Main types of alternative investment funds in Luxembourg
You can read about what Luxembourg funds are in a separate post, which we have devoted entirely to this topic. Here we will focus on the details of Luxembourg fund types and structures.
Luxembourg funds fall into two main categories:
- Luxembourg regulated funds, i.e. those that must be duly authorised by the Luxembourg Financial Sector Supervisory Commission (The Commission de Surveillance du Secteur Financier, or CSSF) before starting their activities, go through the entire authorisation process, and which are subject to ongoing supervision by the CSSF;
- Unregulated Luxembourg funds, i.e. those that are not directly supervised by the CSSF and do not require authorisation from the CSSF to carry out investment activities within certain limits.
Regulated investment funds in Luxembourg
Let us first focus on Luxembourg regulated funds, supervised by the Luxembourg CSSF.
SIF – Specialized Investment Fund
The SIF (Specialised Investment Fund), is a Luxembourg regulated fund that can be applied to different types of transactions. Through the SIF, it is possible to invest in a wide range of assets, such as securities or real estate.
These funds are characterised by a high degree of flexibility in terms of investment policy and the form and distribution of profits.
Luxembourg SIFs are also tax-efficient as they benefit from an exemption from capital gains tax and capital tax on incorporation in Luxembourg. The annual subscription tax is just 0.01% of the net asset value and investors’ shares are not taxed at all.
SICAR – Société d’Investissement en Capital à Risque (Risk Capital Investment Company)
SICAR (Sub-Investment Company in Risk Capital), is an investment structure dedicated to investments in higher risk assets. The model is designed for qualified investors who are competent and accept the potential risks associated with such investments. SICAR is particularly popular in the areas of private equity investment, as well as in the Venture Capital (VC) and Private Equity (PE) sectors.
With its focus on high-risk investments, SICAR offers investors an efficient vehicle for committing capital to projects with high growth potential. An additional advantage is the exemption from subscription tax, which makes this structure even more attractive in terms of cost efficiency.
UCITS – Undertakings for Collective Investment in Transferable Securities
UCITS funds are some of the most recognisable open-ended investment funds in Europe, specialising in investments in transferable securities such as shares and bonds. They represent an EU regulatory solution that aims to:
- Guarantee investors a high level of protection by establishing uniform standards for asset management and distribution,
- Ensuring a level playing field between funds across the European Union, which promotes the development of the single market,
- Introduce the principle of a ‘single European passport’, which allows cross-border distribution of UCITS funds without the need for additional authorisations in individual member states.
Thanks to consistent regulation and the passporting principle, UCITS funds have gained enormous popularity in the European market as a trusted and accessible investment solution. Today, their assets under management in Europe exceed EUR 13.5 trillion, which is testament to their strong position and strong investor interest. In the Polish market, however, the potential of UCITS funds remains largely untapped – the value of the Polish UCITS market is approximately EUR 27.2 billion, which corresponds to only 0.2% of the European market.
Unregulated Luxembourg funds
Although regulated investment funds play an important role in the Luxembourg financial sector, Luxembourg unregulated funds are of particular interest to Polish investors. What are the characteristics of these structures, what types of unregulated funds does Luxembourg offer, and why are they so attractive to fund managers and investors?
RAIF – Reserved Alternative Investment Fund
RAIF is a state-of-the-art fund structure introduced in Luxembourg in 2016 that combines the key features of SIFs (Specialised Investment Funds) and SICARs (Venture Capital Investment Companies), but without the need to obtain prior authorisation from the CSSF. This approach makes the process of setting up a RAIF fund simplified and can take as little as four to six weeks, making it an extremely flexible investment solution.
The RAIF structure provides for taxation in the form of a low subscription tax of 0.01% of the net asset value. For funds investing exclusively in high-risk assets, it is possible to adopt a taxation regime in line with the SICAR regime, which entails an exemption from subscription tax.
For a Luxembourg fund to function as a RAIF, it must meet the following criteria:
- be qualified as an Alternative Investment Fund (AIF) under Luxembourg law;
- be managed by an external authorised Alternative Investment Fund Manager (AIFM);
- offer its units only to well-informed investors;
- pursue a diversified investment policy or invest in higher-risk assets.
The RAIF is gaining popularity among professional investors seeking greater freedom and flexibility in fund management, while simplifying formal and administrative requirements.
SCSp, SCS, and SCA as corporate forms of investment funds in Luxembourg
Investment funds in Luxembourg can take a variety of corporate forms, which is an important asset for investors seeking flexible structures tailored to specific needs. The most commonly chosen forms include limited partnerships, namely Société en Commandite Simple (SCS) and Société en Commandite Spéciale (SCSp), and the limited liability partnership, namely Société en Commandite par Actions (SCA).
Limited partnership (SCS)
An SCS is a traditional Luxembourg limited partnership with legal personality. The structure requires two types of partners: the general partner, who has full liability and manages the partnership, and the limited partner, whose liability is limited to the contribution made. The SCS is often chosen by investment funds due to its stable legal form and wide market acceptance as a fund investment vehicle.
Special limited partnership (SCSp)
The SCSp is a flexible, state-of-the-art structure, introduced as an option for investment funds, which operates on a limited partnership basis but without legal personality. Unlike an SCS, an SCSp operates as a contractual relationship, giving investors a high level of flexibility to tailor the Limited Partnership Agreement (LPA) to individual needs. Due to the lack of registration requirements for limited partners, the SCSp offers greater anonymity and is widely used in private equity, venture capital and other non-regulated fund structures.
Partnership limited by shares (SCA)
An SCA, or limited joint-stock partnership, combines the features of a joint-stock company and a limited partnership, making it attractive for investments requiring greater legal stability. An SCA requires a minimum share capital of €30,000 and at least two partners – a general partner and a limited partner. Additionally, the structure requires a minimum of three directors and an independent auditor, which increases the level of oversight and control. The SCA provides an effective bridge between investors and asset managers, offering a balanced solution for both regulated and unregulated investments.
Comparison of Luxembourg funds
In order to compare the Luxembourg funds described above, we set out below a table of their key features.
Type of fund
SIF
SICAR
RAIF
AIF
Regulations governing
Law of 13 February 2007. (SIF Law)
Law of 15 June 2004 (SICAR Law)
Law of 23 July 2016. (RAIF Law)
Act of 10 August 1915. (Company Law)
Authorisation and supervision of the CSSF
Yes
Yes
No
No
AIFM authorisation
Yes*
Yes*
Yes
Yes*
Eligible assets
Unrestricted
Restricted to higher risk investments
Unrestricted
Unrestricted
Eligible investors
Well informed
Well informed
Well informed
Unrestricted
EU passporting
No
No
Yes
No
Legal form
Yes (SA / SCA / SCS / SCSp)
Yes (SA / SCA / SCS / SCSp)
Yes (SA / SCA / SCS / SCSp)
Yes
Regulation of investment funds in Luxembourg
Investment funds in Luxembourg are subject to various pieces of legislation that define their structure, licensing requirements and level of regulatory oversight. The key regulations are:
- Law of 13 February 2007. (SIF Law) – regulates Specialised Investment Funds (SIFs),
- Law of 15 June 2004 (SICAR Law) – relates to Special Interest Capital Investment Companies (SICAR),
- Law of 23 July 2016. (RAIF Law) – refers to Reserved Alternative Investment Funds (RAIFs),
- Act of 10 August 1915. (Company Law) – the general company law on which some investment fund corporate structures are based.
Key differences arising from fund regulation in Luxembourg
- Authorisation and supervision of the CSSF
SIFs and SICARs require authorisation and supervision by the Commission for the Supervision of the Financial Sector (CSSF). In the case of RAIFs and AIF (Alternative Investment Fund) type structures, CSSF supervision is not necessary, which simplifies the process of setting them up and reduces operating costs. Thus, the RAIF, as an unregulated structure without CSSF authorisation, gains flexibility and popularity among professional investors. - AIFM authorisation obligation
All Luxembourg funds classified as AIF require authorisation by the Alternative Investment Fund Manager (AIFM) if the fund is not self-managed and exceeds a certain asset value threshold. For SIFs, SICARs and AIFs, AIFM authorisation is not required if the fund operates under a self-managed model and remains below this threshold. - EU passporting
The possibility of passporting, i.e. gaining access to the EU single market, is available to UCITS and RAIF funds, which can be offered throughout the European Union on a single passporting basis. SIFs, SICARs and AIFs do not have this privilege, which means that their availability in EU markets is limited and depends on local regulation. - Qualification as an AIF
All SIFs, SICARs, RAIFs and AIFs are generally classified as AIFs. However, SIFs, SICARs and AIFs may be exempt from this qualification if capital is raised exclusively from a single investor. This flexibility allows investors to tailor the fund structure to their specific investment and regulatory needs. - Types of investment assets
For the most part, Luxembourg investment funds are free to invest in a wide variety of assets. SICAR is an exception to this, as its investments must target higher-risk assets, which makes this structure particularly attractive to venture capital and private equity investors.
Taxation of regulated investment funds in Luxembourg
Luxembourg investment funds benefit from a number of tax advantages that provide a significant incentive for investors. First of all, all investment funds in Luxembourg are exempt from VAT on management services, which reduces operating costs. In addition, these funds are not subject to capital or withholding taxes, which increases their attractiveness in international investment structures.
Subscription tax
Investment funds in Luxembourg may be subject to a subscription tax, the basic rate of which is 0.05% of the net asset value. However, there are more favourable reduced rates applicable to selected categories of funds:
- SIFs and RAIFs (unless they invest in higher-risk assets) are taxed at a rate of 0.01%.
- UCITS funds and other alternative investment funds (AIFs) that act as money market or cash funds, or are units reserved for institutional investors, also benefit from a reduced rate of 0.01%.
It is worth noting that SICAR funds and RAIF funds investing in risk assets are completely exempt from subscription tax, which is particularly attractive to venture capital and private equity investors.
Capital gains tax
SIFs, UCITS funds and selected SICAR and RAIF funds can benefit from an exemption from capital gains tax if the gains are derived from the sale of securities linked to risky assets. This exemption is intended to facilitate the reinvestment of funds and enhance returns for investors operating in high-risk markets.
