The investment relationships between Italy and Luxembourg are strong and solid for certain financial activities. Italian investors looking forward to investing in Luxembourg should be aware that the wealth management sector is very well represented by other Italian companies, as well as in other sectors, including investment funds, banking, insurance, and more.
How Do Alternative Investment Funds in Luxembourg Work?
Alternative investment funds like Investment Company in Variable Capital (SICAV) are share companies whose main goal is to invest in assets collectively through the public offering of shares. The total value amounts to the net work of capital account divided by the number of investors.
Investment Company in Variable Capital was first introduced to Italians by Legislative Decree no. 84/1992. It is characterized as the only investment vehicle that allows shareholders to enter and exit the company at any time; hence it is an open-ended company by nature.
Italian investors can buy registered shares; which offers SICAV shareholders the rights to take part in shareholder meetings and influence management decisions in proportion to the number of shares they own.
According to Article 1 of the Italian Legislative Decree No. 58 of 18 February 1998 or the Consolidated Law on Finance, it includes alternative investment funds such as SICAV among its eligible collective investment undertakings. By rule, SICAV investments will be subject to the supervision by the Bank of Italy and Consob.
Alternative Investment Funds (AIFs) such as SICAV are constituted upon the authorization of the Bank of Italy, given that the minimum capital works at least 1 million Euros.
The assets of an alternative investment fund such as SICAV must coincide with a company’s share capital. This increases the access of new shareholders, and with their capital gains earned during the course of their business activities in Luxembourg.
Given the share capital does not have a nominal value, alternative investment shares will have initial issue price and redemption value that is equivalent to the net asset value divided by the number of existing shares.
It is crucial that Italian investors do not confuse alternative investment funds such as SICAV as mutual investment funds. While both offer investors freedom to enter and exit the company, the latter involves a separation between fund assets and those of the company managing the fund itself. In a cross-border management of alternative investment funds, a SICAV has an open-end share of capital investment.
How to Create an Alternative Investment in Luxembourg for Italians
Of all the alternative investment funds in Luxembourg, the Investment Company in Variable Capital (SICAV) is the most popular among Italian investors.
The reasons for its immense population are as follows:
- Favourable tax regime
- Professionalism and great reputation among local service providers
- Ideal domiciliation and set-up costs
- Luxembourg’s economic, political, and social stability
- Excellent coordination among supervisor and legislative authorities
In an Investment Company with Variable Capital Structure, the assets will always coincide with the net assets of the company. The board of directors can play a supervisory function, or may delegate company management to specialized companies, and with supervision from the Commission for the Supervision of the Financial Sector (CSSF).
Custodian banks based in Luxembourg will keep the fund assets and guarantee Italian investors’ interests. Typically, Investment Companies in Variable Capital are financial instruments in which assets of a participating company can be invested.
Part I, which refers to harmonized SICAVs. These are companies that satisfy UCITS Directive requirements, thus can be distributed in EU countries, including Italy.
Part II, which refers to non-harmonized SICAVs, which cannot be marketed in EU countries, unless they adhere to the terms established by local authorities.
An Investment Company in Variable Capital can be set up as the following:
- Umbrella funds
- Independent funds
- Undertakings for Collective Investment in Transferable Securities
- Retail funds not subject to UCITS Directive
When it comes to umbrella funds, they can be made from various funds, each of which can be autonomous with its own assets, objectives, strategies, and investment policies. Additionally, each fun can issue a specific strategy on its shares.
Investors can purchase different shares of one or more funds, and have the right to move their investments from one fund to another without being charged, but a mere conversion of shares to another fund. Each fund has its own net asset value, thus subscription price per share can differ from one fund to another.
The assets of an Investment Company in Variable Capital are the sum of the assets of the single funds. Each fund can be liquidated separately, without the other funds going through liquidation. Only the liquidation of the last fund can lead to the liquidation of the entire SICAV.
Taxation Regime of Alternative Investment Funds in Luxembourg
In the case of Investment Company in Variable Capital, the fund will not be subject to taxation. The latter will be the sole liability of the investor.
SICAVs are subject to local dividend withholding tax assessments, as imposed by the country in which the dividend is issued. Applicable double tax treaties between Italy and Luxembourg can be introduced to reduce taxation. Alternative investment funds are subject to subscription tax at 0.05% per year on the net asset value of a fund for Italian retail investors, and 0.01% per year on the net asset value of the fund for institutional investors.
As a premier independent consulting firm in Luxembourg, Damalion offers a comprehensive range of solutions to help international investors set up an alternative investment fund in Luxembourg. With years of experience and expertise, we know that investing in an open-ended investment company such as a SICAV offers a host of benefits. Our global service network has experience in dealing with Italian investors looking to expand their growth potential through an alternative investment fund structures, such as SICAV. We will help you diversify your assets with excellent outcomes. From providing you assistance in company incorporation, bank account opening, management, bookkeeping, accounting, and taxation consulting, we will be with you every step of the way. To learn more how you can set up a Luxembourg alternative investment fund, 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.
