg)
3%
%
11
main challenges are very SPVs
17
%
similar to those in other European 9% Corporate vehicle
jurisdictions and concern SCS
12%
international tax and supervisory
10% SCSp
authorities, transparency, global 1%
RAIF
tax harmonization, increasing 11
5% %
regulation, KYC/AML and Brexit. UCI Part II
21%
SICAR
SIF
Source: LPEA GP Survey 2018
The complete LPEA GP Survey 2018 is available at www.lpea.lu.
5
The survey was conducted between January and March 2018 with 55 members without distinguishing
between size and strategy. Input came from online questionnaires and interviews.
10 LPEA 2020
4. PRIVATE CAPITAL - LEGAL FRAMEWORK
Private Equity vehicles in Luxembourg The aforementioned structures may
may either be (i) any standard commer- qualify as an alternative investment
cial companies, i.e. non-regulated struc- fund (“AIF”)6 under the Luxembourg
tures, or (ii) investment structures that are implementation of the AIFMD, i.e.
supervised by the Luxembourg Commis- the Luxembourg law on alternative
sion de surveillance du secteur financier investment fund managers (“AIFM”) of
(“CSSF”) and therefore regulated struc- 12 July 2013, as amended (the “AIFM
tures. Law”). They would then potentially need
to appoint an AIFM for the performance
The specific (legal) features of all of of the respective AIF’s portfolio and
these structures (non-regulated and risk management services within the
regulated alike) are further explained in meaning of the AIFM Law.
the next pages.
We have experienced Luxembourg as a very well established
centre for Private Equity and investment management with the
ability to attract well-qualified and experienced staff.
Peter Veldman, Head of Fund Management, EQT Fund Management S.à r.l.
6
According to article 1 (39) of the AIFM law, an AIF is any collective investment undertaking, including investment compartments thereof, which: (a) 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; and (b) do not require authorisation
pursuant to Article 5 of Directive 2009/65/EC;PRIVATE EQUITY IN LUXEMBOURG 11
As a global private investment firm, having a presence
in Luxembourg has provided our firm and our portfolio
companies a huge advantage in the market by giving us
access to cutting edge research talent, a massive finan-
cial services infrastructure, growth capital and offers us
a central stepping off point for the rest of Europe.
Ken Pentimonti, Principal, Paladin
4.1 NON-REGULATED COMPANIES
AND PARTNERSHIPS
Any standard commercial As an ordinary company, the show that by April 2019, 2,707
company under the Luxembourg SOPARFI is not subject to any SCSp were active: while in total
law of 10 August 1915 on risk-spreading requirements and 3,224 had been set up since its
commercial companies (the may in principle invest in any introduction in July 2013, 517
“1915 Law”) can be used as a asset class. SOPARFIs are used had been deleted since 2013.
Private Equity structuring vehicle to invest and manage financial On average 48 SCSp were set-up
in Luxembourg. These vehicles participations in Luxembourg or per month, peaking in 2019 with
may either be intermediate foreign companies. SOPARFIs more than 100 entities launched
holding vehicles for an entity can also undertake commercial within one month.
located abroad (typically a non- activities which are directly
European Private Equity fund) or indirectly connected to the The SCSp in particular has
or themselves be the investment management of their holdings seemingly substituted the former
vehicle for the end investors including the debt servicing of vehicles of choice, the S.C.A.
beneficial owners of the structure. their acquisitions. and the S.à r.l. While the principal
reasons for choosing the legal
To the extent that the corporate The Luxembourg law which form of a Luxembourg private
object of the vehicle is limited to implemented the AIFMD equity structuring vehicle may
the holding of participations in revamped and updated the often be driven by considerations
other (asset holding) companies legal framework for limited of applicable foreign (tax) law, the
(whether in Luxembourg or partnerships under the 1915 Law, increased structuring flexibility of
abroad) the most common i.e. the société en commandite the SCS or the SCSp has added
non-regulated Private Equity simple (SCS). In addition, the to its increased popularity. The
structure in Luxembourg is the law implementing the AIFMD limited partnership agreement
SOPARFI. SOPARFIs are ordinary also added another form of will define their operational rules
commercial companies able to limited partnership under and fix its tax-transparent status
take any corporate form available Luxembourg law, i.e. the société (under Luxembourg tax law and
under the 1915 Law. In practice en commandite spéciale (SCSp), subject to appropriate structuring
this will often be a private which, unlike the SCS, does under applicable foreign tax law,
limited company, i.e. a société à not have legal personality itself. to the extent applicable).
