Private Equity Funds in LuxembourgUpdated on Thursday 27th May 2021
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Local and foreign businessmen who want to invest in private equity funds can rest assured that, when choosing Luxembourg, they have made the wisest investment decision, as this jurisdiction is one of the top global locations for private equity. The Luxembourg private equity sector is highly developed not only when we refer to its financial value, but also to the legislation that regulates the sector and the multiple investment options foreign and local businessmen have.
The private equity funds in Luxembourg can take the form of various entities, which can be categorized in two main categories: regulated funds and unregulated funds, in accordance with the investment strategies that investors will find most suitable. If you need assistance on the advantages of the two main classes of Luxembourg private equity investments, we invite you to address to our team of financial advisors.
What are the main fund types for Luxembourg private equity?
When investing in a foreign jurisdiction, one of the main concerns of investors is the legislation in the field, the tax obligations and advantages, the investment options and the type of fund that is most suitable for a specific investment strategy. This is why those who want to open an investment fund in Luxembourg for the purpose of private equity should analyze the wide range of options.
In this particular case, investors who want to set up a Luxembourg fund have numerous possibilities. As we said, the private equity funds in Luxembourg are divided between regulated and unregulated structured. In the list below, we will briefly present the main types of structures you can choose from, and extensive information on each of the fund type can be requested from our team of financial consultants:
- SICAR – it represents an investment company in risk capital which is designed for well-informed investors;
- RAIF – the reserved alternative investment fund is a newer type of structure which can be used by both institutional and well-informed investors who can invest a capital of at least EU 125,000 in the fund;
- SLP – the special limited partnership requires a general partner and a limited partner who have the right of investing in various types of assets such as real estate, bonds, hedge funds and others;
- SIF – the specialized investment fund can be used by various types of investors who can invest in multiple types of assets, including in other funds, such as the SICAV in Luxembourg, SICAR, etc.;
- SOPARFI – it can be used by family office managers who handle the assets of wealthy families.
What is the value of the Luxembourg private equity market?
The Luxembourg private equity market is a highly developed one, which provides multiple advantages to investors and a high level of confidence, as the regulatory institutions constantly update their rules of law and procedures in the interest of all parties. The private equity industry is represented by the Luxembourg Private Equity and Venture Capital Association (LPEA); the sector is gradually expanding, as follows:
- in 2000, there were only 39 Part II funds and 5 institutional funds operating as SIFs;
- by 2005, the number gradually expanded and only the SICAR funds operating as private equity and venture capital accounted for 47 funds, without taking into consideration other categories of funds;
- since then, the number of SICAR funds operating in the Luxembourg private equity sector increased at a rapid pace and, in 2006, there were 115 such funds;
- by 2010, the number of SICAR private equity and venture capital funds in Luxembourg reached 266 funds;
- in 2017, SICAR funds accounted for 401 entities, while institutional funds accounted for 217 entities and the Part II funds, for 16 entities.
What are the tax considerations for private equity funds in Luxembourg?
Businessmen who will open an investment fund in Luxembourg in this field will have to carefully analyze which is the best structure for them from a tax perspective, this being a crucial aspect; equally important is to know the tax reports and tax compliance procedures that will derive as an obligation once the structure is operational.
For those who will select a SOPARFI in Luxembourg, it is important to know that the structure will be taxed following the rules for commercial companies (which means that the structure will be liable to the income tax). This company type can benefit from the provisions of the double tax treaties recognized in this country, in specific conditions.
The structure can benefit from the tax exemptions on the payment of capital gains tax, for instance. For consultancy on the tax benefits of other structures presented here, we invite you to contact our team of financial consultants, who can offer in-depth information on the tax benefits and tax obligations of private equity funds in Luxembourg.