Professional Interpretation

Luxembourg has successfully positioned itself as the global leader for cross-border distribution of investment funds, with the result that today more than 65% of UCITS funds distributed internationally are based in Luxembourg, which is the leading investment fund center in Europe and second only in the world behind the United States. The reason for this is a highly tuned legal and regulatory framework that combines rigorous investor protection with an unequalled degree of flexibility in fund design, a flexibility that allows products to be tailored to the needs of a specific market or client group. The availability of a wide range of specialised service providers enables fund promoters to subcontract non-core activities and hence benefit from economies of scale. Luxembourg specialises in the administration and cross-border distribution of investment funds and has become the platform

1. Fund Regimes

1.1 UCITS (Part I UCIs)

UCITS stands for Undertakings for Collective Investment in Transferable Securities. The concept originally derived from the European Directive 85/611/EC, replaced by European Directive 2009/65/EC, which provides a single regulatory regime across the European Union for open-ended funds investing in transferable securities such as shares and bonds. With a view to defining the highest levels of investor protection, the Directive regulates the organization, management and oversight of such funds, and imposes rules concerning diversification, liquidity and use of leverage. It was implemented into national law by Part 1 of the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment. The UCITS brand is recognized as the only truly globally distributed investment fund product, and a growing number of countries in Asia and Latin America have accepted UCITS as providing a stable, high quality, well-regulated investment product with significant levels of investor protection. As a result, many asset managers are establishing UCITS funds with a clearly defined global distribution strategy.

1.2 AIF

By the term "alternative funds" is meant all investment funds that are not already covered by the European Directive on Undertakings for collective investment in transferable securities (UCITS).

1.2.1 Part II UCIs

Non-UCITS that are not subject to a specific product law (like the SIF and SICAR law) are considered Undertakings for Collective Investment (UCIs) established under Part II of the Law of 2010. 

1.2.2 SIF

The Specialised Investment Fund (SIF) is a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime for an international, institutional and qualified investor base. In comparison with institutional funds created under Part II of the Law of 17 December 2010 on undertakings for collective investment, the SIF is characterized by greater flexibility with regard to the investment policy and a more relaxed regulatory regime.

1.2.3 RAIF

The Reserved Alternative Investment Fund (RAIF) vehicle combines the characteristics and structuring flexibilities of Luxembourg regulated specialised investment funds (SIFs) and investment companies in risk capital (SICARs) qualifying as AIFs managed by an authorised AIFM, except that RAIFs are not subject to CSSF approval before they are launched. This permits the achievement of a significantly enhanced time-to-market for new fund launches. The RAIF regime is optional. The constitutive documents must expressly provide that the investment vehicle is subject to the provisions of the RAIF Law.

1.2.4 SICAR

The investment company in risk capital (Sociétéd’investissement en capital à risque – SICAR) is a regulated, fiscally efficient structure designed for private equity and venture capital investments. There are no investment diversification rules, nor lending or leverage restrictions.

1.3 SOPARFI

A SOPARFI (Société de Participation Financière) – a financial interest holding company – is a Luxembourg common law company that has the corporate object of taking equity holdings in one or more Luxembourg or foreign companies. It is a "mixed holding company”, because a SOPARFI can carry out its own commercial activities as well as holding equity stakes.

2. Management Companies

2.1 UCITS Management Company

Chapter 15 (UCITS) management company: the regular business of a UCITS management company is managing UCITS. A UCITS must either be managed by a UCITS management company, or designate itself as self-managed. Only investment companies can be self-managed UCITS. Self- managed UCITS are subject to most of the requirements applicable to management companies. A UCITS management company may also obtain authorization to engage in certain other activities, including managing other UCIs and providing discretionary portfolio management services and investment advice in relation to financial instruments.

2.2 AIFM

The regular business of an AIFM is managing alternative investment funds. AIFM authorization is required when the AIF assets it manages are above the AIFM Law de minimis thresholds. The AIFM may be an external entity or the AIF itself, in the case of an internally managed AIF. Only AIFs in corporate form, such as investment companies, can be internally managed. Internally managed AIFs are subject to almost all of the same requirements as AIFM. An external AIFM may also obtain authorization to perform certain other activities, including providing discretionary portfolio management services and investment advice.

2.3 Non-UCITS Management Company

Chapter 16 (non-UCITS) management company: the regular business of a Chapter 16 management company is managing non-UCITS (almost all non-UCITS are AIF). When the AIF assets under management of the management company are below the AIFM Law de minimis thresholds, the AIF may be managed by a Chapter 16 management company without an AIFM authorization. When the AIF assets under management of the management company are above the AIFM Law de minimis thresholds, the management company must either obtain authorization as an AIFM or designate another management entity as AIFM. A Chapter 16 management company may also manage investment vehicles other than AIF.

3. Investors

Alternative investment funds (AIFs) are for “well-informed” investors requiring a limited level of protection and looking for investment flexibility suitable to their particular expertise and needs. This term comprises: institutional, professional, and other qualified investors. Other qualified investors are those who confirm in writing that they adhere to the status of “well-informed” investors and who either (i) invest a minimum of EUR 125,000 or (ii) have been assessed by a credit institution, an investment firm or a management company which certifies the investors’ ability to understand the risks associated with investing in the AIF.

4. Taxation of Luxembourg UCIs

Luxembourg UCIs are tax exempt in Luxembourg with the exception of the registration duty and annual subscription tax. There is no stamp duty in Luxembourg on share issues or transfers.

4.1 Registration duty

UCIs incorporated as investment companies are subject to a registration duty of EUR 75 on incorporation and in case of:

• Modification of the articles of incorporation;

• Transfer of the effective place of management or registered of office to Luxembourg.

This registration duty is fixed. It does not vary with the number of compartments. UCIs constituted as common funds are not subject to this registration duty.

4.2 Annual subscription tax (general tax rate)

2010 Law UCIs are generally subject to an annual subscription tax of 0.05%; for SIFs and RAIFs, the rate is 0.01%. This tax is calculated and payable quarterly, based on the total NAV of the UCI on the last day of every calendar quarter.

4.3 Tax on dissolution

Mergers, demergers, and dissolutions of a Luxembourg UCI generally do not give rise to Luxembourg tax at the level of the Luxembourg UCI. The transformation of a SICAV into a common fund and vice versa has no impact for Luxembourg tax purposes.

5. Cooperation with China

As part of mutual efforts to continue to strengthen business relationships between Luxembourg and China, the Association of the Luxembourg Fund Industry (ALFI) and the Asset Management Association of China (AMAC) have signed a Memorandum of Understanding (MoU) designed to deepen the collaboration between the two associationson 30 June 2014.The agreement focuses on developing activities to create mutually beneficial opportunities for the fund industries in both countries. Luxembourg is the second largest investment fund industry in the world after the United States and a valuable partner for the Chinese asset management industry in its strive to diversify internationally.