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Create or Re-Domicile Your Existing Fund in Luxembourg

by | May 2, 2022 | Investment funds

The Creation or Re-Domiciliation of an Existing Fund in Luxembourg

Luxembourg is a small but prosperous country in Europe strongly positioned on top of the hedge fund industry. Fund initiators looking to gain access to large investors and promising investments in Europe, South America, and Asia prefer Luxembourg as a jurisdiction for hedge fund creation or re-domiciliation. 

The tax regime and regulatory framework in Luxembourg makes it a highly attractive domicile for hedge fund managers and fund initiators. Additionally, the service providers industry and its strategic location on the map, makes Luxembourg the perfect destination for investors and managers looking to diversify their portfolios with investments from neighboring developed markets as well. 

Luxembourg’s Undertakings for Collective Investment in Transferable Securities (UCITS) and the Alternative Investment Fund Managers Directive (AIFMD) further boosted the popularity and complexity of Luxembourg as an alternative investment jurisdiction. 

The Fund Re-Domiciliation Process in Luxembourg 

The incorporation of a foreign hedge fund in Luxembourg involves a series of process. To become a legal entity incorporated under Luxembourg Law, a fund established overseas may elect the relocation of its registered office via re-domiciliation in Luxembourg. 

There are two ways to re-domicile a hedge fund in Luxembourg:

Hard Re-Domiciliation

  • This refers to the transfer of a fund’s registered office to Luxembourg while keeping its legal personality. 

Soft Re-Domiciliation 

I

  • The contributions in kind for the assets of a foreign fund are transferred to a new Luxembourg fund. 
  • The foreign investment vehicle then becomes the investor of the Luxembourg fund. 
  • The foreign fund will then undergo liquidation. 
  • The liquidation shares or units will be distributed among the investors of a Luxembourg hedge fund. 

II

  • The contributions in kind by investors of an overseas fund in newly-established Luxembourg fund. 
  • Investors will receive shares or units in a Luxembourg hedge fund. 
  • The foreign fund will then be liquidated and the Luxembourg fund becomes the asset holder of the former overseas fund. 

  • Re-domiciliation of a foreign fund to a Luxembourg Undertakings for Collective Investment in Transferable Securities (UCITS Part II), specialized investment fund (SIF) in the form of a SICAV, SICAF or Common Fund. 
  • Re-domiciliation of a foreign fund as an Undertakings for Collective Investment in Transferable Securities (UCITS Part II) or specialized investment fund (SIF) in the form of a SICAV or SICAF only
  • Merger of a foreign fund into an Undertakings for Collective Investment in Transferable Securities (UCITS Part I), specialized investment fund (SIF) as a SICAV, SICAF, or Common Fund. 

The preferred method of re-domiciliation will largely depend on the chosen legal structure rather than the investment strategy or class assets. Furthermore, the process of hedge fund creation or re-domiciliation will vary based on the nature of a Luxembourg investment vehicle and the primary relocation method.

Re-domiciliation of foreign hedge funds in Luxmebourg stems from the desire of alternative investment managers to take advantage of the marketing freedom available in the European Union for funds that adhere to the succession of directives on Undertakings for Collective Investment in Transferable Securities. The Undertakings for Collective Investment in Transferable Securities  has become the gold standard for cross-border distribution of funds accepted across all EU member nations and other jurisdictions worldwide. 

A re-domiciled hedge fund in Luxembourg will be considered as a tax resident and assessed with the usual tax rates, unless the shareholders select an investment vehicle that allows for specific tax exemptions, such as in the case of a specialized investment fund (SIF), venture capital fund (SICAR), or an investment fund in variable capital (SICAV). 

Damalion supports the initiatives of the Grand Duchy to attract hedge fund managers by assisting foreign fund managers and initiators to re-domicile or create a Luxembourg fund. Leveraging our extensive global service network, we extend our expertise to foreign investors and initiators that are looking to market their investments in the EU. To learn more about the re-domiciliation process of a foreign fund in Luxembourg, 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.