Foreign investors interested in opening an investment fund in Luxembourg may set up a UCITS fund, which was created under the European Union’s directive 85/611/CE in 1985 enabled to establish a common framework for retail investment funds. UCITS, acronym for Undertakings for Collective Investments in Transferable Securities, offers a high level of protection for the investors which created the fund. Entrepreneurs interested in opening a UCITS fund can request information on the subject from our experts in Luxembourg.
The law regulating UCITS in Luxembourg
Law of 17 December 2010
Types of UCITS
- collective investment fund (FCP)
- investment company with fixed capital (SICAF)
- investment company with variable capital (SICAV)
Institutional supervision (yes/no)
Minimum capital to set up UCITS
EUR 1,250,000 (the capital required during the authorization can be less than this, depending on the selected entity)
Authorization required (yes/no)
Requirements for the directors of UCITS in Luxembourg
- experience in the field;
- very good reputation;
- there aren’t any residency requirements;
- no nationality requirements as well;
- the directors must be approved by the CSSF.
Single structure/multiple structures allowed (yes/no)
Fixed capital/variable capital allowed (yes/no)
Yes, UCITS can be set up with fixed/variable capital.
Requirements for variable capital structures
- it can be self-managed or appoint a management company;
- it manages its own investment portfolio;
- the required capital is EUR 1,250,000;
- it must be deposited in 6 months since the incorporation.
Requirements for fixed capital structures
- it can be incorporated under any of the legal entities available in Luxembourg;
- it must deposit EUR 300,000 upon incorporation;
- the entire capital, EUR 1,250,000, must be deposited in maximum 6 months since the incorporation;
- suitable for investments in transferable securities.
Registration fee charged (yes/no)
Taxes charged on UCITS in Luxembourg
- capital duty,
- the subscription tax,
- capital gains tax (applied in exceptional conditions)
- net wealth tax,
- capital gains tax,
- income tax,
- withholding tax
Tax system for the UCITS subscription tax
It is charged at a rate of 0.05% of the net assets of the fund. A lower rate - 0.01% - is available in certain conditions.
Legal entities allowed for the SICAR/SICAV/SICAF in Luxembourg
- SICAF – any legal entity available in Luxembourg
UCITS in Luxembourg - main characteristics
Luxembourg was the first European state which implemented the EU directive into its national legislation. The UCITS funds operate under the supervision of the Commission de Surveillance du Secteur Financier (CSSF).
An UCITS fund can be organized as a collective investment funds (fonds communs de placement – FCP) or as an incorporated investment company. The FCP does not have a legal entity; in order to proceed to transactions in such a fund, a FCP needs intervention from the company’s management. Under the 2010 law, it is required that the net assets of a FCP to beminimum EUR 1,250,000.
UCITS organization forms
The UCITS must be marketed in at least one EEA member country and are using savings made by the public for the collective investment. There are two forms that a UCITS can adopt:
-FCP: undivided collections of transferable securities and/or other liquid financial assets;
-SICAF/ SICAV: an investment fund organised as an investment company with fixed or variable capital.
The FCP is a form of UCITS, established with no legal personality that relies on a company that manages it. The managing company is responsible for the transactions. At least 1,250,000 € are necessary in order to establish this type of fund. This amount must be reached no later than six weeks from the registration. According to law, the FCP can increase its assets to up to 2,500,000 €.
The SICAV/SICAF investment fund is organised as a company. The difference between the two is in the authorized share capital: the SICAF has fixed capital while the SICAV has variable capital. The latter takes the form of a Luxembourg limited liability company which has the objective to invest its funds in financial assets and/or transferable securities. The SICAF can generally take the form of any type of company in Luxembourg.
A SICAV/SICAF that does not managed by a management company must register in the beginning a minimum capital of 300,000 € (at incorporation). Within six months of its authorization this fund must reach a capital of 1,250,000 €. This capital can be increased as per the CSSF regulations.
Before commencing any activities, any undertaking for collective investment in transferable securities in Luxembourg must be authorised by the CSSF as per Article 129 of the law relating toundertakings for collective investment. A UCITS is authorized if the CSSF approved the instruments of incorporation or the management regulations. Additionally, any funds managed by a company must receive an approval from the CSSF concerning the managing company. The directors of a UCITS and/or those of the management company must prove that they have exceptional experience and reputation. The identity of the directors and their subordinates must be disclosed to the CSSF.