responsabilité limitée, S.à r.l., or Both vehicles have increasingly
a simplified limited company, i.e. been used for structuring private
a société par actions simplifiée, equity investments. Records of
SAS. the Luxembourg trade register12 LPEA 2020
Evolution
SCSp market in Luxembourg
4500
38543935
4000 3745
35513652
3385 3458
3500 3224 3297
3126
2949 3019
3000 2801 2871 32843357
2607 2702 3105 3187
2362 2436 2521 2929
3103
2500 2209 2279 2776 2859
2077 2132 2618 2707
2471 2517
2000 1731 2259 2351 2410
1466 2091 2171
1945 2015
1500 1219 1815 1875
1702 1751
959 1485
1000 726 1301
1180
478 502 508 517 521 526 529 538 547 558 570 578
948 375 381 394 404 417 421 430 436 443 450 461
721
500 165 246
11 39
5
0
3
5
6
7
8
9
0
1
7
1
7
1
7
1
3
5
6
7
8
9
1
1
4
2
4
0
2
2
-0
-0
-0
-0
-0
-0
-1
-1
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-1
-0
-0
-0
-1
-1
-0
-0
19
19
19
19
19
19
19
15
16
16
17
17
18
18
18
18
18
18
18
18
19
19
18
18
18
18
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Dele�ons Registra�ons Ac�ve SCSp
Source: RCSL - Statistiques de dépôt, PwC analysis
On 14 July 2016, bill of law to SIFs or SICARs, RAIFs are AIFMD requirements in terms
n°6929 on reserved alternative not subject to supervision of of (i) appointment of the RAIF’s
investment funds (“RAIFs”) was the Luxembourg supervisory depositary, (ii) appointment of the
adopted by the Luxembourg authority of the financial sector RAIF’s approved statutory auditor,
Parliament. Its purpose was (the “CSSF”). (iii) minimum content of the RAIF’s
to introduce a new type of annual report, (iv) valuation of the
Luxembourg investment vehicle RAIFs are Luxembourg AIFs RAIF’s assets, and (v) investment
that is reserved to Luxembourg governed by the Luxembourg and leverage rules regarding
alternative investment funds law of 23 July 2016 on RAIFs (the certain types of assets. However,
(“AIFs”) managed by an “RAIF Law”). in exchange for complying with
authorised external alternative all the conditions laid down in the
investment fund manager In addition, RAIFs adopting a AIFMD and provided that their
(“AIFM”) within the meaning of corporate form are, unless it AIFM is fully licensed, RAIFs may
Directive 2011/61/EU of 8 June is derogated therefrom by the benefit from the AIFMD passport
2011 on alternative investment RAIF Law, subject to the general under certain conditions in order
fund managers (the “AIFMD”). provisions of the 1915 Law. More- to be marketed to professional
over, as RAIFs qualify as AIFs investors (and retail investors if
To a large extent, the RAIF managed by a duly authorised permitted by the relevant Member
vehicle offers similar structuring AIFM subject to the full AIFMD States) in the EU.
flexibilities as Luxembourg requirements, RAIFs will be
specialised investment funds subject to the so-called “AIFMD
(“SIFs”) or investment companies Product Rules” applicable to
for risk capital investments them. These AIFMD Product Rules
(“SICARs”). However, in contrast include, among others, specificPRIVATE EQUITY IN LUXEMBOURG 13
4.2 DIRECTLY REGULATED OR INDIRECTLY
SUPERVISED STRUCTURES
The CSSF regulates SICARs and comprising a total amount of Advantages of starting off with
SIFs. SIFs are regulated under EUR 578.6 billion were registered an unregulated fund are:
the provisions of the law of 13 with the CSSF7.
February 2007 on specialised • Quick set-up as no CSSF appro-
investment funds (the “SIF Law”) SICAR val needed
while SICARs are regulated SICARs are investment vehicles
under the provisions of the designed specifically to suit • No depositary needed (cost
amended law of 15 June 2004 the needs of Private Equity and savings)
(the “SICAR Law”) on investment Venture Capital. SICARs allow
companies for risk capital direct or indirect contributions of • Contractual relationship means
investment. Both SICARs and assets to be made to entities in that parties have freedom to
SIFs are registered on official lists view of their launch, development negotiate contractual contents,
maintained by and accessible on or listing on a stock exchange. no regulation prescribes any
the website of the CSSF. SIFs and rules. Note, however, that
SICARs would typically also SIF the costs for setting up legal
qualify as AIFs under the AIFM Law. SIFs were created to replace a documents is slightly higher than
predecessor regime which was for a SCS/SCSp in the form of a
Amidst an international regulatory no longer suitable. In particular, SIF, SICAR or RAIF as all details
environment seeking to increase with Luxembourg starting to have to be defined individually
transparency and oversight, the position itself as an alternative and negotiated with the signatory
SICAR and the SIF are tried-and- funds domicile, the time was ripe parties.
