Set Up a SICAF in LuxembourgUpdated on Tuesday 17th January 2023
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The investment company with fixed capital (SICAF) is one of the available legal structures for opening an investment fund in Luxembourg. In order to set up a SICAF (Société d’Investissement à Capital Fixe), an investor needs to observe the requirements for capital, structuring and fund management.
Having a wide range of available structures for investments and specialized investment vehicles, Luxembourg is a leading destination for worldwide investors and fund managers. Our team of financial experts can help you set up a SICAF or a SICAV and also manage any other funds or sub-funds following the applicable legislation.
The characteristics of SICAF in Luxembourg
The investment company is one of the basic structures to form undertakings for collective investments in Luxembourg. For this purpose, the investor can open an investment company with fixed capital, also known as a SICAF. It can be formed as a public limited company, a limited liability company, partnership limited by shares or co-operative. Besides the above mentioned aspects, the investors should know that the SICAF is also represented by the following:
- the fund is set up in order to invest in securities and in other liquid financial investments;
- the SICAF can also be registered to operate as a security fund, real estate fund or holding fund;
- the vehicle may be incorporated only by qualified investors if it is registered under the SIF regulations;
- if the fund is formed under the UCITS regulations, any type of investor is entitled to register a SICAF;
- the fund’s statutory documents, the articles of association, have to be concluded in Luxembourg;
- its registered office and place of management have to be in Luxembourg as well.
Both the SICAF and the SICAV can be formed as individual funds or as part of an umbrella fund that has a number of sub-funds. The SICAF will need a capital of EUR 1,250,000 that must be fully deposited within six months since the fund received an authorization from the local financial regulator, but this is applicable only in the situation in which the vehicle operates as a UCITS fund. If the fund is registered under the SIF regulations, the capital may be deposited in a period of 12 months.
Taxation and supervision for funds in Luxembourg
The Luxembourg Financial Supervisory Authority (CSSF) is the main regulator for investment funds in the country. Any fund, including the SICAF, will need to obtain its approval before being able to commence any activities. The institution will approve the fund’s constitutive documents, its management strategy and even its directors.
The distribution of dividends in a SICAF must be done in such a way that it will not decrease the assets to an amount less than half of the fund’s liabilities to its creditors. The fund will also need to comply with annual accountancy and financial reporting requirements. Our financial experts in Luxembourg can help you manage your fund in such a way that it complies with the accepted accounting and reporting principles.
The SICAF in Luxembourg is exempt from the income tax, the net wealth tax or the value added tax. While some double tax treaties can apply, Luxembourg has certain restrictions when it comes to double taxation for investment funds in other countries. Our financial representatives can advise on which double tax treaties apply in case of SICAFs.
What are the reporting requirements for Luxembourg SICAFs?
Foreign investors who want to open an investment fund in Luxembourg registered as a SICAF are legally required to follow the provisions prescribed by the Luxembourg Financial Market Authority (CSSF). The CSSF is the main institution that provides licenses for investment activities in this country and this type of document is also needed when investing here through a SICAF.
Further on, during the financial activity of the fund, CSSF will permanently supervise the activity of the vehicle; investors must also consider that the fund manager’s need to be licensed by the CSSF, and this is also necessary in the case of fund advisers. The fund is also subjected to audit procedures, that are carried out by independent auditors.
The main reporting requirements applicable to a SICAF in Luxembourg refer to the fund’s accounts. They have to be prepared at the end of each half of the financial year, but the fund is also obliged to complete an annual account. The SICAF has to deposit such documents in a given period of time, which depends on the structure of the fund.
Thus, in the case of a SICAF registered under the UCITS regulations, the accounts have to be published in a period of four months since the end of the financial year. When referring to a Luxembourg SICAF registered as a SIF, the accounts can be published in a period of six months.
The fund has to prepare a sale prospectus, an exemption in this sense being granted to investment funds in Luxembourg that are registered as closed-ended UCITS vehicles. Our team of financial consultants can provide more information on the documents that have to be prepared during a financial year by a local SICAF.
What are the main taxes applicable to Luxembourg SICAFs?
A SICAF in Luxembourg is liable to the payment of a subscription tax applicable at a rate of 0.05% from the net worth of the fund (calculated on a yearly basis). In the case of SICAFs that are registered under the SIF law, the annual subscription tax is imposed at a rate of 0.01%.
Such funds are exempted from paying the corporate tax, nor are imposed with the net wealth tax or the withholding tax (applicable for the distribution of dividends). The provision of services can be imposed with the standard value added tax (VAT) rate, but a full exemption is applicable in the case of the services offered by management companies in Luxembourg to investment funds.