Legal framework for UCITS in Luxembourg
This type of investment fund is regulated under the rules of the Law of 17 December 2010, which is harmonized with the EU Directives. Those who are interested in company formation in Luxembourg must know that the main regulatory institution is the Commission de Surveillance du Secteur Financier (CSSF), which provides authorization on the financial structures registered here, including for UCITS vehicles.
Prior to starting the financial activities, the UCITS must obtain an authorization from the above mentioned agency and ourteam of company formation agents in Luxembourg can offer assistance on the procedure, which is concluded following the CSSF Circular 91/75.
Also, it is important to know that UCITS can be set up as a single fund or as an umbrella fund. The latter option offers the possibility of carrying multiple investment strategies under the same structure.
The UCITS fund can also be incorporated as aSICAV (societe d’investissement a capital variable)thatis a public limited liability company registered with the sole purpose of investing the funds in transferable securities or other financial assets; our specialists in Luxembourg can provide you with further information on the subject.
An UCITS fund can be registered as a SICAF (societe d’investissement a capital fixe) and it can be incorporated as anylegal entity accepted under the legislation available in Luxembourg; the SICAF is established in order to invest its funds in transferable securities and to minimize the risks of the investors.
Information on UCITS
If an UCITS fund has been approved in the country of origin, it can be sold/ distributed on the European market without further authorization. Foreign investors interested in setting up a SICAR or SICAV fund should know that UCITS in Luxembourg are very reliable; more than three quarters of products distributed at an international level are traded through Luxembourg UCITS.
Investors can find out more details on the UCITS in Luxembourg below:
Registration of UCITS in Luxembourg
Foreign businessmen who want to open an investment fund in Luxembourg established as an UCITS should know that the registration procedure stipulates a small registration fee – EUR 75 - which is only imposed once, during the incorporation of the vehicle. UCITS can be set up as SICAF in Luxembourg or SICAV. The first legal entity refers to an investment company with fixed capital, while the other designates an investment company with variable capital.
Subscription tax for UCITS
All investment funds in Luxembourgwhich are registered as UCITS are imposed with an annual subscription tax. As a general rule, the subscription tax is applicable at the rate of 0,05% on the net asset value of the fund. However, there are certain categories of UCITS that can be imposed with a much lower subscription tax, applicable at the rate of 0,01%.
The 0,01% rate is available for several categories of funds, such as investment funds used as money market instruments, funds invested in deposits related to credit institutions and umbrella funds – in the case in which the shares of the fund are reserved for at least one institutional investor.
At the same time, investors should know that the fund can also benefit from an exemption frompaying the subscription tax and our team of financial agents can provide in-depth details on the applicability of the regulation, which is available for funds of funds that have already paid the subscription tax.
Taxation of income for UCITS in Luxembourg
The UCITS structure in Luxembourg is not required to pay the income tax or the capital gains tax. Distributions on an investment fund in Luxembourg are exempted from the withholding tax, regardless if they are paid to local or foreign investors. Investors who want to open a Luxembourg fund should also know that the following tax regulations are applicable to UCITS structures:
withholding tax on the income received – this type of tax is generally non-refundable, but in the case of those who want to open a SICAV in Luxembourg, the regulations of the double tax treaties that were signed by the local authorities can be applied;
the tax distributions of Luxembourg investment funds are not imposed with the withholding tax, regardless if the payments are addressed to resident or non-resident businessmen;
as a general rule, these types of funds are not imposed with the capital gains tax, but there are certain exemptions when the tax does apply;
UCITS in Luxembourg have to pay the capital duty, which is imposed at a fixed fee of EUR 1,250;
it is also important to know that UCITS funds are not required to register for the payment of the net wealth tax.
UCITS that are set un as SICAR in Luxembourg are also required to register for a set of taxes, which depend on the legal structure that was chosen for the fund. Thus, in the case of a SICAR in Luxembourg that is set up as a limited liability company or as a public limited company, the investors will be liable for the payment of the corporate income tax, as well as for the payment of the municipal business tax.
The taxation of a SICAR that is set up as a partnership will be concluded at the level of the fund’s partners; this can vary depending on the country in which the members of the partnership have their tax residency.
Setting up an investment fund in Luxembourg can be difficult since it involves such complex procedures. The team from StartLuxembourgFund.com is very qualified and benefits from extensive expertise in this area.