tested regulated Private Equity for a complete overhaul of the
frameworks. The legal framework then existing legal and regulatory • When the unregulated SCS
applicable to SICARs and SIFs framework. The SIF regime was or SCSp has reached a certain
offers a combination of a flexible thus created in 2007 in order to volume and/or additional external
and accessible regulatory infra- clearly establish Luxembourg fundraising is foreseen, it may
structure with strong investor as an AIF domicile further be interesting to (i) convert the
protection features. They can accommodating all alternative SCS/SCSp into a regulated SIF or
only be subscribed to by “well- asset classes with hedge funds, SICAR (regulation on fund level)
informed” investors (see the real estate funds and private and (ii) nominate an alternative
Glossary for a more detailed equity funds in particular. investment fund manager
definition). (AIFM) under the AIFMD regime
Conversions between legal (regulation on the manager level)
As of 31 August 2019, 255 regimes to benefit from the distribution
SICARs comprising in total a The unregulated SCS and SCSp freedom in the EU under the
volume of EUR 57.4 bil- can be converted into a regulated AIFMD regime.
lion and 1,495 SIFs SIF or SICAR at any time.
Our international investors appreciate the stable and
reliable regulatory and fiscal environment offered and
sustained by Luxembourg authorities.
Diana Meyel, Partner, Cipio Partners GmbH
7
CSSF (October 2019 Newsletter)14 LPEA 2020
4.3 FEATURES OF LUXEMBOURG
PRIVATE EQUITY VEHICLES
RAIF SICAR EuVECA
SIF Unregulated
(indirectly supervised (CSSF (CSSF
(CSSF regulated) vehicle
via its AIFM) regulated) regulated)
AIF qualification under the AIFM Law May qualify as an AIF under the AIFM Law[1] Eligible for (i) any AIF May qualify as
mandatory which is a qualifying an AIF under
Internal management under the AIFM Law possible venture capital the AIFM Law.
Not admitted for de minimis AIFs fund, i.e. a collective Internal mana-
Not admitted for internal manage- investment underta- gement under
ment under the AIFM Law. king that intends to the AIFM Law
invest at least 70% of possible
its aggregate capital
Choice of legal form: Corporate Choice of legal form: Corporate vehicles contributions and
vehicles and common funds Corpo- and common funds Corporate vehicles: uncalled committed
rate vehicles: • Public limited company (SA) capital in assets
• Public limited company (SA) • Simplified limited company (SAS) that are qualified
• Simplified limited company (SAS) • Private limited company (S.à r.l.) investments under
• Private limited company (S.à r.l.) • Corporate partnership limited by Regulation No. (EU)
• Corporate partnership limited by shares (SCA) 345/2013 and (ii)
shares (SCA) • Common limited partnership (SCS) which is managed by
• Common limited partnership (SCS) • Special limited partnership (SCSp) a de minimis AIFM.
• Special limited partnership (SCSp)
The aforementioned corporate vehicles
The aforementioned corporate will all qualify as investment companies
vehicles will all qualify as investment with variable capital (société d’inves- Choice of legal form: only corporate vehicles corporate
companies with variable capital tissement à capital variable-fonds vehicles:
(société d’investissement à capital d’investissement spécialisé, SICAV-SIF/ • Public limited company (SA)
variable-fonds d’investissement FIS), i.e. their capital will be allowed • Simplified limited company (SAS)
alternatif réservé, SICAV-RAIF), to increase or decrease freely without • Private limited company (S.à r.l.)
i.e. their capital will be allowed to the need to convene a shareholders’ • Corporate partnership limited by shares (SCA)
increase or decrease freely without meeting to that effect. • Common limited partnership (SCS)
the need to convene a shareholders’ • Special limited partnership (SCSp)
meeting to that effect.
Contractual form or commonfund: Contractual form or commonfund:
fonds commun de placement- fonds commun de placement-fonds
-fonds d’investissement alternatif d’investissement spécialisé (FCP-SIF)
réservé (FCP-RAIF)
Tax Treatment Tax Treatment Tax Treatment
Transparent: Transparent: Transparent:
• Common fund (FCP-RAIF) • Common fund (FCS-SIF) • Common limited partnership (SCS)
• Common limited partnership (SCS) • Common limited partnership (SCS) • Special limited partnership (SCSp)
• Special limited partnership (SCSp) • Special limited partnership (SCSp)
Not transparent (taxable vehicle in
Not transparent (taxable vehicle in Not transparent (all vehicles in Luxembourg):
Luxembourg): principle taxable in Luxembourg):
All corporate vehicles (see above). All corporate forms (see above) All corporate vehicles (see above).
