Reserved Alternate Investment Funds (RAIF) in Luxembourg - 10 Leaves

  • 09-03-2021

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%

What is a Luxembourg RAIF?

The Reserved Alternative Investment Fund was created following the implementation of the AIFMD. Structurally, it is a combination of the Specialised Investment Fund (SIF) and the Investment Company in Risk Capital (SICAR).

However, unlike the SIF and SICAR, the RAIF is not ordinarily supervised by the Luxembourg CSSF. This allows the fund to be launched quickly, since double-supervision is avoided. However, a RAIF would have to appoint a CSSF-regulated Fund Manager (AIFM).

The Luxembourg RAIF is very popular in the EU, and there are around 650 RAIF established as of 2020.

Can a RAIF be sold to all investors?

A Luxembourg RAIF can only be sold to qualified investors, which include institutions and professional investors.

In some cases, prospective investors can declare that they a) can invest a minimum of Euro 125,000 or obtain a confirmation from a credit institution, an investment bank or a management company, certifying their expertise, experience and knowledge in sufficiently judging and understanding the implications of an investment made in the RAIF.

Can a RAIF obtain an EU Passport?

Yes it can. The RAIF will have to appoint an AIFM (established in any EU state, including Luxembourg) to benefit from passporting rights in the EU.

Advantages of setting up a RAIF in Luxembourg:

The following are the advantages of setting up a RAIF in Luxembourg:

  • It can be established quickly, in 2-3 weeks. A notarial certificate is required, where the AIFM confirms the creation of the RAIF, and this is published in the public register.
  • No prior regulatory approvals from CSSF are required.
  • Can be established as a SICAV or SICAF. The RAIF can also be created as an FCP, with a management company managing the structure and the RAIF itself having no legal personality.
  • Can be setup as an Umbrella Fund as well.
  • No restrictions on asset classes – the RAIF can invest in stocks, bonds, loans, alternative investments, real estate, VC/PE, liquid or illiquid instruments.
  • No restrictions on hedge fund strategies.
  • Tax attractiveness – can opt for a (i) tax regime similar to the SIF, with a 0.01% subscription tax on the net asset value of the fund and exemptions from other Luxembourg taxes, or (ii) a tax regime similar to the SICAR.

How much does it cost to setup a Luxembourg fund?

Base capital requirements:

The minimum net assets of a RAIF should be more than EUR 1.25 million. This amount must be reached within a period of twelve months following the formation of the RAIF. At least 5% of the capital must be paid up at subscription.

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! For More Information On Reserved Alternate Investment Funds (RAIF) in Luxembourg

For More Details about Luxembourg Funds, View Our Luxembourg Brochure

 

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