Luxembourg is one of the world’s central investment management hubs- respecting this, Luxembourg provides, among others, a regulated and tax-efficient fund regime for well-informed investors, known as the Specialised Investment Fund (SIF).
Overview of the Specialised Investment Fund
A Specialized Invesment Fund is an investment fund that can invest in all types of assets. It usually qualifies as an alternative investment fund (AIF) and can be opened to well-informed investors. SIFs are subject to the Luxembourg Law of 13 February 2007, known as the “SIF Law”. The SIF regime was modified by the Law of 12 July 2013 on Alternative Investment Fund Managers (AIFM Law).
Legal Form
The SIF is often constituted as either of the following:
• common contractual fund (fonds commun de placement or FCP). The FCP has no legal personality and must be regulated by a management company.
• investment company with variable capital (société d’investissement à capital variable or SICAV), or fixed capital (société d’investissement à capital fixe or SICAF).
The FCP or SICAV/SICAF can be open or closed-ended and may be set up as a single fund or as an umbrella structure with multiple compartments.
Eligible Investors
Investment in a SIF is limited to well-informed investors that are able to sufficiently assess the risks related to an investment in such a vehicle. These are defined as:
- professional investors,
- institutional investors,
- and investors who have corroborated in writing that they adhere to the well-informed investor status.
Capital requirement
The net assets of a SIF must be at least EUR 1,250.000, and this minimum must be attained within a period of twelve months following its authorization.
Investment restrictions
Besides the risk diversification requirement, the SIF Law does not exact specific investment restrictions, which enables substantial flexibility with regard to the assets in which a SIF may invest.
Disclosure Requirements
A SIF must prepare the following:
- a prospectus,
- a PRIIP Key Information Document (KID) if retail investors can make investments, and
- a yearly report.
There is no responsibility to prepare a semi-annual report.
Certain aspects: European Venture Capital Fund (EuVECA) and European social entrepreneurship funds (EuSEF).
A SIF that qualifies as a EuVECA or EuSEF fund has the alternative of being subject to the EuVECA or EuSEF regulation.
Authorization
A SIF must be authorized by the Commission de Surveillance du Secteur Financier (CSSF) before initiating its activity. Afterward, it is supervised by the same on an ongoing basis.
Appointment of an AIFM
SIFs that qualify as AIFs are required to establish an AIFM unless they benefit from the exclusive exemptions provided by the AIFM Law. The AIFM can be specified in Luxembourg, in another EU Member State, or in a third country. SIFs qualifying as AIFs may either assign an external AIFM or prefer to be internally managed. In the latter case, the SIF will itself be considered the AIFM and will have to acknowledge the legal responsibilities of the AIFM Law.
Marketing
SIFs that have been assigned a European Union AIFM can market their shares, units, or partnership interests via a particular passport to well-informed investors across the EU.
Certain aspects: EuVECA and EuSEF.
Both regimes provide a passport that allows the marketing of the fund to EU-based qualified investors.
Risk diversification
A SIF is subject to compulsory risk-spreading, implying that:
- A SIF may not invest over 30% of its assets or commitments in securities of the same type administered by the same issuer.
- Short sales may not result in a SIF holding a short position in securities of the same type administered by the same body, which represents over 30% of the assets.
- Where financial derivative instruments are invested, a SIF must guarantee a similar spread of risk by a reasonable diversification of the underlying assets. With the same goal, the counterparty risk in an over-the-counter (OTC) transaction must be limited depending on the quality and the qualification of the counterparty.
Taxation
The tax regime formulated by the legislator for the SIF is highly flexible. Combined with the chance to choose among several corporate structures, it provides a wide array of opportunities to optimize the tax treatment of investors in each SIF.
Generally, a SIF has a tax-exempt status but is subject to a yearly subscription tax of 1 bps based on net assets. It only has an exclusive entitlement to double taxation treaties if established as an investment company.
To set up your investment fund (Specialized Investment Fund or others), in Luxembourg, let’s go ahead and contact your Damalion expert now.