All these corporate vehicles are All these corporate vehicles are
otherwise fully taxable in Luxem- otherwise fully taxable in Luxembourg.
bourg (unless they opt for the
special tax status outlined in the
next box below similar to the SIF
and SICAR regimes only available
to RAIFs).
SIF regime for RAIF respecting SIF regime, i.e. vehicles respecting
the principle of risk spreading the principle of risk spreading
(mutatis mutandis CSSF Circular (CSSF Circular 07/309):
07/309): Annual subscription tax (taxe
Annual subscription tax (taxe d’abonnement) at a rate of 0.01%.
d’abonnement) at a rate of 0.01%. Some SIFs are exempted from the
Some RAIFs are exempted from subscription tax.
the subscription tax.
SIFs are not subject to any
RAIFs are not subject to any Luxembourg taxes on capital gains
Luxembourg taxes on capital or income.
gains or income.
The corporate vehicles may in
The vehicle should in principle principle benefit from certain
benefit from certain double tax double tax treaties.
treaties.PRIVATE EQUITY IN LUXEMBOURG 15
RAIF
SIF SICAR EuVECA Unregulated
(indirectly supervised
(CSSF regulated) (CSSF regulated) (CSSF regulated) vehicle
via its AIFM)
SICAR regime for RAIF SICAR regime for funds
investing in risk capital investing in risk capital
(mutatis mutandis CSSF (CSSF Circular 06/241):
Circular 06/241): Subject to income tax
Subject to income tax in in Luxembourg, but any
Luxembourg, but any income income arising from
arising from securities held by securities held by the
the SICAR does not constitute SICAR does not constitute
taxable income. taxable income.
May benefit from certain May benefit from certain
double tax treaties. double tax treaties.
Capital gains realised by non- Capital gains realised
-Luxembourg residents are by non-Luxembourg
not subject to tax in Luxem- residents are not subject
bourg. Dividend and interest to tax in Luxembourg.
payments made are exempt Dividend and interest pay-
from withholding tax. ments made are exempt
from withholding tax.
Duration
Unlimited or limited period of time
Form of participation
(Registered) shares or units (FCP-FIS/SIF or FCP-RAIF): ordinary, preference, beneficiary (the latter not for SIFs)* Partnership interests
or capital accounts (for SCS and SCSp)
Redeemable
Voting and non-voting (only voting for SIF) bonds and/or notes.
* issuance of registered shares of any vehicle recommended in order to ensure proper monitoring of eligible investors (i.e. professional
investors to the extent vehicle qualifies as an AIF).
Listing
In principle possible
Redemption
In principle possible
Capital calls/Distributions
Capital calls and distributions to investors are subject to the rules provided in the constitutive documents
Flexibility on issue price
Preferential rights may be limited or cancelled
Permissible asset classes Permissible asset Restricted asset classes Restricted asset Permissible asset
Any kind of asset class. classes Investment in risk classes classes
asset classes as set out capital (according to Investment in at least Any kind of asset
in SIF Law (as amended definition of 70% of its monies in class.
by RAIF Law). “risk capital” in CSSF qualifying investments
Circular 06/241). according to rules
set out in Regulation
(EU) No. 345/2013, as
amended.
Risk spreading: Risk spreading: No risk diversification No risk diversifica- No risk diversification
Risk diversification require- Risk diversification requirement. tion requirement, but requirement.
ment (mutatis mutandis CSSF requirement minimum of 70% in-
Circular 07/309) (as contained in CSSF vestment in qualifying
Circular 07/309). investments and up to
If SICAR investment policy, no 30% in other assets
need for risk diversification. according to rules
set out in Regulation
(EU) No. 345/2013, as
amended.
Compartments/Sub-funds Compartments/Sub-funds Possible. Compartments/Sub- Compartments/Sub-
Possible. -funds not possible. -funds not possible.16 LPEA 2020
RAIF
SIF SICAR EuVECA Unregulated
(indirectly supervised
(CSSF regulated) (CSSF regulated) (CSSF regulated) vehicle
via its AIFM)
Capital: Capital: Capital: Capital:
Fixed or variable Fixed or variable Fixed or variable Fixed or variable EUR or foreign currency
EUR or foreign currency EUR or foreign currency EUR or foreign currency equivalent.
equivalent. equivalent. equivalent. Minimum of EUR 12,000 for S.à r.l. and
Minimum of EUR 1,250,000 Minimum of EUR Minimum of EUR EUR 31,000 for SA/SCA at incorporation only
(including share premium), 1,250,000 (including 1,000,000 (including Shares must be paid up to 25% for SA/SCA and
to be reached within share premium), to be share premium) to be 100% for a S.à r.l.
