RAIF in LuxembourgUpdated on Thursday 23rd February 2023
The reserved alternative investment fund (RAIF) in Luxembourg is a new type of investment vehicle available for both local and foreign investors, which provides a flexible and attractive legal framework. The RAIF has as the main advantage the fact that it comprises the main characteristics of an alternative investment fund with the ones of a SICAR in Luxembourg. Our team of financial representatives can offer more details on the benefits of the RAIF structure and can provide assistance on the taxation policies available in this case.
The key points of RAIF in Luxembourg
The reserved alternative investment fund (RAIF) is established under the regulations applied by the alternative fund managers directive (AIFMD).
One of the main advantages of the RAIF will be the flexibility given to the investors and that means that they will not be required to receive the approval of the relevant institution, nor will they need supervision from such institutions.
The following video offers a short presentation on the reserved alternative investment fund in Luxembourg:
However, the RAIF will provide security to the local investors through the legislation available under the AIFMD. The legislation is also applicable to the foreign investors.
Because the fund is regulated by the AIFMD, the investors can benefit from the stipulations applicable to alternative investment managers, referring to the marketing passports.
The RAIF is also established under the legislation applicable to special investment funds (SIF). An important aspect is that the fund can be fully operational in a matter of days; our team of financial specialists can offer an in-depth presentation on this new type of fund.
Alternative fund managers directive (AIFMD) in Luxembourg
The alternative fund managers directive (AIFMD) is one of the most important regulations issued by the European Union and it regulates the non-UCITS funds, regardless of their incorporation place.
The alternative fund managers that possess assets with a value above EUR 100 million have to obtain an authorization from the member states in which they are incorporated. The marketing passport refers to the fact that funds operating under the AIFMD can operate in other European countries.
Advantages of RAIF in Luxembourg
The RAIF represents the newest type of vehicle which can be set up by foreign investors in Luxembourg. The main advantage of this structure is given by the fact that it embodies the regulations of the alternative investment funds (AIFs), with the ones of the SICAR (investment companies in risk capital).
Investors interested in the procedure of company formation in Luxembourg as a RAIF structure will not be required to obtain an approval for the fund’s activities from the Commission de Surveillance du Secteur Financier (CSSF), a requirement that must usually be completed for other types of investment funds.
The RAIF structure provides a flexible investment framework, available for well-informed investors who can invest a minimum sum of EUR 125,000 in the respective structure. There are other characteristics referring to the eligibility criteria, which can be further explained by our team of company registration consultants in Luxembourg.
Luxembourg, the most representative fund center in Europe
Luxembourg is, at the moment, the most representative center for fund domiciliation in the Eurozone region. Its development started in 1988, when the local government imposed the UCITS Directive. The UCITS (Undertakings for Collective Investments in Transferable Securities) Directive prescribes the creation of a single investment fund market, available within the European market, which offers a high level of security to the investor.
Legal entities for RAIF in Luxembourg
Another advantage for setting up a RAIF in Luxembourg refers to the legal entities that can be chosen for incorporation.
A RAIF can be set up under one of the following:
• common fund;
• investment company with variable capital (SICAV);
• investment company with fixed capital (SICAF).
Investors who will start the procedure of company registration in Luxembourg as a SICAV or SICAF will also be able to establish one of the next legal entities:
• public limited company;
• private limited company;
• partnership limited by shares;
• limited partnership;
• special limited partnership;
• cooperative company.
Taxation scheme for RAIF in Luxembourg
Regardless of the legal entity under which the RAIF is registered in Luxembourg, the fund will be required to pay the subscription tax, which is applicable at the rate of 0.01% of the fund’s net asset value.
Foreign investors who want to start an investment fund in Luxembourg as a RAIF can also be exempted from paying the subscription tax in specific conditions. For example, the subscription tax is not applicable in the case of funds set up as:
• money market funds;
• pension funds;
• microfinance funds;
• funds that invest in other funds which are liable to paying the subscription tax.
RAIF as SICAR funds in Luxembourg
As mentioned above, the RAIF can be set up as a SICAR in Luxembourg, which refers to an investment company in risk capital. In this particular case, the RAIF will be taxed following the regulations applicable to SICAR vehicles, on which our team of financial consultants can offer more details.
The taxation scheme in this case will include the following:
• the fund will be exempted from paying the subscription tax;
• it is liable to paying the income tax (however, certain exemptions may apply);
• the investments in risk capital are to be audited.
The fund may be set up following the regulations of a SIF in Luxembourg or a SICAR structure, which will allow the investors to establish umbrella funds. In this situation, the compartments of the umbrella fund can’t be liable to the subscription tax.
Businessmen are invited to contact our team of financial agents for more details on the taxation of the RAIF.
You can also contact us if you need advice on the taxation or the incorporation requirements of other types of funds. For a SIF in Luxembourg, for instance, it is necessary that the investors are persons who have an in-depth knowledge and experience in the field.
Thus, it is reserved for well-informed, professional or institutional investors, as the fund has a low level of investor protection.
Another type of fund that is addressed to well-informed investors is the SICAR in Luxembourg. This includes persons who have a certain level of knowledge in the field, sufficient for understanding the risks associated with a particular investment.
The fund is regulated by the SICAR Law, but also by the Alternative Investment Fund Manager Directive and the Regulation (EU) 2017/1131.
A structure that is available for categories of investors is the SOPARFI in Luxembourg. This structure is set up as a commercial company and it does not involve a high level of risk, at least, not as high as in the case of the above mentioned funds.
This fund is liable to paying the corporate tax, charged at a rate of 24,94%, but it can also benefit from certain tax exemptions.