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
- 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
- A wide range of supervised and non-supervised investment funds
- UCITS and AIFs
- Umbrella funds
- Non-supervised funds
- 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 Special Limited Partnership, or Luxembourg SLP?
The SLP is an unregulated Alternative Investment Fund, that can be incorporated in Luxembourg by:
one General Partner (GP) – the fund manager; and
one Limited Partner (LP) – the investor
The Luxembourg SLP structure has been modelled on partnerships that can be setup in other jurisdictions such as United States, United Kingdom and the Cayman Islands. Their strategies are usually illiquid, and typical investments are made in real estate, PE or the debt markets. However, there are no restrictions on the asset classes, or on the fund strategies.
A Limited Partnership Agreement governs the functioning of the SLP and gives the fund the contractual flexibility to organise the fund structure. An SLP is not restricted to any asset class, nor is it subject to risk diversification rules.
There are more than 2,600 SLPs that were set up in Luxembourg between 2016 and 2019.
Who manages a Luxembourg SLP?
The Luxembourg SLP appoints a General Partner, usually a private limited company also established in Luxembourg, to manage and monitor the fund on behalf of the investors, or Limited Partners. A GP has unlimited liability for all obligations of the Luxembourg SLP, and hence it is usually a distinct legal entity.
Advantages of setting up a Luxembourg SLP
The following are the advantages of setting up an SLP in Luxembourg:
- It can be established quickly, in 2-3 weeks.
- No prior regulatory approvals required
- Can be an unsupervised fund, and hence not subject to cumbersome regulatory requirements
- The GP has to be regulated only when the Assets Under Management (AUM) crosses Euro 100 million (in case of closed-ended funds, when the AUM crosses Euro 500 million).
- No restrictions on asset classes – the SLP can invest in stocks, bonds, loans, alternative investments, real estate, VC/PE, liquid or illiquid instruments
- No restrictions on hedge fund strategies
- No custodian, audit or prime broker required
- Fully tax exempt in Luxembourg
Can a Luxembourg SLP be passported?
Yes, it can. It would have to appoint an Alternative Investment Fund Manager (AIFM), allowing the SLP to be distributed to accredited investors all throughout the European Union. The process takes around a month.
How much does it cost to setup a Luxembourg fund?
Costs vary, depending on the structure and whether you opt for supervision. Generally, we offer all-inclusive fund setup packages starting from US$ 19,000.
Our services include assistance in:
1. Reviewing the business model and advice on the applicable regulatory framework;
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!
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