12 months of formation reached within 12 months reached within 12 months No such restriction for SCS or SCSp
as RAIF. of authorisation provided of authorisation, provided Contribution in kind and/or in cash permissible.
Minimum of EUR 12,000 at incorporation. at incorporation. Commitment or subscription based model.
for S.à r.l. and EUR 30,000 Minimum of EUR 12,000 Minimum of EUR 12,000
for SA/SCA. for S.à r.l. and EUR for S.à r.l. and EUR
Partly paid shares must 30,000 for SA/SCA 30,000 for SA/SCA.
be paid up to at least 5% Partly paid shares must Shares must be paid up
No restriction for SCS/ SCSp be paid up to at least 5% to at least 5%.
Contribution in kind and/or No such restriction for No such restriction for
in cash permissible. SCS/SCSp. SCS or SCSp.
Commitment or subscription Contribution in kind and/ Contribution in kind and/
based model. or in cash permissible. or in cash permissible
Commitment or subscrip- Commitment or subscrip-
tion based model. tion based model.
Management bodies: Management bodies: Management bodies:
Board of directors, Board of directors, manager(s) or managing Board of directors, manager(s) or managing GP
manager(s) or managing GP - general partner – depending on corporate form – depending on corporate form
depending on corporate form
Approval of board members by the CSSF. No approval requirements for board members
No approval requirements for by the CSSF.
board members by the CSSF.
Supervisory reporting: An- Supervisory reporting: Supervisory reporting: Supervisory reporting: Supervisory reporting:
nual audited report due six Monthly reporting. Semi-annual reporting. In principle, annual Not applicable
months after year end. Annual audited report Annual audited report audited report due (as long as no AIF
AIFM supervised by respon- due six months after due six months after six months after year or AIFM nomination).
sible authority to report on year end. year end. end (at least for CSSF Otherwise reporting
RAIFs it externally manages. and for investors only rules of AIFM Law
upon request, unless apply.
required already by the
corporate vehicle itself).
Filing requirements with Filing requirements with Filing requirements with Filing requirements Filing requirements
trade register. trade register: trade register. with trade register. with trade register.
Within seven months after Within seven months Within seven months Within seven months Within seven months
year end, annual accounts after year end, audited after year end, audited after year end, audi- after year end, annual
have to be filed. annual accounts and annual accounts have ted annual accounts accounts have to be
RAIF List appendix have to be to be filed. have to be filed. filed.
RAIF will have to be registe- filed.
red on RAIF list kept by RCS
Depositary: Depositary: Depositary: Depositary:
Luxembourg depositary Luxembourg depositary required (regardless of AIF Not required but audi- Not required unless
required for RAIF qualification) tor required to check the relevant entity
if assets of EuVECA qualifies as an AIF,
are properly recorded which is not a de
as its assets. minimis AIF.
Publication of PRIIPs KID?
A PRIIPs KID has to be published for any investment vehicle which is also offered to retail investors. A vehicle exclusively offered to
professional investors does not have to prepare such a PRIIPs KID. The latter vehicle will have to justify to the CSSF that it is not under
the obligation to prepare a PRIIPs KID or rather indeed only sold to professional investors.
Administrator
Administrator to be appointed unless own infrastructure
Auditor Auditor Auditor
Independent approved Independent approved Luxembourg auditor required. Independent
Luxembourg auditor required. Luxembourg auditor in
certain circumstances
only (see section 5.1
of this brochure for
further details).PRIVATE EQUITY IN LUXEMBOURG 17
5. PRIVATE DEBT
Private Debt has steadily grown funds 52% were structured as the rest is predominantly divided
in Luxembourg over the past open-ended funds. among the US, the Middle East
years with funds offering an and the Asia Pacific region.
alternative to bank lending, The initiators or promoters of
thereby contributing to the Debt Funds in Luxembourg are Reportly wise, 41% produce
financing of businesses in all to a large extent of European quarterly NAVs, report fair value
European countries(8)(9). origin: 83% come from the EU, (42%) and use Lux GAAP (60%),
16% from North America and 1% the latter being linked with 61%
In line with all structures covered from Central and South America. not consolidating their assets.
in section 4.3, loan funds can use
the same fund structures, i.e: Out of all regulated and semi-
regulated funds, almost 50% had
- RAIFs; a maturity of up to eight years,
- SICARs; 33% were evergreen funds and
- SIFs; only 11% had maturities between
- Regulated Part II funds; and nine and twelve years.
- Securitisation vehicles.
Investment strategies centre
around three main loan strategies:
Regulated and indirectly senior loans (35%), high yield
regulated funds bonds (22%) and direct lending
In absolute terms, EUR 65 billion (18%).
were invested in Luxembourg
loan funds of which EUR 49 billion LPs are predominantly institutio-
in regulated or semi-regulated nal investors, constituting 65% of
funds. Out of the EUR 49 billion, all investors, followed by HNWI
75% were invested in SIFs, 13% (14%) and Private Banks (8%).
in RAIFs, 11% in Part II funds and The majority of all investors are
1% only in SICARs. Of all loan domiciled in the EU, i.e. 47% and
Having moved to Luxembourg after 15 years in London as a GP/LP, I am pleasantly
surprised by the quality of the ecosystem to actually operate in PE from here. And
this is not just to domicile a PE fund… whether it is investor access, international
travel connections or financial talent Luxembourg is a very solid base.
I am convinced more and more PE teams will come here, which will further
strengthen Luxembourg as a PE hub.
Rajaa Mekouar Schneider, Head of Private Equity for a Luxembourg
Single Family Office and CEO of LPEA
8
Source: Loan fund survey 2018 issued by KPMG in cooperation with ALFI.
9
Only regulated and indirectly regulated funds are included.18 LPEA 2020
6. THE LUXEMBOURG TAX ENVIRONMENT
One of the key factors in favour Taxation of Luxembourg PE of an SCA will equally not be
of Private Equity operations vehicles subject to net wealth tax. Dividend
in Luxembourg remains its The Luxembourg tax environment distributions will also not be subject
tax environment. A stable tax is extremely beneficial for Private to Luxembourg taxation at source.
framework, a highly competitive Equity structures, both regulated
social security system (for and unregulated. The SIF:
companies, employers and SIFs, whether organised as a
employees) and the lowest VAT The SOPARFI: limited partnership or a corporate
rate in Europe greatly contribute As a standard commercial partnership limited by shares, are
to making Luxembourg one company subject to normal not subject to any Luxembourg
of Europe’s most attractive corporate taxation and not subject taxes on capital gains or income;
jurisdictions for Private Equity to a specific regulatory regime, the sole tax due is a subscription
operations and investments. Of the SOPARFI benefits from tax of 0.01% based on the quarterly
key importance remains, however, Luxembourg’s extensive network net asset value. SIFs in corporate
the double tax treaty network that of double-taxation treaties and form can moreover claim access to
Luxembourg has built up over from the EU Parent-Subsidiary certain double tax treaties.
many years. Directive. Despite being a fully
taxable company, the SOPARFI The RAIF:
Luxembourg’s Double Tax allows for tailor-made structuring In principle, RAIFs will be subject
Treaty Network providing, under certain conditions, to the same tax regime as SIFs
Luxembourg has bilateral tax for a full exemption for dividends (see above). However, optionally,
treaties with all EU Member States and capital gains upon exit. RAIFs investing in risk capital can
(except Cyprus) and with a number opt for the SICAR regime (see
of other countries (including almost The SICAR: above).
all OECD Member States). This SICARs can be created using
network of tax treaties is constantly different corporate forms. Highlights of Luxembourg’s Tax
being expanded. Framework for Private Equity
- SICARs in the form of a limited • Effective carried interest structu-
SICARs and SOPARFIs as partnership (SCS): ring;
Luxembourg taxable companies The SICAR, organised in the form • Extensive double tax treaty net-
are, from a Luxembourg of an SCS, is tax transparent and work;
perspective, entitled to treaty thus not subject to corporate, • Legal basis for provision of tax
benefits and therefore benefit from municipal business and net wealth confirmations;
double tax treaties concluded tax. Income and gains received or • Lowest VAT rate in the EU (17%
between Luxembourg and third realised are thus not subject to tax currently), VAT exemption on
countries. in the hands of the SICAR. Income management services rendered to
and gains may furthermore be RAIFs, SIFs and SICARs and free
The application of tax treaties paid to investors without any trade zone for valuable goods;
to SIFs in a corporate form is Luxembourg source taxation. • Competitive effective tax rates
to be assessed on a case-by- and low social security charges for
case basis depending on the - SICARs in the form of a corporate individuals.
