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How to Open a Luxembourg Reserved Alternative Investment Fund (RAIF)

by | May 16, 2022 | Corporate Structuring

How to open a Reserved Alternative Investment Fund in Luxembourg

A Reserved Alternative Investment Fund (RAIF) is an unregulated investment vehicle in Luxembourg subject to the indirect supervision of the Commission for the Supervision of the Financial Sector (CSSF) via its fully authorized alternative investment fund manager (AIFM). 

The main features of a Reserved Alternative Investment Fund (RAIF) is similar to Specialized Investment Funds (SIFs) and an Investment Company in Risk Capital (SICAR). This means that a Reserved Alternative Investment Fund (RAIF) can be established for all types of investment strategies in Luxembourg. 

There are specific transformation rules that are applicable to the Reserved Alternative Investment Fund (RAIF) structure, which might for instance, evolve into fully regulated investment structures. With this in mind, a Reserved Alternative Investment Fund (RAIF) may also be utilized as an incubator for fund initiators. 

Key Features of a Reserved Alternative Investment Fund (RAIF)

  • Subscribed Share Capital – EUR 1.2 million with 12 months of formation. 
  • Only limited to well-informed investors, including institutional, professional, and qualified investors. 
  • Required to implement an independent auditing and depositary. 

Reserved Alternative Investment Fund (RAIF) Incorporation Process

  • A Reserved Alternative Investment Fund (RAIF) must prepare an offering document indicating on its front page that the fund is subject to supervision in Luxembourg. 
  • Articles of association must be explicitly mentioned and included and are subject to the provisions of the Reserved Alternative Investment Fund (RAIF) Law. 

Available Structures for a Reserved Alternative Investment Fund (RAIF)

  • For a Reserved Alternative Investment Fund (RAIF) organized as an Investment Company in Variable Capital (SICAV) or Investment Company in Fixed Capital l(SICAF) in the form of a public limited company (SA), partnership limited by shares (SCA), private limited company (SARL), the articles of association must be adopted and verfied by a notarial deed. 
  • For a Reserved Alternative Investment Fund (RAIF) organized as a common fund (FCP), limited partnership (SCS), and special limited partnership (SCSp), a notarial documentation will confirm that the Reserved Alternative Investment Fund (RAIF) has been established and drawn up within five days from Reserved Alternative Investment Fund (RAIF) formation. 

Reserved Alternative Investment Fund (RAIF) Publication and Registration 

  • A Reserved Alternative Investment Fund (RAIF) must be listed with the Luxembourg Trade and Companies Register. 
  • Information of a Reserved Alternative Investment Fund (RAIF) must be available on the Luxembourg Trade and Companies Register website within 20 buys from the date of the notarial deed. 
  • Information provided to the Luxembourg Trade and Companies Register include company name, formation date, and Management Company of the fund. 
  • Notice that certifies the establishment of a Reserved Alternative Investment Fund (RAIF) has to be registered with the Luxembourg Trade and Companies Register and published on the Electronic Compendium of Societies and Associations. 
  • A Luxembourg Reserved Alternative Investment Fund is required to published its audited annual financial statements to the concerned authorities. 

Taxation of a Luxembourg Reserved Alternative Investment Fund (RAIF)

Default Tax Regime 

  • Similar to the Specialized Investment Fund regime. 
  • Exempted from corporate income tax, municipal business tax, net wealth tax, but subject to subscription tax. 
  • Annual subscription tax of 0.01% of net asset value of the Reserved Alternative Investment Fund (RAIF).
  • Subscription tax valued at the end of each calendar quarter. 
  • Declaration and payment of subscription tax must be made quarterly. 

Reserved Alternative Investment Fund (RAIF) established as a common fund, limited partnership, and special limited partnership are tax transparent entities for tax purposes. This allows a Reserved Alternative Investment Fund (RAIF) to claim the many benefits of double taxation treaties of Luxembourg with other countries. 

  • As of 1 January 2021, a Reserved Alternative Investment Fund (RAIF) following the Specialized Investment Fund regime and holding real estate in Luxembourg will be subject to new real estate tax at an annual rate of 20%. 
  • Investment funds in the form of a partnership or common fund remains out of scope. 
  • All investment vehicles under Luxembourg Law are required to inform the tax authorities until 31 May 2022 of their Luxembourg real estate assets held between 2020 and 2021. 

Optional Alternative Tax Regime 

  • Similar to the Investment Company in Risk Capital regime. 
  • A Reserved Alternative Investment Fund (RAIF) established as a corporation and investing in risk capital may opt to apply for taxation rules similar to investment company in risk capital (SICAR) taxation regime. 
  • A Reserved Alternative Investment Fund (RAIF) will be fully taxable and subject to corporate tax, municipal business tax, and net wealth tax, but still gaining benefit from exceptions on some income, such as income derived from transferrable securities. 
  • A Reserved Alternative Investment Fund (RAIF) is subject to a minimum net wealth tax, ranging between UR 535 and EUR 32,200, depending on a company’s total assets. 

Reserved Alternative Investment Fund (RAIF) Value Added Tax Assessment

  • A Reserved Alternative Investment Fund (RAIF) is considered a taxable person from a value added tax point of view in Luxembourg.
  • A Reserved Alternative Investment Fund (RAIF) formed as a common fund must be managed by a management company, with the common fund and management company considered as a single entity. 
  • A Reserved Alternative Investment Fund (RAIF) can only register for value added tax if it receive services from overseas or if they implement intra-community acquisition of goods and services in Luxembourg, with a total amount of EUR 100,000 annually. 
  • Simplified value added tax registration is adequate and value added tax returns are required on a yearly basis. 
  • Management services provided to a Reserved Alternative Investment Fund (RAIF) can be exempt from value added tax assessment, while supervisory services through a depositary bank function are subject to intermediary value added tax rate of 14%. 

Reserved Alternative Investment Fund (RAIF) Withholding Tax

Distributions made by a Reserved Alternative Investment Fund (RAIF) to investors as well as payment proceeds upon redemption of Reserved Alternative Investment Fund (RAIF)units are not assessed with withholding tax. 

Double Taxation Treaties for Reserved Alternative Investment Fund (RAIF) in Luxembourg

Reserved Alternative Investment Funds (RAIFs) organized as an Investment Company in Variable and Fixed Capital (SICAV and SICAF) have access to double taxation treaties concluded by the Grand Duchy with other countries. To date, Luxembourg has signed double taxation treaties with more than 80 countries. 

A Reserved Alternative Investment Fund (RAIF) formed as a common fund or partnership cannot benefit from double taxation treaties. 

As a premier business consulting firm in Luxembourg, Damalion excels in helping fund initiators and foreign investors in the formation of a Reserved Alternative Investment Fund (RAIF). We understand that your time is valuable and your investment objectives are important. Our global service network leverages years of expertise and experience in providing superior outcomes to well-informed investors looking to grow their portfolio in Luxembourg. Our Damalion consultants have deep industry insight that, when combined with our local financial market knowledge, allows us to help you in choosing the best business structure, management, accounting, bank account opening, taxation, and other aspects of operating a fund in Luxembourg. We believe that each client deserves a meaningful and highly engaged customer service that drives progress for their businesses. To learn more about our full suite of fund formation solutions 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.