Open a Special Limited Partnership in LuxembourgUpdated on Tuesday 21st May 2019
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Foreign entrepreneurs who want to invest in Luxembourg should know that this is one of the most stable financial markets in the European Union. Businessmen can opt to establish a special limited partnership (also referred to as limited partnership), which is a type of legal entity that was created for the needs of managers with business activities in the field of private equity or real estate investment.
The legislation has been introduced in 2013 and it aimed at improving the tax provisions imposed to the investment businesses; our team of experts in Luxembourg can provide more details on this subject and can assist foreign businessmen in registering a special limited partnership here.
Special limited partnership in Luxembourg
It is important to know that the special limited partnership (SLP) does not have a legal personality and that it offers a more secure environment. The SLP in Luxembourg refers to a partnership which can be established for a determined or undetermined period of time by one or more business partners.
The partners can have unlimited or joint liabilities related to their partnership, while other partners can have limited liabilities which take into account only the amount with which the investors have contributed to the partnership’s capital. The assets of the partnership will be registered in the name of the SLP; our financial consultants in Luxembourg can offer more information related to the SLP’s assets.
The video below offers a short presentation on the special limited partnership in Luxembourg:
Registration of a SLP in Luxembourg
A SLP is registered at the Trade Register in Luxembourg; in terms of accounting matters, the SLP is required to file only several accounting information, regardless of the financial results of the SLP. An important aspect is that a SLP in Luxembourg allows the registration as a Specialized Investment Fund (SIF) or Undertakings for Collective Venture Capital Investments (SICAR); if the investor will choose to register one of the above mentioned funds as a SLP, the main regulatory body to which the partnership will comply to will be Commission de Surveillance du Secteur Financier (CSSF).
What are the main traits of a Luxembourg SLP?
The SLP can be a great vehicle for those who want to open an investment fund in Luxembourg, as it benefits from a set of characteristics especially designed to cover the needs of a wide category of investors. One of the main characteristics of the Luxembourg special limited partnership is that it must be set up by a general partner and a limited partner. The structure is also defined by the following:
- the investment activities can start relatively fast, as the SLP can be registered in a matter of weeks;
- it does not need to obtain a prior approval from the local institutions, as a general rule (however, exemptions can apply);
- the SLP can function as an unregulated alternative investment fund, operating under the Alternative Investment Fund Manager Directive;
- the investors will have to appoint a fund manager who has received an authorization only in the case in which the fund’s assets under management are above a certain threshold;
- it can be used for a wide category of investments, as it can hold assets in the form of bonds, loans, equity, real estate and others.
What are the tax considerations for a Luxembourg SLP?
The SLP in Luxembourg is an attractive investment structure, as the investors will not be required to pay a set of customarily taxes. For example, the SLP is exempted from the payment of the value added tax and it is considered a tax transparent entity.
It can benefit from a tax exemption on the payment of the income tax (which is applicable to the fund’s partners, not to the fund itself), in the situation in which the investor who has the quality of a general partner holds less than 5% the fund’s interests.
The SLP is not required to pay the withholding tax on the distribution of dividends, but it is necessary to know that it can’t benefit from the provisions of the double tax treaties signed by Luxembourg. The SLP can also be exempted from the payment of the municipal business tax and its investors are not required to pay the wealth tax.
What are the accounting requirements for a SLP in Luxembourg?
When opening a Luxembourg fund, its investors should also take into consideration the accounting principles that must be followed. In the case of a Luxembourg SLP, the standard accounting framework is given by the General Accepted Accounting Principles (GAAP) applicable in this country or the International Financial Reporting Standards (IFRS), as accepted at the level of the European Union (EU).
Investors should also know that is not required to file the fund’s annual accounts, but this is applicable only in the case in which the Luxembourg SLP is registered as an unregulated vehicle. In the case of a SLP that was incorporated as a SICAR in Luxembourg or as a special investment fund, the annual accounts have to be submitted with the CSSF. In this latter case, the SLP also needs to complete an external audit.
What are the incorporation requirements?
The SLP in Luxembourg is incorporated by drafting the Special Limited Agreement, signed between the general partner (or more general partners) and the limited partner (or more). However, the structure can be registered with only two partners, as we presented above. The Special Limited Agreement can take the form of a notarial deed and the document needs to be registered with the local Trade Register.
It is also worth of knowing that the partners of the SLP in Luxembourg do not have to publish information regarding their identity, nor do they have to publicly present the value of their contributions to the partnership; our team of financial specialists may offer more information concerning other requirements. Besides these, the following will apply:
- the SLP in Luxembourg needs to have its domicile registered in this country;
- the general partner has unlimited liability for the fund’s debts, while the limited partner is liable only to the amount with which he or she has participated at the fund’s capital;
- the investors can publish only parts of the Special Limited Agreement, as the document has several confidentiality clauses;
- the SLP can be listed and its management can be established by the general partner;
- the manner in which the management decisions are taken in a SLP in Luxembourg are given by its constitutive document, the Special Limited Agreement;
- it is not required to appoint a general meeting and the voting rights are also established through its founding document.
If you need further information on the special limited partnership in Luxembourg, please contact our team of financial experts for assistance or legal representation. Our specialists can also advise on the tax system applicable to this investment structure and can offer a presentation on the tax advantages investors can obtain when registering a special limited partnership in Luxembourg.