Real Estate Funds in Luxembourg | Real Estate Investment Fund - 10 Leaves

  • 15-03-2021
A GLOBAL CENTRE FOR INVESTMENT FUNDS:

Luxembourg is a global centre for investment funds, the second largest fund jurisdiction in the world, after the United States. It is the largest centre for funds in Europe, with over Euro 4.5 trillion in cumulative assets under management in supervised funds alone.

Why setup an investment fund in Luxembourg?

The country is:

  • A founding member of the EU.
  • Politically stable.
  • Financially stable.
  • AAA-rated.

It has:

  • Access to over 500 million EU residents.
  • Reliable investment regulations.
  • Over 4,200 supervised investment vehicles with around 14,500 sub-funds.
  • A competitive framework for passporting of funds within the EU.
  • Luxembourg funds are sold in more than 70 countries and is the leading jurisdiction for fund distribution.
  • A responsive and globally recognized financial regulator.

It offers:

  • A wide range of supervised and non-supervised investment funds.
  • UCITS and AIFs.
  • Umbrella funds.
  • Non-supervised funds.

Tax benefits:

  • Depending on the need of investors, Luxembourg offers tax exempt, tax neutral or taxable investment vehicles,
  • Some exemptions for VAT payments;
  • Funds may access Double Taxation Avoidance Treaty benefits or establish SPVs that would have access.

Luxembourg funds and the GCC:

Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.

Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.

Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.

Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.

United Arab Emirates – 64% of foreign funds are Luxembourg funds:

Saudi Arabia – 50%

Kuwait – 75%

Bahrain – 75%

Oman – 99%

Qatar – 98%

Why setup a real estate fund in Luxembourg?

Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

Such factors have led to Luxembourg becoming the leading domicile globally, for real estate fund structures. 

What are the advantages of setting up a real estate fund in Luxembourg?

There are many!!

1. The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).

2. A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

3. Distribution options are the next major advantage. A Luxembourg real-estate fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.

Such funds also have a more advantageous tax treatment, with the choice of tax treatment according to the choice of investment fund. For instance, real estate funds can be fully taxable and have access to Luxembourg’s double tax treaties network. Alternatively, funds can be tax exempt, but with very limited access to double tax treaties. A third course being tax neutral, with either legal or no legal personality. In this case, the partners of the fund are subject to tax, and not the fund itself.

What structures are available for forming real-estate funds in Luxembourg?

Well, there are a few, as below:

  1. Specialised Investment Fund (SIF): These are very flexible fund structures, and available to qualified investors only. SIFs are most commonly used, when it comes to real estate funds. Over 55% of all Luxembourg real-estate funds are set up as SIFs, holding over Euro 80 billion in real estate investments.

SIFs can also opt for the EU Passport, after meeting certain conditions.

  1. SICAR: (Investment Company in Risk Capital). This is also a supervised real estate fund. The SICAR must invest in risk-bearing assets, which means that if a fund only holds prime real estate, it may not be sufficient to fulfil the criteria.

A SICAR is not subject to any diversification rules, is restricted to qualified investors, has access to double-tax avoidance treaties and can qualify for the AIFMD passport, provided the conditions are met.

  1. RAIF, or Reserved Alternative Investment Fund. RAIFs: were introduced in 2016 and have been very successful.

They are faster to setup, and flexible enough, and they can be transformed into SIF or SICAR, if required.

In fact, they are structurally similar to the Luxembourg SIF and SICAR, but are not directly supervised by the CSSF. Instead, a RAIF has to appoint an AIFM, which in turn is regulated by the CSSF. This allows the RAIF to benefit from the AIFMD passport and be marketed throughout the European Union.

  1. Limited Partnerships (LPs): These include CLPs and SLPs, and are highly flexible real estate funds that has been quite successful recently. Currently, 13% of all Luxembourg real estate funds are set up as limited partnerships.

LPs are not supervised, are similar to partnerships in Common Law jurisdictions, allow for contractual flexibility through Limited Partnership Agreements, and are not restricted to any asset type and not subject to any risk diversification rules.

How fast can the real estate fund be set up?

The time to setup depends on whether the Luxembourg real estate fund or compartment is a supervised or non-supervised fund. A non-supervised fund can be set up within 2 weeks, while a supervised structure can take around two months, depending on the complexity of the structure and the time it takes to get approved by the Luxembourg regulator.

How can we at 10 Leaves help you?

We provide turnkey services for Luxembourg structures:

From initial consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the legal framework in Luxembourg and submit an application that is comprehensive, complete and compliant.

Our services include assistance in:

1. Reviewing the business model and advice on the applicable regulatory framework;

2. Preparation of all the required documentation, including Private Placement Memorandums and agreements;

3. Provision of compliance and bookkeeping services; and

4. Finalisation of registered space and bank account opening.

5. In fact, we can do all this without you having to visit Luxembourg!

Get in touch! to know more information on Real Estate Funds In Luxembourg

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