How to set up an investment fund in Luxembourg in 2021

How to set up an investment fund in Luxembourg in 2021

If we were to briefly describe the financial environment of Luxembourg, we could say that this country, apart from being one the founders of the European Union, is one of the internationally recognized financial centers.

Located in the heart of Europe, Luxembourg has extensive experience working with complex financial instruments. Given the large number of investment funds in the country (the largest in the EU and second largest in the world), setting up an investment fund in Luxembourg (IF) is really worth a try.

Citizens of post-Soviet states may find Luxembourg particularly interesting, especially when it comes to opening an investment fund in Luxembourg for CIS citizens.

There are several ways in which foreign investors can establish an investment fund in Luxembourg. An SIF, or a specialized investment fund in Luxembourg, is most suitable for private investors seeking to create their own fund in Luxembourg. It has two types:

  • (SICAV) - an IF with variable capital;
  • (SICAF) - an IF with constant capital;

A SICAV is a separate legal entity whose variable capital must be in full accordance with its real value.

A SICAF is also a legal entity that has a right to function as an IF of a closed or open type.

Establishing both types of investment funds in Luxembourg requires having a permit and complying with the requirements of the Committee for Financial Supervision (CSSF).

To be able to invest in a fund, investors must provide documentary evidence of having 125 thousand euros.

A fund’s manager or investment company must be located in the country (the same rule applies for its head office). A fund’s financial statements must be annually checked by a licensed Luxembourg auditor.

Having Luxembourg dominions, IFs of both types are exempt from taxes:

  • on capital;
  • on income;
  • on sources of income.

IFs have to pay an annual subscription tax at the rate of 0.05% of their net asset value. There is also a one-time capital tax of 1 250 euros which is paid during registration.

SIFs have the right to invest in any securities, including transferred ones, and make short-term investments in IFIs, NFs (real estate funds), hedge funds and private equity funds.

SIFs’ assets must be held by a credit institution registered in Luxembourg. A custodian’s liability is limited only by the damage that shareholders can incur if they are found guilty of non-performance/improper performance of their duties.

Three types of investors can be IF shareholders:

  • institutional;
  • professional;
  • well informed.

After the first year of operation, an IF’s property must be worth no less than 1,250,000 EUR.

IFs with variable capital must distribute all of their shares by subscription. At the same time, only 5% of their fixed assets must be paid for in cash or property.

To sum up, investor-friendly legislation and total confidentiality make Luxembourg an attractive destination for setting up an investment fund. Establishing an investment fund in Luxembourg will be a particularly interesting option for Ukrainian or Russian nationals.

Looking to open an investment fund in Luxembourg? Need advice on IF regulation in Luxembourg? Please consider contacting YB Case.

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