Private Equity Funds in Luxembourg

Private Equity Funds in Luxembourg

Updated on Friday 19th July 2024

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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. 
 
 
 Quick Facts  
 What is private equity?  Private equity refers to the various types of investment partnerships that are made for the purpose of managing and buying companies or that manage the assets of high net worth individuals. 

 Main categories of private equity structures 

  Private equity funds in Luxembourg are divided between regulated and unregulated funds. 

 Types of funds used for private equity  

  Investors can use any of the following types of structures:

- SICAR (investment company in risk capital);

- RAIF (reserved alternative investment fund);

- SOPARFI (financial holding company);

- SIF (specialized investment fund);

- SLP (special limited partnership).
Possibility to register umbrella funds (yes/no)    Yes 
 Raising capital - maximum period of time  

 The time required for raising capital can vary based on the structure selected, but regardless of the fund, it can't be longer than 2 years. 
 Capital requirements  

 No capital to EUR 1,25 million (depending on the selected structure)
 Level of specialization of the investors 

 Private equity funds in Luxembourg can be set up by the following types of investors:

- private investors;

- retail investors;

- well-informed investors;

- professional investors;

- institutional investors.

The level of expertise necessary can vary from one fund to another.
 Tax considerations  

The taxation policy varies based on the fund selected and the type of investments.

Some funds, such as the RAIF and SIF, are liable to the payment of the subscription tax (0,01% of the net assets), while others can pay the corporate tax and the municipal business tax.

The SOPARFI is taxed following the tax policies applicable to commercial companies.
 Double tax treaty access 

 Private equity entities registered as commercial companies can benefit from the provisions of the double tax treaties signed in Luxembourg (as it can be the case of the SOPARFI). 
 Institution representing the private equity sector   The Luxembourg Private Equity and Venture Capital Association
 Most popular type of fund chosen for private equity 

 Private equity funds in Luxembourg are generally registered as SICARs and SLPs. 
 Why opt for private equity in Luxembourg 

 - flexible legislation;

- a variety of funds suitable for private equity;

- highly skilled workforce;

- private equity market expands from one year to another in Luxembourg;

- it is ideally suited for professional and institutional investors;

- Luxembourg is the top financial center in Europe. 
 Licensing requirements  

 It depends on the fund selected (SICARs and SIFs need approval from CSSF, while the SOPARFI does not, for instance). 
 Central administration considerations  

 The fund's central administration must be registered in Luxembourg. 
 AIFM requirements   Applicable to funds registered as RAIFs

 

The incorporation of private equity funds 

A private equity fund is incorporated in accordance with the investment structure selected by the investors (the ones presented below), therefore, rules vary greatly based on this principle. For instance, those who will opt for a private equity fund as a RAIF do not need to obtain an approval for their operations, while those who will opt for a SICAR need to obtain approval from CSSF. 

During the registration, investors must also decide whether they want to set up an umbrella fund or not - umbrella funds can be set up for SIFs, SICARs, RAIFs. Rules concerning capital also vary for each investment fund type (for a SIF, a capital of EUR 1,25 milion is necessary while a SICAR requires EUR 1 million). 

Based on the selected structure, rules for raising capital vary greatly (capital can be raised in 6 to 12 months since the fund was approved). Considering these, we invite to address our financial consultants for in-depth details on all the registration matters investors must meet. 

 

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. 
 
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What are the advantages of private equity in Luxembourg? 

 
Luxembourg offers many advantages for those seeking to set up an investment fund. Whether investors will opt for a RAIF in Luxembourg, a SIF in Luxembourg or any other structures, there are many advantages given by the solid legislation and the long history of this industry.  
 
Although at a global level, the United States of America (USA) is the largest market for investment funds, Luxembourg is highly specialized in this industry, considering its small population (around 650,000 persons). In the 1st quarter of 2023, Luxembourg had more than 3,600 investments funds, which held, in total, more than 14,200 investment units.  
 
Additionally, it must be noted that the financial services industry (which includes the investment fund sector along with all the types of funds that can be set up) employs around 47,000 persons. 
 
In the last years, the private equity expanded due to the social and political changes that appeared in Europe, such as the United Kingdom’s decision to exit the European Union (EU). This has had as a direct consequence the decision of British investment companies to relocate their main offices to Luxembourg, so that they can benefit from the European laws, tax benefits and liberties (such as the European passport regime). 
 
Currently, 18 out of the 20 largest companies in the industry have opted to set up their private equity firms in Luxembourg. Out of these, 63% also hold the AIFM license. As we mentioned earlier, one can open a Luxembourg fund in the private equity industry under many structures. 
 
However, private equity managers consider that the creation of the RAIF in Luxembourg (launched in 2016) was an important step in the development of the industry and for the overall investment fund market. Along with this structure, the limited partnership has also retained the attention of foreign businessmen. 
 
This has been observed in the case of British and American investors, as the Luxembourg limited partnership is created following the same principles that are regulated in the UK and USA. Investors also have the possibility to set up the partnership as a specialized limited partnership.  
 
The decision to select a suitable investment vehicle must be established based on the types of investments the businessmen want to make, the risks they want to assume, the capital they can invest in a business and many other factors. 
 
As such, if you want to open a Luxembourg fund, our team of financial advisors can help you choose the structure that best suits your interest. For instance, the SIF in Luxembourg represents the standard choice that is selected by most investors. 
 
On the opposite side, the SICAR in Luxembourg requires a certain level of specialization for the investors (an in-depth knowledge of the financial markets) as the investments are made in risk capital, therefore investors must be aware of the risks associated with the investments. Our consultants can also present the tax reporting obligations associated with private equity funds in Luxembourg.  We invite you to watch a short video on opening a private equity fund in Luxembourg:  
 
 
 
 
 
 

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. 
 

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. 
 
It must be noted that the private equity sector has been constantly expanding in the last few years, furthering the development of the Luxembourg financial market, which is currently the 1st destination for investments funds in Europe. 
 
Some of the most common ways to invest in Luxembourg is to set up an alternative investment fund and concerning this category of funds, it must be noted that 25% of the entire market is comprised of private equity funds.  
 
Therefore, private equity in Luxembourg is highly developed and the estimates for the following years (up to 2025) show that this market segment will increase by 10%. Private equity funds in Luxembourg can be set up under various structures, as mentioned above, offering a large array of options for investors, among many other benefits. 
 
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.