wording of the treaty provisions partnership limited by shares
and their interpretation by the (SCA):
relevant foreign authorities. Fiscally The SICAR, organised as an SCA,
transparent SIFs and RAIFs is a fully taxable company; income
themselves may generally not from transferable securities is
benefit from treaty provisions due however exempt under specific
to their tax transparency. conditions; the SICAR in the formPRIVATE EQUITY IN LUXEMBOURG 19
6.1 DIRECT TAXATION OF CORPORATIONS
Luxembourg companies are nancing of participations or real municipality where companies
subject to the following taxes estate. Following the example of have their registered office. For
• Income taxes at a combined other European countries, the Lu- companies operating in the city
rate of 24.94% in Luxembourg xembourg direct tax authorities of Luxembourg, the rate is 6.75%.
city in 2019, including municipal have clarified the tax treatment A deduction of EUR 17,500 applies
business tax. of Luxembourg group financing to the municipal business tax base
• Annual net worth tax levied at companies. Besides appropriate for entities liable to corporate
a rate of 0.5% on the company’s operational infrastructure, the re- income tax (EUR 40,000 for other
worldwide net worth on 1 January levant guidance provides that the businesses). Municipal business
up to a value of EUR 500 million, equity of the financing company tax is cumulative with corporate
and 0.05% on any amount in should be sufficient for the func- tax and is non-deductible.
excess, subject to certain adjust- tions it performs, the assets used
ments (e.g. qualifying sharehol- and the risks it assumes. Net wealth tax
dings). A minimum flat net worth Net wealth tax is levied at a rate of
tax of EUR 4,815 applies to most Capital gains taxation for 0.5% (or 0.05% when the net worth
holding and financing companies non-residents exceeds EUR 500 million) on the
which have a low or negative net If a non-resident shareholder company’s worldwide net worth
worth. is resident (for tax purposes) on 1 January of each year. Quali-
in a country that has a double fying shareholdings under the par-
Taxation for Luxembourg enti- tax treaty with Luxembourg, the ticipation exemption regime net of
ties treaty will generally allocate the allocable debt (allocable debt that
Corporate income tax applies right to tax to the country of re- exceeds the value of the sharehol-
to all tax resident corporations sidence of the relevant sharehol- ding is deductible against other
and to Luxembourg permanent der. In the event that no such assets) are excluded from the ta-
establishments of foreign corpo- double tax treaty exists or can be xable base. Luxembourg corpora-
rations. Partnerships, other than applied, capital gains on the sale te income tax is creditable to the
those limited by shares, are re- of shares in a Luxembourg com- net worth tax provided certain con-
garded as tax transparent for Lu- pany are subject to tax in Luxem- ditions are met.
xembourg tax purposes and are bourg only if the non-resident
therefore not subject to corporate shareholder has held a substan- Withholding taxes
income tax and net worth tax at tial interest in the Luxembourg A withholding tax of 15% is levied
their own level. Income distribu- company and the transfer occurs on dividend payments (17.65% if
ted by such entities will be con- within six months of the acquisi- the dividend tax is not charged
sidered, from a Luxembourg tax tion or in the event of a transfer to the shareholder) unless an
point of view, as flowing through after six months, the nonresident applicable tax treaty provides
the entity and are thus allocated individual shareholder has been for a lower rate or the Luxem-
directly to investors. a Luxembourg resident taxpayer bourg participation exemption
for more than 15 years and has regime reduces withholding tax
Resident taxpayers are liable to become a non-Luxembourg tax- to 0%. Liquidation proceeds are
tax on their worldwide income, payer less than five years before not subject to withholding tax.
unless income is exempt under the disposal takes place. For this Arm’s length fixed or floating rate
the provisions of applicable tax purpose, a substantial interest interest payments are generally
treaties or specific domestic tax exists if a shareholder, either alo- not subject to withholding tax.
law. There is a possibility of ob- ne or together with certain close Interest paid on certain profit
taining tax credits for foreign ta- relatives, has held a sharehol- sharing bonds and profit sharing
xes paid. Non-resident taxpayers ding of more than 10% in a Lu- interest paid on loans is subject
are liable to tax on their Luxem- xembourg company at any time to 15% withholding tax unless
bourg-sourced income only, e.g. during the five year period prece- a lower tax treaty rate applies.
income realised by and allocable ding the transfer. Royalty payments are not subject
to a Luxembourg permanent es- to withholding tax provided
tablishment. Municipal business tax they are not connected with
Municipal business tax varies non-resident artists’ performan-
Thin capitalisation rules gene- from 6% to 12% (levied on inco- ces and sportsmen’s activities in
rally require a debt to equity ra- me of businesses operating in Luxembourg.
