The most recent EU Directive on Alternative Investment Fund Managers (AIFMD) transposed to Luxembourg law further expanded the country’s corporate legal framework by introducing the Special Limited Partnership (SCSp). This business structure is heavily inspired by the Anglo-Saxon limited partnership regimes. It was designed to boost the position of the Grand Duchy as a primary alternative investment vehicle formation domicile in the European Union.
Main Characteristics of a Luxembourg Special Limited Partnership
- No legal personality
- Greater contractual freedom
- Lack of minimum share capital
- No minimum subscription
- No need for auditing contributions in kind
- Legal ownerships of assets
- Multiple voting rights
- No mandatory reporting of annual accounts
- Publication of annual accounts not mandatory
- Possibilities of issuance of debt securities
- Only published partner is the general partner
- Bookkeeping required
The Luxembourg Special Limited Partnership as an Investment Vehicle
- Can be utilized for master feeder structures, joint ventures, and acquisition vehicles.
- Common use among investors includes private equity, venture capital, and real estate investments.
- It may take the form of a collective investment undertaking (UCI) featuring various compartments or sub-funds, with the aim of raising capital for a number of investors.
- Participants invest in accordance with a specific investment policy for their benefit.
- It does not require the authorization under the Undertakings for Collective Investments in Transferrable Securities regime. (UCITS).
- A special limited partnership qualifies as an Alternative Investment Fund (AIF) governed by the 2013 legislation pertain to Alternative Investment Fund Managers (AIFM).
- Special limited partnerships (SCSps) that are categorized as an alternative investment fund may take the form of a specialized investment fund (SIF), investment company in risk capital (SICAR) regime, or an unregulated entity.
- Special limited partnerships (SCSps) that are categorized as an alternative investment fund is under direct supervision of the Commission for the Supervision of the Financial Sector (CSSF) .
- May not be considered as an internally managed alternative investment due to lack of legal personality.
Main Steps in Establishing a Special Limited Partnership (SCSp) as an Alternative Investment Fund
- Incorporating a general partner.
- Drafting and implementation of a Limited Partnership Agreement (LPA) through private or notarial deed.
- Engaging the appropriate service providers based on the regulated or unregulated status of the special limited partnership (SCSp).
- Publishing the brief version of the Limited Partnership Agreement (LPA) before the Luxembourg Trade and Companies Register.
- Setting up a register of partnership interests.
- Requesting the authoritization of the Alternative Investment Funds Manager (AIFM) by the Commission for the Supervision of the Financial Sector (CSSF).
Special Limited Partnership Legal Framework and Features
- Can be established for a limited or unlimited duration, between one or more general partners.
- general partner/s will be liability for the partnership’s liabilities.
- Limited partner/s with limited liability does not exceed their partnership interest.
- Management functions entrusted to a general partner or an external manager.
Main Traits of a Luxembourg Special Limited Partnership
- May start promptly, as it can be set up in a matter of weeks.
- No need to obtain prior approval from local institutions.
- Investors need to appoint a fund manager with authoritization only in cases wherein a fund’s assets are above a certain threshold.
Luxembourg Special Limited Liability Accounting Requirements
- Must adhere to the standard accounting framework by the General Accepted Accounting Principles (GAAP) applicable in Luxembourg and the International Financial Reporting Standards (IFRS).
- A special limited partnership is not deemed to file its annual accounts, but only applicable if the special limited partnership is an unregistered vehicle.
- A special limited partnership registered as an investment company in Risk Capital (SICAR), annual accounts must be submitted before the Commission for the Supervision of the Financial Sector (CSSF).
Special Limited Partnership Taxation Regime
- Unregulated and regulated special limited partnerships (SCSp) are tax transparent entities for corporate income tax and net worth tax purposes.
- 6.75% municipal business tax for special limited partnerships (SCSps) running commercial activity in Luxembourg.
- A special limited partnership is considered carrying out commercial activity if the general partner of a public or private limited liability company holds at least 5% of partnership interests.
- A special limited partnership (SCSp) is tax neutral, so long as the general partner/s does not hold more than 5% of partnership intertests.
- Unregulated and regulated special limited partnerships (SCSps) does not benefit from double tax treaties nor the EU’s Parent-Subsidiary Directive.
- Special limited partnerships qualifying as an alternative investment fund are exempt from value added tax.
- Dividend distributions made by a special limited partnership are not subject to withholding tax.
For expert help in the formation of a special limited partnership in Luxembourg, our team of experts at Damalion can help. Leveraging our global service network, we assist foreign investors in company formation and other associates activities, from opening a bank account, advice on applicable tax regime, accounting, bookkeeping, management, and more. Reach out to a Damalion expert today if you wish to learn more.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
