Luxembourg is the ideal gateway for foreign private investors and legal entities to expand their portfolio in Europe and beyond. It has proven itself as a premier jurisdiction in servicing alternative assets and regulated investment vehicles. Two of the most popular structures among foreign investors and fund initiators are the Reserved Alternative Investment Fund (RAIF) and the Investment Company in Risk Capital (SICAR).
Let’s look at the main qualities of the Reserved Alternative Investment Fund (RAIF) and the Investment Company in Risk Capital (SICAR), as well as their differences from each other.
Comparison Table Between a RAIF and SICAR in Luxembourg
| RAIF | SICAR | |
| Applicable Legislation | Law of 23 July 2016 (RAIF Law) | Law of 15 June 2004 (SICAR Law) |
| Supervision by the CSSF | No. A RAIF has to be managed by an authorized Alternative Investment Fund Manager (AIFM) which may be established in Luxembourg, in another EU member state, or a third country, as per Directive 2011/61/EU. | Yes |
| Eligible Assets | Unrestricted | Limited to direct and/or indirect investment in securities that represent risk capital, including high risk investments, development, or listing on a stock exchange. Temporary investments in other assets are allowed pending investment in risk capital. |
| European Passport | Yes, as per AIFM Directive | Yes, if subject to AIFM Directive. |
| Risk Diversification Requirements | No risk diversification requirements. | No clearly defined risk diversification requirements but should operate in accordance with risk-spreading concept. No risk diversification if investments are solely in risk capital. |
| Entity Type | Structures may be open or close-ended. Investment company in variable capital (SICAV) Investment company in fixed capital (SICAF) Private limited company (SARL) Public limited company (SA) Partnership limited by shares (SCA) Cooperative in the form of a public limited company (SCoSA) Limited partnership (SCS) Special limited partnership (SCSp) Common fund (SCP) | Structures may be open or close-ended. Investment company in variable capital (SICAV) Investment company in fixed capital (SICAF) Private limited company (SARL) Public limited company (SA) Partnership limited by shares (SCA) Cooperative in the form of a public limited company (SCoSA) Limited partnership (SCS) Special limited partnership (SCSp) Common fund (SCP) |
| Segregated Sub-Funds | Yes | Yes |
| Custodian Requirements | Yes, if established in Luxembourg. | Yes, if established in Luxembourg. |
| Master-Feeder Fund | Yes | Yes |
| Central Administration | Central administration must be in Luxembourg. | Central administration must be in Luxembourg. |
| Eligible Investors | Restricted to well-informed investors only. | Restricted to well-informed investors only. |
| Issuing Document Requirement | Issuing document | Issuing document |
| Maximum shareholders | No limit | No limit |
| Required Service Provider/Depositary | Yes, depositary as per SICAR Law. | Yes, depositary as per AIFM Law. |
| Minimum Shareholders | No minimum | No minimum |
| Minimum Share Capital | EUR 1.25 million to be achieved within 12 months upon incorporation. | EUR 1 million achieved within 12 months upon incorporation |
| Registration Requirements | If registered as SICAV or SICAF or management of a common fund (FCP) must be in Luxembourg. No nationality or residency requirement for AIFM and directors. At least two officers of the AIFM must be located in Luxembourg. | Registered office must be in Luxembourg. No nationality or residency requirement for directors. |
| Portfolio Management | Portfolio management functions are regulated by the AIFMD and under Commission Delegated Regulation EU No 231/2013. Portfolio management may be performed by a non-EU AIFM under a specific third-party country regime. | Portfolio management under regulation of an asset manager’s local regulation. Portfolio management may be performed by a non-EU AIFM under a specific third-party country regime. For SICARs that don’t quality as AIF, portfolio management function is subject to local regulations, while supervisory arrangements can be made between regulatory authorities. |
| Net Asset Value | No | Net asset value required at least for reporting once a year. |
| Borrowing Restrictions | Yes | Yes |
| Listing | Yes, but subject to certain rules when it comes to investor eligibility. | Yes, but subject to certain rules when it comes to investor eligibility. |
| Auditing Requirement | Yes | Yes |
| Dividends Distribution | Dividends distribution must be indicated in the prospectus. For SICAV and FCP, distributions must be made regardless of realized results to the extent that capital share is maintained. SICAF organized as a SA or SCA, final dividend distributions are subject to Commercial Law. SA, SCA, and SARL must have dividends distribution subject to statutory requirements of Commercial Law. | Dividends distribution must be indicated in the prospectus and article of incorporation. Interim dividend distributions are not final and not subject to specific regulatory restrictions, except for adherence to minimum capital share requirements and other constitutive documents. |
| Corporate Income Tax | By rule, no, unless an RAIF is investing in risk capital. | Fully taxable with risk capital exemption. |
| Double Tax Treaties | Depends on the jurisdiction of target companies. | Depends on the jurisdiction of target companies. |
| Subscription Tax | By rule, yes. | No |
| Capital Gains Tax | No | No |
| Wealth Tax | No | No |
| Withholding Tax on Profit Distribution | No | No |
| Withholding Tax on Interest | No, except for EU saving directive cases. | No, except for EU saving directive cases. |
| VAT | Yes, with certain exemptions. | Yes, with certain exemptions. |
Luxembourg is the Ideal Place for Investment Fund Incorporation
The Reserved Alternative Investment Fund (RAIF) and Investment Company in Risk Capital (SICAR) continue to develop their strong reputation among foreign investors and fund initiators from within and outside the European Union. These fund structures are supported by the country’s excellent legal and regulatory frameworks, constantly evolving to offer the best investment tools for initiators while offering maximum protection to investors.
Damalion provides expert consulting solutions in matters of investment funds and alternative investments funds to foreign investors looking to grow their wealth in Luxembourg and beyond. Our extensive global service network allows us to extend our expertise to initiators worldwide. Our qualified professionals and connections offer legal entities and private investors the best strategies in company formation, fund establishment, investment optimization, and advice on tax matters. To learn more, reach out to a Damalion expert today.
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.
