Set up an investment fund in Luxembourg

Choose the regime and legal form

RAIF, SIF and SICAR are fund regimes. The special limited partnership (SCSp) is a legal form. A RAIF can therefore be established as an SCSp. The manager is a third component of the project.

In principle, a RAIF (reserved alternative investment fund) requires an external authorised AIFM. The fund itself does not require prior product authorisation from the Commission de surveillance du secteur financier (CSSF).

A SIF, or specialised investment fund, and a SICAR, an investment company in risk capital, require CSSF authorisation. Their management obligations also depend on their classification and the applicable framework.

Before choosing a structure, specify the target assets, investor profiles, countries in which the fund will be marketed, any use of borrowing and the exit arrangements.

Whether a vehicle qualifies as an alternative investment fund (AIF) must be assessed by reference to how the project actually operates. An SCSp is not automatically an AIF; the absence of authorisation for the vehicle does not remove the need to assess the manager’s status.

Sources: RAIF Law, Articles 1 to 4, SIF Law, SICAR Law and CSSF AIFMD FAQ.

Further reading: compare the RAIF, SIF and SICAR regimes and understand the SCSp.

Distinguish fund capital from subscription amounts

The vehicle’s statutory minimum, each investor’s commitment and service providers’ fees are three separate amounts. A regulatory threshold of €1.25 million is not a set-up fee.

What the minimum measures depends on the legal form: net assets for a common fund; subscribed capital plus premiums, or the value of partnership interests, for the company and partnership forms covered by the legislation. The timetable for paying in contributions must be checked separately.

The SCSp legal form has no minimum capital of its own. If it operates under a fund regime that imposes a minimum, that regime’s requirements apply.

Sources: RAIF Law, Articles 20, 25 and 32, SIF Law, Articles 21, 27 and 39, SICAR Law, Article 4 and SCSp guidance on Guichet.lu.

Investor eligibility requirements

RAIFs, SIFs and SICARs are reserved for well-informed investors. This category includes institutional and professional investors. Other investors must confirm their status in writing and either invest at least €100,000 or obtain the assessment required by law from an eligible professional.

Statutory exceptions apply in particular to directors and other persons involved in managing the vehicle.

The fund may set a higher contractual minimum investment. Subscription commitments and capital calls must therefore be read together with the vehicle’s rules.

Sources: Article 2 of the RAIF Law and the SICAR Law, and Article 2 of the SIF Law.

Plan the steps and timeline

Legal formation and the start of operations are two different milestones. Launching the fund depends on documentation, identity and source-of-funds checks, acceptance by service providers and the required authorisations.

The preparation process can be organised into six steps:

1. Describe the project. Define the strategy, assets, investors, target amount and countries involved.
2. Determine the structure’s legal and regulatory status. Establish the regime, legal form, manager’s status and marketing rules.
3. Select the providers. Define responsibilities, establish their acceptance requirements and obtain quotations.
4. Prepare the documents. Set out investor rights, governance, subscriptions and service agreements.
5. Complete the formalities. Establish the vehicle, complete registrations and obtain the necessary authorisations.
6. Prepare for operations. Organise cash flows, accounting, valuation, controls and reporting deadlines.

A RAIF avoids prior CSSF product authorisation. Its manager and service providers still need to be appointed. For a SIF or SICAR, CSSF authorisation forms part of the timetable.

A practical timetable specifies the document required, the responsible party and the condition for moving to the next stage at each step. A formation date alone does not guarantee the date of the first transaction.

Sources: RAIF Law and CSSF authorisation procedures.

Further reading: assess a structure suited to your project.

Build the full budget

A fund’s budget includes set-up fees, recurring expenses and transaction-related costs. The providers needed and their fees depend on the regime, assets, investors and chosen operating structure.

Ask each provider to specify the calculation basis, annual minimum, included services, exclusions and VAT treatment in its quotation. Check for overlapping services across packages before adding up the amounts.

Measure the impact of fees

Consider a hypothetical annual budget of €50,000, for illustration:

Calculation: annual budget divided by the reference asset value. Set-up fees are excluded from this example. The €50,000 figure is an assumption used for the calculation, not an estimate of Financial Services’ fees or market rates.

This calculation helps assess the effect of expenses on the project. It should then be repeated using the quotations received, the assets expected at launch and the actual fee arrangements.

Allocate responsibilities

The fund’s functions and the accounting for its related companies must be assigned explicitly. The table lists the functions to consider. The structure determines which are mandatory and which entities may perform them.

Net asset value (NAV) is the value of assets less liabilities. The value per unit is derived from it according to the classes and the fund’s rules. Responsibilities and contracts must distinguish the production of accounting data from the regulated NAV calculation function.

Source: CSSF guidance on UCI administration.

Further reading: how fund services are allocated.

Review the tax treatment

Tax treatment depends on the fund regime, legal form and investors’ circumstances. The taxation of the vehicle must be distinguished from the taxation of distributions received by each investor.

SIFs and RAIFs under the standard regime benefit from direct tax exemptions and are, in principle, subject to an annual subscription tax of 0.01% of net assets, with possible exemptions.

RAIFs under the Article 48 risk-capital regime and SICARs follow different rules. For fiscally opaque forms, these include taxation with specific exemptions, which must be assessed according to the income concerned.

An SCSp is in principle transparent for corporate income tax purposes. The reverse-hybrid rules and, where relevant, municipal business tax must also be considered.

Sources: AED guidance on subscription tax, RAIF Law, Articles 45 to 48, SIF Law, SICAR Law, ACD guidance on tax transparency and ACD Circular LIR 14/4 on SCS and SCSp partnerships.

Prepare your engagement with Financial Services

Financial Services Luxembourg supports the accounting needs of eligible entities and coordinates exchanges with the appointed professionals. The engagement is defined after reviewing the companies concerned, the work requested and the requirements governing the profession.

The work may cover the accounts of the GP, meaning the general partner, the sponsor’s companies and SPVs, meaning companies dedicated to holding assets, where those entities are eligible.

Depending on the engagement letter, the firm may provide:

• Bookkeeping and reconciliations.
• Closing work and the agreed financial statements.
• Preparation of information for the other parties involved.
• Coordination of communications and deadlines within its engagement.

UCI administration and official NAV calculation remain with appropriately authorised entities. Licensed accountant status does not constitute authorisation to perform every function of a fund.

References: scope of the accounting profession on Guichet.lu and CSSF guidance on UCI administration.

Further reading: investment vehicle accounting and providers’ permitted scope.

Information to prepare

For an initial review, provide the proposed assets, number and profile of investors, countries involved, target amount, preferred date and providers already selected.