Taxation of SICAR in LuxembourgUpdated on Friday 20th December 2019
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The investment funds that can be registered in Luxembourg are taxed following different taxation principles, which depend on the type of fund the investors have incorporated in this country. Foreign investors who want to set up a SICAR in Luxembourg are advised to study the regulations related to the taxation of this investment vehicle and also the tax requirements this type of vehicle must comply with. Our team of financial experts can provide more details on how to register for the taxation of the undertaking for collective venture capital investment (SICAR) in Luxembourg.
Tax regulations for SICARs in Luxembourg
A SICAR structure in Luxembourg is considered to be a resident company, which is liable to a set of local taxes. SICARs are liable to paying the municipal business tax, as well as the corporate tax. Depending on the legal structure of the company, a SICAR will be liable for different taxation schemes.
SICARs registered as limited partnerships in Luxembourg
Thus, SICARs which are established as limited partnerships are required to pay taxes on the profit shares of the members. In this particular case, the SICAR will be exempted from paying the corporate tax, as well as the municipal business tax. Those interested in private wealth management in Luxembourg must know that the net wealth tax is not applicable in the case of a SICAR registered as a limited partnership.
The following video offers a short presentation on the SICAR in Luxembourg:
A SICAR in Luxembourg will not be required to pay the annual subscription tax, and also, the applicable legislation stipulates that management fees are exempted from paying the valued added tax and our team of financial representatives can provide more details in this sense.
What business forms can SICARs in Luxembourg take?
A SICAR in Luxembourg can be registered under several legal entities. Regardless of the company type selected for this type of investment fund in Luxembourg, the fund’s central administration has to be registered in this country. It is also important to find out that the legislation on SICARs does not stipulate any requirements concerning the number of investors that can register this type of fund, which can be incorporated as one of the below mentioned structures:
- public limited company or private limited liability company;
- partnership limited by shares or a cooperative registered as a public limited liability company;
- limited partnership (it can also be established as a legal entity with variable capital);
- regardless of the selected legal entity, the SICAR in Luxembourg must be incorporated with a minimum share capital of EUR 1 million;
- the share capital of the company can be reached in a period of 12 months since the fund was authorized for operations in Luxembourg.
What are the main taxes available for Luxembourg SICARs?
As we mentioned above, the SICAR in Luxembourg is liable to paying the municipal business tax and the corporate tax. The fund is also liable to employment taxes and the unemployment surcharge. This type of fund is also eligible for tax exemption on the income it obtained in a financial year, but only in specific conditions. Some of the basic taxes are charged at the following rates:
- the corporate tax and the municipal business tax are imposed at a rate of 26.01%;
- the fund is also liable to the payment of the flat tax of EUR 3,000;
- this is applicable starting with 2013 and only for Luxembourg SICARs that have a balance sheet that has more 90% consisting of financial assets or transferable securities;
- provided that the 90% threshold is not applicable to a SICAR in Luxembourg, then the fund will be charged with a tax ranging from EUR 500 to EUR 20,000;
- the value of the tax can increase, when adding the solidarity tax, imposed at a rate of 7%;
- investors must also expect to pay a fixed fee of EUR 75 when incorporating a SICAR in Luxembourg.
In the situation in which the company’s statutory documents are amended, the investors will have to pay the EUR 75 fee as well, and this will apply every time when this procedure may appear. Businessmen opening an investment fund in Luxembourg as a SICAR must also know that, from a tax perspective, the fund can benefit from the provisions of the double tax treaties that were signed by the local authorities with other contracting states.
Thus, the fund can benefit from the EU Parent-Subsidiary Directive. It is also worth to know that this investment structure is liable for the payment of the value added tax (VAT), but it can also benefit from exemptions in this sense, when we refer to the management services addressed to a local SICAR.
The obligation to pay value added tax as a SICAR in Luxembourg is prescribed under the Circular no. 723 from December 2003, while the tax exemptions for this tax are prescribed by the Article 44 1.d of the VAT Law, which can be presented by our team of financial advisors.
Investors must also known that the registration of a SICAR in Luxembourg with multiple compartments is bound by the payment of a separate tax, of EUR 2,650; the tax has to be paid to the CSSF. A tax advantage of this structure is given by the fact that the fund is not imposed with the withholding tax on the distributions of dividends.
What was the evolution of SICARs in Luxembourg?
The number of registered SICARs in Luxembourg developed over the years at a steady rate. As more and more SICARs were incorporated in this country, the value of the assets held by such funds increased as well. According to the data collected by the Commission de Surveillance du Secteur Financier (CSSF), the main institution supervising the activity of investment funds in this country, the following information is available for local SICARs:
- in 2009, there were 236 SICARs operating in Luxembourg, with assets with a value of more than EUR 100 billion;
- in 2012, there were 276 SICARs in Luxembourg, with assets of approximately EUR 250 billion;
- in 2016, Luxembourg had 283 SICARs, with assets of EUR 350 billion;
- in 2018, the value of the SICARs in Luxembourg increased at EUR 400 billion;
- in January 2018, Luxembourg accounted for 285 SICARs;
- in February 2019, SICARs represented 1.2% of the funds selected for incorporation in Luxembourg.
SICARs established as investment companies in Luxembourg
However, in the case of SICARs registered as companies, the investors will be liable to corporate tax and municipal business tax. The SICAR will not be liable to the above mentioned taxes in the case of income deriving from securities. Those who want to open an investment fund in Luxembourg as a SICAR company can also be exempted from paying the net wealth tax. Businessmen can contact our team of financial agents for assistance on the taxation of a SICAR structure in Luxembourg.