Crypto Fund in Luxembourg

Crypto Fund in Luxembourg

Updated on Tuesday 07th November 2023

Rate this article

based on 2 reviews


Crypto-Fund-in-Luxembourg.jpg
 
 
The crypto fund is available for registration in Luxembourg starting with 2021. Investors who want to open an investment fund in Luxembourg as a crypto fund can choose only certain categories of investment vehicles.
 
The law regulating the crypto fund in Luxembourg is established by the Financial Sector Supervisory Authority (CSSF), which has issued in 2022 a guidance regarding the virtual currency investments and the types of assets considered crypto assets. 
 
If you need further assistance, our team of financial advisors is ready to provide more details; they can also help you in the formalities of registering a crypto fund in Luxembourg. 
 

What is the law applicable to Luxembourg crypto funds? 

 
For those who want to open a fund in Luxembourg as a crypto vehicle, the same law will apply, regardless of the nationality of the founders. In the list below, you can find out some of the basic rules investors should be aware of: 
 
  • crypto activities fall under the scope of the Financial Sector Law (law of 5 April 1993);
  • obligations can also appear from the law of 10 November 2009 regulating payment services;
  • investments in crypto funds must also respect the law on undertakings for collective investments (Luxembourg law of 17 December 2010);
  • the law on alternative investment fund managers – the AIFM Law of 12 July 2013 also applies;
  • investors must obey the rules of the Prospectus Law, issued on 16 July 2019. 
 
Only after the prospectus and the offering document are fully analyzed by the CSSF, the fund can be officially registered in the registration files of the institutions. When the documents are submitted, the CSSF may ask for additional papers throughout the entire examination period of the Luxembourg SICAR or of other funds that must present their prospectus.  
 
When the prospectus/offering document is approved, the CSSF will send back the stamped documents using the electronic platforms of the institution. 
 

What vehicles are suitable for a crypto fund in Luxembourg?

 
Luxembourg is the home of the largest variety of investment fund types. Depending on the investment activity, some funds are more recommended than others. Our team can offer advice on all investment fund types; our financial representatives can also be of help in presenting the main vehicles you should use for a crypto fund in Luxembourg.
 
According to the document issued by the CSSF in January 2022, investors can use the alternative investment fund for investments in crypto activities. The fund can be used for direct or indirect investments. There is also the obligation to have an AIFM appointed to represent the fund, as per the current law.
 
The fund manager must obtain an approval from the CSSF before starting the investment activities. Please mind that the crypto fund in Luxembourg can’t operate as a UCITS or UCIs, following the Article 1(20b) of the Law of 12 November 2004. Direct or indirect investments in crypto assets concluded through these funds are not allowed. 
 

What is the tax system applied to virtual currencies in Luxembourg? 

 
Regardless if you want to open a UCITS in Luxembourg or another type of fund, you will be liable to taxation. The same happen if you will open a crypto fund in Luxembourg. The activities and the income obtained from crypto currencies operations are taxed in Luxembourg, and the taxation system differs based on the nature of the crypto user (corporate entity or individual). 
 
For instance, corporate entities can be charged for the income obtained from crypto operations with the corporate income tax and the municipal business tax, which can lead to an overall tax of 24.94%. For individuals obtaining income from crypto operations, the personal income tax system will apply and this will lead to a progressive taxation based on the income, ranging from 0% to 42%.  
 
There is also a VAT exemption, following the rules of the Circular No. 787 issued in June 2018; the exemption applies if the crypto currency is used as a method of payment. If you need legal assistance on how to register a crypto fund in Luxembourg, do not hesitate to contact our team of financial advisors.
 

What is the most suitable vehicle for a crypto fund? 

 
It is advisable to open a Luxembourg fund registered as a crypto fund under a special limited partnership (SLP). This structure is recommended as it can accommodate the needs of any type of investment made in crypto assets. 
 

Is it necessary to appoint an AIFM? 

 
Yes, just like in the case of other types of investment funds, such as the AIF or the SIF in Luxembourg, crypto funds must be managed by an AIFM. There are different requirements to comply with based on the legal entity under which the fund is incorporated, but also on the total value of the assets under management (AUM) held by the fund. 
 
Regardless of these requirements, in all cases, the AIFMs appointed to manage the fund must be authorized for operations in the country, following the CSSF regulations. When the crypto fund operates as a SLP, it is not legally required to obtain an authorization from the CSSF, but only as long as the value of the AUM is below EUR 100 million. 
 
The exemption for the authorization is applied for the fund strategy, not the fund itself, which must obtain the necessary approvals from the competent authority, which is the CSSF. 
 
In general, AIFMs need to obtain authorization for themselves (they need to provide evidence on their capacity to operate as AIFMs, their experience, their studies, etc.) and also that they meet the legal requirements (they need to be registered as a legal entity). 
 
Once starting their activity, when providing management services for a Luxembourg fund, it is mandatory to present CSSF with all the necessary details concerning the investments that will be made (crypto investments or otherwise), the ways in which such investments will be made, the associated investments risks, methods to minimize the potential risks and other necessary measures.  
 

What technology does the crypto fund use? 

 
The investments made through a crypto fund are completed through blockchain technology, which is the basis of all crypto investments. Blockchain technology is a secure method of making various investments, as all operations can be easily traced and therefore, the accounting system is very secure and reliable. 
 
Additionally, it provides a high level of security against hacking and it is easy to use and the system can be created as a private system, limited only to specific members, or it can be made public, based on the investment plans of the investors. 
 
The crypto fund is a very flexible way of carrying out investments in the crypto industry, as it allows the possibility to invest in all types of crypto assets. Luxembourg provides many vehicles that allow a wide investment portfolio for investments. 
 
For instance, the RAIF in Luxembourg is one of the most popular ways of carrying an investment in this country, given that it was created to fit the needs of various types of investors, investing their capital in a variety of assets.   
 
The same is true for crypto investments, as this fund can invest in many types of assets, traded on the blockchain system. Assets such as securities can be easily traded (we mention here shares, bonds and others), as well as currencies (crypto or regular). 
 
Another advantage of this investment fund in Luxembourg is that investors can trade movable assets as well (such as cars, boats, planes and others) and immovable assets (real estate). It can also be used for intellectual property rights.  
 
We invite you to address our team if you need information on other types of investments that can be made in Luxembourg. For instance, we can advise on private equity in Luxembourg and how to manage the assets of high-net worth individuals. You can also rely on us for tax assistance and financial advice.
 
Our specialists can help both local and foreign investors in opening a Luxembourg fund. If you need assistance for the registration of these funds, as well as any further information on the registration of the SOPARFI in Luxembourg, you can always rely on our team. 
 
Our representatives can help you in any legal matter concerning the incorporation of any investment vehicles that can be registered under the local law, as well as on the tax obligations imposed throughout a financial year.