Parallel Fund Structure in Luxembourg

Parallel Fund Structure in Luxembourg

Updated on Monday 21st August 2023

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Foreign investors can set up a parallel fund structure in Luxembourg, the country where businessmen can find the largest number of such funds. Historically speaking, Luxembourg stands out as the main destination for a variety of investment funds.  
 
A parallel fund in Luxembourg is similar in many ways with the main structure, and it has the right to co-invest and divest along with the main investment fund. However, there are certain differences compared to the main fund, and our financial advisors can provide more details about this. 
 

What are the main characteristics of a parallel fund in Luxembourg? 

 
Foreign investors can open an investment fund in Luxembourg as a parallel structure if they are interested in developing similar investment strategies carried out throughout all the structures of the fund, but which benefit from different taxation rules. 
 
The main characteristic of the parallel fund is that it is similar with the main fund in respect to the following:
 
  1. investment policy;
  2. risk management strategy;
  3. classes of assets to invest in; 
  4. strategies to be implemented. 
 
Another major characteristic of this fund is that it is always a part of the same investment fund, acting as an umbrella-fund, which allows the set-up of many fund compartments. Those who want to open a Luxembourg fund under this structure can register it as a special limited partnership. 
 
It must be noted that all the funds (the parallel fund in Luxembourg and the main fund) must invest in the same portfolio of assets. It is also important to know that the funds can have different investors. 
 
This can become an important trait when a type of investment fund that can be set up here imposes a limit on the number of investors. Where restrictions apply, the investors can opt for a parallel fund structure in Luxembourg. 
 
Having more investors can provide access to larger capital at the level of all the funds operating under the same structure, therefore offering the opportunity to participate in more investment projects. If you want to open a Luxembourg fund, our consultants can offer information on the incorporation procedure.  
 

What are the characteristics of the Luxembourg special limited partnership? 

 
Considering that the parallel fund in Luxembourg is set up as a special limited partnership, our financial specialists have prepared a short presentation on the main characteristics of this entity. In the list below, you can discover some of its main traits: 
 
  • it is regulated by the Luxembourg Law of 10 August 1915 (applicable to commercial companies);
  • the structure needs at least 2 partners;
  • it is liable to an audit only if for 2 consecutive financial years the structure exceeds EUR 4.4 million (balance sheet total), EUR 8.8 million (net turnover), 50 full-time employees (the audit is required if the company exceeds 2 out of the 3 criteria);
  • the entity is not entitled to benefit from the provisions of the EU Parent-Subsidiary Directive (2011/96/EU) or of those of double tax treaties; 
  • VAT is charged and VAT returns must be submitted (VAT less than EUR 112,000 – annual VAT returns, VAT between EUR 112,000 and EUR 620,000 – quarterly VAT returns, VAT exceeding EUR 620,000 – monthly VAT returns). 
 
Please mind that the VAT thresholds are established without calculating other taxes due. It must also be noted that in the case of a special limited partnership which benefits from management services, the VAT is exempted. 
 
This rule applies as long as the special limited partnership qualifies as an alternative investment fund. Our consultants can provide tax assistance on other rules that can apply, if you want to open a Luxembourg fund.  
 
We invite you to contact us for professional assistance on how to open an investment fund in Luxembourg operating as a parallel fund.