Capital requirements for SICAFs in Luxembourg
Luxembourg investment funds registered as SICAFs must have an initial capital of EUR 1,250,000, which can be raised by the investors in a period of one year after the investment vehicle was authorized on the local market by the Commission du Surveillance du Secteur Financier.
Does the fund need to appoint a custodian in Luxembourg?
Yes, according to the applicable legislation, a SICAF in Luxembourg is obliged to appoint a custodian bank, which will be in charge with the assets of the fund. Amongst the obligation of the bank handling the fund’s assets is to verify if such assets are used in accordance with the provisions stipulated in the fund’s incorporation documents.
It is necessary to know that the custodian bank can become liable to the fund (and to the fund’s shareholders), in the situation in which it did not handle the fund’s assets in a proper way, in accordance with the duties it had towards the respective vehicle.
Does the fund need a registered office in Luxembourg?
Yes, the SICAF needs to establish its place of control and its management in Luxembourg, as stipulated by the articles of association of this type of structure. The fund also has the obligation of producing and keeping the fund’s documents in a suitable manner.
Investors should also know that the registration of a SICAF requires the payment of a fee, which is applied at a value of EUR 75. In the case in which the fund will modify its articles of association, the institutions will have to be notified and this will require the payment of the same fee; our financial specialists can offer further advice on other registration taxes that can be applied to this structure.
Below, businessmen can watch a short presentation on the main aspects related to the Luxembourg SICAF:
What are the key features of a SICAF?
So far, we have presented most of the minimum aspects that should be known by local and foreign businessmen when setting up a SICAF. Below, investors can discover the key features of the SICAF, which can be presented on an extensive manner by our team of financial consultants:
- the SICAF represents a corporate structure which has a fixed share capital;
- it has a separate legal personality than the one of the shareholders, and in order to increase or decrease its capital, formal decisions have to be taken, in accordance with the fund’s incorporation documents;
- its management can be established under a board of directors or board of managers, depending on the legal entity that was selected for the registration of the SICAF;
- the business forms selected for this structure are given by the 2002 Law, Part I and Part II.
Why register a SICAF in Luxembourg?
It is advisable to open an investment fund in Luxembourg as a SICAF or as any other type of vehicle prescribed by the national legislation due to the fact that the country is one of the most important financial markets at a global level. Our team of financial agents can offer a detailed presentation on the main reasons for opening a SICAF in Luxembourg, but it is important to know that the structure benefits from the following advantages:
- the SICAF is exempt from paying the corporate tax and it is liable to an annual subscription tax;
- if the SICAF is formed as a specialized investment fund, it can benefit from a subscription tax imposed at the rate of 0.01% of the fund’s net assets (the SICAF may also be imposed with a 0.05% subscription tax);
- the payment of dividends to non-resident investors is exempt from the withholding tax;
- this type of fund is also not liable to paying the wealth tax and the fund management services are exempt from value added tax.
Wide variety of business forms for the Luxembourg SICAF
As mentioned earlier, the SICAF in Luxembourg may be set up as a public limited company, but the local legislation allows the incorporation under other legal entities, such as the limited liability company, the partnership limited by shares or the cooperative registered as a public limited company.
Please contact our financial specialists in Luxembourg to set up your SICAF and open a registered office for your fund in Luxembourg. Our representatives can offer in-depth information on the main documents that are to be deposited with the local institutions when registering an investment fund in Luxembourg.
Please mind that our consultants can assist you in the registration of other types of funds, outside the SICAF. You can rely on us if you need information concerning the registration of a SIF in Luxembourg, which is a type of fund that needs the prior approval of the CSSF for its operations.
The CSSF will evaluate the incorporation documents, the quality of the directors, the management company (that must also be approved by the CSSF), etc.
You can also contact us if you want to learn more about the conditions that investors must respect upon the incorporation of a SICAR in Luxembourg.
The SICAR must also obtain an approval from CSSF, which is obtained only if the institution will approve the fund’s incorporation documents. The persons who are appointed as the directors of the fund must also meet certain requirements.
For advice on other investment vehicles, such as the SOPARFI in Luxembourg, please contact our team. The SOPARFI can invest in many types of assets, such as real estate, cash, currencies, immaterial assets, material assets, commodities, loans, bonds, stocks, shares and many others.
It can be incorporated under 5 company types, including the European company or the public limited company.
While most of the investment funds available in this country are regulated by the CSSF, you must know that not all funds require to obtain an authorization.
This is the case of the RAIF in Luxembourg, one of the latest investment vehicles that was made available for foreign and local investors. The RAIF has become very popular, as it can invest in most of the asset classes.