|Fund Structure||Funds can be structured as: Specialized Investment Fund (SIF)Société d’Investissement en Capital à Risque SICAR)Reserved Alternative Investment Fund (RAIF)Luxembourg European Venture Capital Fund (EUVECA)Société de Participations Financiéres (SOPARFI)Société en Commandite Spéciale (SCSp)Limited Partnership (CLP/SLP)|
|Cost||Varies based on fund structure, but generally known for being costly due to the engagement of local service providers|
|Timing||Varies depending on the fund structure but can be as fast as a couple of days if the entity is not regulated|
|Fund Marketing||Fund Managers are subject to AIFMD and NPPRs of Luxembourg AIFM required to notify regulator via informal letter within 2 weeks of commencing pre-marketing activities|
|Tax Treatment||Varies based on fund structure|
|Luxembourg Private Equity and Venture Capital Association||https://lpea.lu/|
A leading global domicile for funds, Luxembourg offers strong financial stability, access to the European Union, and a track record of fund excellence. It is the second largest domicile in AUM behind Delaware with more than €4.7 trillion in assets under management. As of 2021, around €9B is invested in venture capital through Luxembourg funds. There are a number of fund structures available in Luxembourg such as the:
- Undertaking for Collective Investment (UCI)
- Specialized Investment Fund (SIF)
- Société d’Investissement en Capital à Risque (SICAR)
- Reserved Alternative Investment Fund (RAIF)
- Société de Participations Financiéres (SOPARFI)
Certain fund structures are more heavily regulated and have more investment restrictions than others. Fund managers can choose unregulated or regulated funds based on their needs. Fund managers should consider the types of investors they are fundraising from and the level of regulatory framework required to determine which Luxembourg structure is most appropriate. The timing of forming these entities varies depending on the entity but can be as little as a few days if the entity is not regulated to an unlimited timeline if the entity is regulated.
Tax treatment depends on the fund structure chosen and the applicable regulatory regime. EU member status means funds in Luxembourg can benefit from double tax treaties and invest throughout the EU under the same domicile and tax code. In addition, Luxembourg is an attractive jurisdiction for fund managers and investors seeking compliance with the EU’s Alternative Investment Fund Managers Directive (AIFMD).
Moreover, Luxembourg has several initiatives aimed at expanding the venture capital and startup ecosystem in the country. For example, there are several incubators (Lux Future Lab and Luxembourg House of Financial Technology) and conferences in development. These initiatives give fund managers the opportunity to meet potential investors and be introduced to founders.
Generally, investors are comfortable with Luxembourg and think of it as a safe domicile, however there is increasing scrutiny regarding Luxembourg’s reputation as a tax haven in the EU. Costs may also be high depending on the type of fund structure due to the required annual fees (regulatory, audit, reporting, etc.). Note, costs for a non-supervised fund is less costly than supervised funds. In addition, fund managers should be aware that the type of fund structure determines how long it will take to form the fund as some structures are more complex than others.
More Domicile Analysis
For more information on fund domiciles, including details and analysis below: