If you want to start a hedge fund in Luxembourg, you need specialized help, as this sector is strictly regulated in the Grand Duchy. Discover below how our local specialists can help you.
| Quick Facts | |
|---|---|
| What are hedge funds? | The type of alternative investment vehicles that can make profits regardless of the market fluctuations by holding both long and short positions. |
Directed to | Professional investors only |
Legislation | – SIF (specialized investment funds) Law, – UCI (undertakings for collective investment) Law |
| Regimes | Can be settled as: – SIFs, – UCIs, – UCITS, – SOPARFI. |
| Supervision | Commission de Surveillance du Secteur Financier (CSSF) |
| Can be managed by | Professional firms |
| Incorporation | As a limited liability company or partnership, the most preferred entities in Luxembourg for hedge funds |
| Portfolios | Required for establishing hedge funds in Luxembourg |
| Registration of a hedge fund in Luxembourg | – drafting the memorandum and Articles of Association, – getting approval from the CSSF, – having a fund representative, – implementing risk management procedures, – having a financial license |
| Assets of a hedge fund in Luxembourg | – financial assets, – pension administration, – real estate, etc. |
| Tax benefits | – VAT exemptions in specific cases, – double taxation treaties benefits, etc. |
| Fees | Around 20% performance fee, about 2% management fee in most cases |
| The time frame for registering a hedge fund (approx.) | From 2 weeks to 2 months |
| Ranking Luxembourg in terms of investment funds | The second largest investment fund jurisdiction in the world, after the USA. |
| Choosing our team in Luxembourg | We can guide local and international investors in setting up hedge funds in Luxembourg by managing the procedures and other legal implications. |
How is the hedge fund defined under Luxembourg legislation?
The hedge fund enters the category of alternative investment funds, which allow investors to pool capital used to generate high profits through multiple and diverse investment strategies.
What are the forms of a Luxembourg hedge fund?
A hedge fund can be launched as a:
- Reserved Alternative Investment Fund (RAIF);
- Specialized Investment Fund (SIF).
What are the legal entities that can be used to create a hedge fund in Luxembourg?
- company with variable capital (SICAV);
- special limited partnership (SLP).
You can also explore the following infographic with extra details:
What are the steps to open a hedge fund in Luxembourg?
- select the legal entity, in accordance with the form of fund: the SICAV can be used for launching a RAIF, while the SLP is suitable for the SIF;
- draft the incorporation papers: Articles of Association for the SICAV, partnership agreement for the SLP;
- incorporate the entity with the Trade Register;
- open the bank account to deposit the minimum capital;
- hire an Alternative Investment Fund Manager;
- prepare the compliance documentation (Anti-Money Laundering, Know Your Client, and internal control rules);
- apply for authorization with the Financial Supervisory Commission (Commission de Surveillance du Secteur Financier (CSSF).
What is the minimum capital to open a hedge fund in Luxembourg?
EUR 1,25 million for both the SIF and the RAIF.
What are the requirements for Luxembourg hedge funds under the SIF Law?
One of the ways to open a Luxembourg fund as a hedge fund is to incorporate the vehicle under the SIF Law. For a more comprehensive presentation regarding the registration of a hedge fund under this law, we recommend that investors addressour financial specialists, who can offer extensive information on the below-mentioned aspects:
- the hedge fund registered under the SIF Law is addressed to well-informed investors;
- the fund must obtain approval from the CSSF prior to starting its operations on the local market;
- there are no restrictions when referring to the eligible assets in which the fund can invest;
- as a general rule, there are no investment restrictions, but the fund must invest maximum 30% of its assets in securities;
- the fund’s representatives have to ensure appropriate risk management procedures;
- the central administration of the hedge fund must be located in Luxembourg;
- there are also no restrictions in relation to the residency of the fund’s directors and managers.
What are the types of investors a hedge fund addresses?
Qualified and professional investors, due to the high risks of the investment strategies. High net worth private investors are also accepted.
How long does it take to launch a hedge fund in Luxembourg?
Between 4 and 6 months, as it is one of the fastest types of investment funds to set up in Luxembourg.
How are hedge funds taxed in Luxembourg?
Investors opening a hedge fund should know that the legislation applicable in Luxembourg doesn’t impose any corporate income tax on the income of such entities. The hedge fund is not subject to the municipal business tax or the withholding tax on dividends. It can be taxed with the withholding tax on dividends only if the European Union’s savings directive applies.
Below, we present the tax structure available for these types of funds:
| Subscription tax | Imposed at a rate of 0.01% of the fund’s net assets, calculated on a quarterly basis |
| Registration tax | A standard fee of EUR 75 is paid upon incorporation, but the same tax is available when performing amendments to the fund’s statutory documents. |
| Direct taxes | Such taxes are not applicable, with the exception of hedge funds registered as RAIFs investing in risk capital, which benefits from a different tax system. |
| Value added tax (VAT) | Hedge funds in Luxembourg are considered entities that must be registered for the payment of VAT, but some exemptions can be granted. |
You can contact our Luxembourg company formation agents for more information about the requirements for hedge funds and how they can be incorporated.