tio of 85:15 in the context of fi- Luxembourg), depending on the20 LPEA 2020
Automatic Exchange of Infor- institutions that do not comply Registration duty and transfer
mation with their CRS obligations may taxes
On 28 March 2014, Luxembourg be subject to local penalties (no A fixed registration duty of EUR
entered into an intergovernmen- withholding tax penalty system). 75 is due upon incorporation
tal agreement (“Luxembourg and modification of the articles
IGA”) with the United States of Value Added Tax (“VAT”) of association of a Luxembourg
America with respect to the US The Luxembourg VAT standard company or upon transfer of the
Foreign Account Tax Compliance rate of 17% is the lowest in the statutory seat or place of central
Act (“FATCA”), which was imple- EU, compared with an average administration of a company to
mented into Luxembourg law by of 21% in the other EU Member Luxembourg.
the law of 24 July 2015 (“FATCA states. The Luxembourg VAT re-
Law”). Under the Luxembourg gime furthermore exempts from Transfer taxes on the sale of local
IGA and FATCA Law, Luxembourg VAT management services pro- real estate amount to 7% or 10%.
financial institutions (including vided to investment funds. Sin-
in certain cases SICARs, SIFs, ce July 2013, the exemption has Tax treatment of carried inte-
RAIFs or SOPARFIs) are requi- been available for all alternative rest
red to provide certain information investment funds covered by the In the law transposing the AIFM
about their US account holders to law of 12 July 2013 transposing directive, a regime for the taxa-
the Luxembourg tax authorities, the AIFMD, including unregu- tion of carried interest from AIFs
which will share that information lated funds. This exemption is was also introduced.
with the Internal Revenue Ser- applicable on portfolio mana-
vice (“IRS”) on an annual basis. gement, advisory services and The share of profits derived from
Luxembourg financial institutions administrative services. Due to an AIF and paid to AIFM emplo-
that do not comply with their FAT- this exemption and the low VAT yees is treated as ordinary in-
CA obligations risk being subject rate, the VAT burden of SICAR, come and is thus subject to the
to a 30% US withholding tax on SIF and other alternative invest- highest marginal rate of tax for
their US source income in addi- ment funds is very limited. This the recipient (42% for 2019) on
tion to local penalties. exemption is however not avai- global income. However, if the
lable to SOPARFIs unless they employee satisfies certain con-
Largely inspired by FATCA, the qualify as an AIF. Assuming their ditions, the carried interest would
OECD has developed a glo- activity is limited to the owner- be taxable at one quarter of the
bal standard for the automatic ship of shares, SOPARFIs are not global tax rate. The conditions to
exchange of financial account obliged to register for VAT except be fulfilled are:
information, the Common Re- in the unlikely case they acquire
porting Standard (“CRS”). The goods from abroad. They cannot 1. The recipient was neither resi-
CRS has been implemented at recover the VAT incurred on their dent in Luxembourg nor subject
European Union level through the costs. to Luxembourg tax on his/her
Directive on Administrative Coo- professional income during the
peration (Directive 2014/107/UE), Luxembourg has no “use and five preceding years
transposed into Luxembourg law enjoyment” rule obliging, as in
by the law of 18 December 2015 some Member States, holding 2. The recipient becomes a Lu-
(“CRS Law”). Under the CRS Law, companies, which are not VAT ta- xembourg tax resident
Luxembourg financial institutions xable persons, to self-assess the
(including in certain cases SI- local VAT on services received 3. No advance payments were
CARs, SIFs, RAIFs or SOPARFIs) from non-EU service providers received by the recipient
are required to collect certain in- without allowing the deduction of
formation about their account hol- this VAT. 4. The entitlement to carried in-
ders that are fiscally resident in a terest is conditional on the inves-
EU Member State or in a country A Freeport, operational since tors having priority in recovering
with which Luxembourg has a tax September 2014, in the vicinity their initial investment.
information sharing agreement, of Luxembourg airport, benefits
and to report this information to from the VAT-free zone regime on The individual can benefit from
the Luxembourg tax authorities. transactions in valuable goods, this tax treatment for up to ten
The Luxembourg tax authorities including their storage. Certain years after having started his/her
will thereafter automatically ex- types of investment funds (i.e. professional activity in Luxem-
change the information with the passion funds, investing into art bourg.
foreign tax authorities on an an- and other collectibles) may take
nual basis. Luxembourg financial advantage of the Freeport.You can also read
