Set up a SICAR in Luxembourg

Set up a SICAR in Luxembourg

Updated on Thursday 20th February 2020

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The Luxembourg investment company in risk capital (société d'investissement en capital à risqué, SICAR) is regulated by the Law for collective investment schemes, enabled in June 2004. The SICAR company was created for private equity and venture capital investments. The Law was amended in 2008, when the Government introduced the option of setting up SICARs in Luxembourg as umbrella companies with multiple sub-funds and as limited partnerships with variable capital, and our team of financial consultants can provide assistance on the advantages of these structures. 

 

What is the main purpose of a SICAR in Luxembourg? 

 
Investors who want to open an investment fund in Luxembourg operating as a SICAR should know that the vehicle is usually used for raising private equity or venture capital and it is allowed to list its shares on the Stock Exchange only under certain conditions. 
 
Investments in a Luxembourg SICAR company are required to meet two main criteria, in the sense that they must be of high risk and they will be used to develop the company the SICAR invested in. The legislation allows for the second condition to be satisfied in different ways, such as modernization or restructuring, hence one of the greatest advantages of setting up a SICAR in Luxembourg is its flexibility, which is also sustained by the fact that both natural persons and legal entities may register this type of fund. 
 

Who can register a SICAR in Luxembourg? 

 
The possibility of opening an investment fund in Luxembourg as a SICAR is limited to well-informed investors, who can be natural persons or legal entities. This category is comprised of institutional investors and of professional investors, but other types of investors may also qualify under this category as long as they comply with specific requirements. 
 
In the latter case, investors can qualify even if they are not professional or institutional investors, as long as they confirm in writing that they can be well-informed investors and if they satisfy a minimum investment threshold, imposed at EUR 125,000; our financial specialists can provide more information on the investment requirements available for this structure. 
 
However, they may also qualify as well-informed investors without investing the minimum capital required for this structure, as long as they have obtained an assessment from an investment structure (such as a management company, investment firm or credit institutions) which states that the investors have the necessary qualifications in order to understand the risks associated with opening a SICAR in Luxembourg
 
 

Which are the business forms available for a Luxembourg SICAR? 

 
This type of investment can be incorporated under five business forms, as precribed by the legislation regulating this vehicle, which is given by the Luxembourg Law of 15 June 2004. The legislation was later amended (in 2013) following the introduction of the Alternative Investment Fund Managers Law. The main legal entities available for a SICAR are:
 
  • partnership limited by shares (société en commandite par actions, SCA) is registered with the Trade and Companies Register and it needs a capital of EUR 31,000;
  • limited partnership (société en commandite simple, SCS) – this business form can be used for SICARs in Luxembourg following the adoption of the 2013 legislation;
  • private limited liability company (société à responsabilité limitée, Sàrl) – the most common business form operating in Luxembourg;
  • public limited company (société anonyme, SA) – this business form is usually chosen for registration by large and medium sized companies;
  • cooperative company established as a public limited company (société cooperative organisée sous forme de société anonyme, SCoSA).

 

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Requirements to register a SICAR in Luxembourg

 
There are no requirements related to the maximum number of shareholders a SICAR in Luxembourg may have. The minimum share capital required to set up a SICAR in Luxembourg is EUR 1,000,000 which must be deposited within 12 months from the authorization. However, it is necessary to deposit at least 5% of the company’s capital during its registration and our team of financial advisors may offer more details on this aspect. 
 
The company must have a registered address in Luxembourg and its name must end in the acronym SICAR. The Luxembourg SICAR must be authorized by the Supervisory Authority for the Financial Sector (CSSF). The SICAR will be required to draft a prospectus and an annual report at the end of each financial year, a document that will be audited by an independent qualified auditor and it is important to know that this structure can benefit from several tax exemptions. 
 

What are the authorization requirements for a SICAR in Luxembourg? 

 
As presented above, a Luxembourg SICAR must obtain an authorization for performing investment activities in this country from the CSSF. Once the company was founded, the application for authorization must be submitted with the CSSF in a period of one month. In order to obtain an authorization for a SICAR in Luxembourg, the CSSF has to offer its approval on certain types of documents. 
 
The file should contain the fund’s constitutive documents, information on the appointed auditor and depositary, information on the SICAR’s directors, but also evidence on the fact that the fund's central administration is located in Luxembourg. All these documents have to be approved by the CSSF in order for the institution to grant the authorization. 
 

What is the tax system applicable for a SICAR in Luxembourg? 

 
Most of those opening a Luxembourg fund are required to pay a subscription tax, calculated based as a small percentage on the net assets of the fund obtained in a financial year; this tax is imposed on a yearly basis. However, in the case of a SICAR in Luxembourg, the tax does not apply. The fund can also benefit from an exemption on the corporate tax, an exemption which is available only for the income obtained from transferable securities. 
 
The standard corporate tax rate available in Luxembourg is of 29.22%; the tax is imposed as follows: the income with a value below EUR 15,000 is taxed at a rate of 20%, while the income above this sum is taxed at a rate of 21%; the corporate tax is also comprised of the solidarity surcharge and local businesses are also required to pay the municipal business tax. 
 
Other types of incomes are imposed with the corporate income tax; specific types of SICARs (registered as investment companies) can qualify for the tax deductions and exemptions available under the double tax treaties signed by the country’s authorities. The fund can also qualify for an exemption on the payment of the value added tax (VAT); this is generally available for the provision of management services. 
 
In the case in which the SICAR in Luxembourg is registered under a partnership, the fund itself will not be liable to taxation; the taxes will apply to its founders and this means that that the corporate tax will not apply; instead, the founders will be taxed with the personal income tax. In this particular case, the municipal business tax will also be exempt. 
 

What types of investment funds are registered in Luxembourg? 

 
Being the home of one of the most developed investment markets at a global level, Luxembourg provides a wide range of investment vehicles, designed for specific types of investors. Funds in Luxembourg can be incorporated as undertakings for collective investments in transferable securities (UCITS), undertakings for collective investments (UCI), specialized investment funds (SIFs), as SICARs, pension funds and others. At the level of April 2019, the situation of the Luxembourg funds was the following: 
 
  • the highest number of funds was registered as SICAVs (55.62%);
  • the second most preferred structure was the FCP in Luxembourg, which accounted for 36.35% of all the funds;
  • the SICAR in Luxembourg represents 6.92% of all the locally incorporated funds;
  • the remaining (1.11%) are funds registered as other types of UCIs or SIFs;
  • most of the Luxembourg funds are incorporated under the rules of law of the Part I (2010 Law), accounting for 46.65% of all vehicles;
  • the total number of funds registered under the Part I (2010 Law) was of 1,806; 
  • in April 2019, Luxembourg registered a total of 268 vehicles incorporated as SICARs.  
 
We invite investors to find out more details on the SICAR in Luxembourg from the video presented below: 
 
 

 

If you need assistance with the setup procedure for SICARs in Luxembourg, please contact our financial experts. Investors can benefit from additional information on the investment regulations available in this country and our financial representatives can offer in-depth information regarding the legislation on wealth management in Luxembourg.