Thanks to these exemptions and preferential rates, Luxembourg remains one of the most tax-friendly jurisdictions for investment funds in Europe, offering favourable conditions for both regulated and unregulated funds.
Taxation of unregulated investment funds in Luxembourg
The RAIF is an investment fund structure that combines the features of a SIF (Specialised Investment Fund) and a SICAR (Société d’Investissement en Capital à Risque), but does not require authorisation or supervision by the Financial Sector Supervision Commission (CSSF). It is designed for well-informed investors who are able to understand and accept investme
The RAIF is subject to a subscription tax of 0.01% of its net asset value, but there are exceptions – the following. RAIFs investing exclusively in high-risk assets can choose to be taxed under SICAR-specific rules, which means a complete exemption from subscription tax. This exemption is particularly beneficial for venture capital and private equity funds where a high level of risk is part of the investment strategy.
The RAIF also benefits from an exemption from capital gains tax for income generated from the sale of risky assets. In practice, this means that gains from the sale of such assets are exempt from taxation, which favours investors who prefer a capital growth strategy.
Special limited partnership (SCSp)
An SCSp is a special limited partnership which, unlike a classic limited partnership (SCS), does not have legal personality. The SCSp is an extremely flexible structure, based on a contract between the partners, which offers a wide range of possibilities for shaping the terms and conditions of the cooperation and for profit sharing. Thanks to its flexibility and the lack of a requirement for authorisation by the CSSF, the SCSp is a popular choice for private equity and venture capital funds that value a simplified regulatory framework.
The SCSp is treated as a tax transparent entity, meaning that it does not pay tax on income at the company level. Instead, income is taxed directly to the shareholders, depending on their tax residence. This structure is advantageous for international investors who can take advantage of Luxembourg’s network of double taxation treaties. This allows profits to be effectively allocated to lower-tax jurisdictions.
As an unregulated investment fund structure, the SCSp is also exempt from subscription tax and capital tax. This makes it one of the most tax-efficient structures available in Luxembourg, which attracts investors looking for a minimum tax burden with high operational flexibility.
How to set up an alternative investment fund in Luxembourg?
The process of setting up an investment fund in Luxembourg requires a well-thought-out strategy and the fulfilment of certain formal steps. The key steps are outlined below:
Define the profile of investors and fund objectives
At the outset, define the target investor group and clearly specify the investment objectives and strategy of the fund. Also consider the fund’s structuring and management needs in order to match the nature of the fund to the requirements of the market and the planned investments.Choosing the right legal form and structure of the fund
Choose the legal form of the fund that best suits your investment objectives. Luxembourg offers a number of options, such as SIF, SICAR, RAIF, or SCSp, each with different levels of regulation and designed for different investment strategies. Choosing the right structure is crucial to the operational efficiency of the fund.Analysis of tax implications
Consider the possible tax implications associated with the chosen fund form in order to optimise tax-related costs. Luxembourg offers favourable tax rules that can increase the profitability of the fund and attract international investors.Choosing professional service providers
Use experienced providers such as Fundequate, which offer comprehensive administrative support, accounting and legal advice. Working with qualified professionals in Luxembourg can significantly streamline the registration process and fund management.Prepare and submit the required documentation
Prepare all the documentation that will be required to register the fund and meet the regulatory requirements if the fund is subject to CSSF supervision. These documents include, but are not limited to, the fund’s articles of association, investment agreement, and business plan.
With the help of the right professionals and the right legal structure, the establishment of an investment fund in Luxembourg can proceed smoothly, enabling a quick start-up and efficient investment in the European and global markets.
Read more about What are Luxembourg funds?
Summary
Investment funds in Luxembourg offer a wide range of opportunities, supported by flexible regulation, attractive tax advantages and a reputation as a stable and reliable jurisdiction.
If you are considering placing your capital in Luxembourg’s prestigious investment environment, contact Fundequate. Our team will provide support at every stage of the process, including fund structuring, registration and full administrative and accounting services.
Author and expert
Dariusz Landsberg, FCCA
LU 
FAQ
What is the easiest fund to set up in Luxembourg?
Due to the lack of the need for authorisation from the Luxembourg Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier, or CSSF), an unregulated Luxembourg fund such as the RAIF is the easiest to set up. The RAIF can be launched in a simplified procedure, which usually takes between four and six weeks.
What are the main differences between SIF Luxembourg and SICAR Luxembourg?
The most important difference between SIFs and SICAR funds is their purpose.
- SIFs are multi-purpose funds that can be used for different types of transactions.
- SICAR, on the other hand, is used exclusively to invest in higher-risk assets.
Can foreigners set up RAIFs in Luxembourg?
Yes, foreigners can set up a RAIF in Luxembourg. It is also possible to convert a non-Luxembourg entity into a RAIF.
What are the current regulatory requirements for UCITS funds?
All the requirements to be met by UCITS, i.e. management companies of undertakings for collective investment in transferable securities, are set out in Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council. They concern organisational requirements, conflicts of interest, conduct of business, risk management and the content of the agreement between the depositary and the management company.