The Luxembourg Special Limited Partnership (SLP) is a favored legal structure for alternative investment funds, offering significant flexibility and confidentiality, which makes it appealing to both investors and fund managers.

Luxembourg law of July 12, 2013: special limited partnership

Established under the Luxembourg law of July 12, 2013, the SLP is designed to accommodate the needs of private equity, real estate, hedge funds, and other alternative investment strategies. Its structure is inspired by the Anglo-Saxon limited partnership model, providing a blend of familiarity for international investors and the advantages of Luxembourg’s favorable regulatory environment.

Structure and Legal Framework

The SLP does not possess a separate legal personality, which means it operates through its partners, similar to a traditional partnership. It requires at least one general partner (GP) and one or more limited partners (LPs). The general partner is responsible for managing the partnership and is liable for the partnership’s obligations. In contrast, the limited partners contribute capital but have their liability restricted to their investment in the partnership. This distinction allows the general partner to manage the business without interference, while limited partners can invest without incurring unlimited liability.

The primary governing document of the Special limited partnership (SLP) is the Limited Partnership Agreement (LPA), which is a private contract between the partners. The LPA outlines the rules and procedures governing the partnership’s operations, including capital contributions, profit distribution, decision-making processes, and exit strategies. Since the LPA is not required to be filed with a public authority, the terms can remain confidential. This contractual freedom allows the SLP to be highly adaptable, catering to the specific needs and requirements of the partners.

Regulatory Environment

Luxembourg’s regulatory framework offers flexibility for SLPs, allowing them to operate as either regulated or unregulated entities. If the SLP qualifies as an Alternative Investment Fund (AIF) under the Alternative Investment Fund Managers Directive (AIFMD), it must appoint an authorized Alternative Investment Fund Manager (AIFM). This arrangement allows the SLP to benefit from the AIFMD marketing passport, enabling the fund to be marketed to professional investors across the European Union.

On the other hand, an SLP that does not wish to be regulated under the AIFMD can operate with fewer regulatory requirements, provided it does not exceed the de minimis thresholds set by the directive. This option provides fund managers with the flexibility to choose the level of regulation that best suits their investment strategy and target investor base. The dual regulatory approach makes the SLP a versatile vehicle, attractive to a broad spectrum of investors and fund managers.

Taxation Benefits

The tax treatment of the SLP is one of its most significant advantages. The SLP is considered tax-transparent, meaning it is not subject to corporate income tax, municipal business tax, or net wealth tax at the entity level. Instead, profits and losses are passed through to the partners, who are taxed based on their residency and applicable tax treaties. This transparency helps avoid double taxation and makes the SLP an efficient structure for international investors.

Moreover, capital contributions to the SLP are not subject to capital duty, and limited partners, especially those residing outside Luxembourg, may benefit from an exemption from withholding tax on profit distributions. These features enhance the SLP’s attractiveness by providing a tax-efficient environment for investment.

Operational Flexibility and Simplicity

The SLP is highly versatile and can be used for a wide range of investment strategies, including private equity, venture capital, real estate, and hedge funds. Its ability to issue various classes of partnership interests allows fund managers to tailor investment terms to different types of investors. The partnership’s structure accommodates diverse investment objectives, making it an ideal vehicle for both large institutional investors and smaller private investors.

One of the key advantages of the SLP is that it is not required to produce an annual accounting report. This reduces the administrative burden and associated costs, making the SLP an attractive option for fund managers seeking operational simplicity. The absence of this requirement simplifies compliance and reporting, making the SLP a practical and efficient choice for managing investment funds.

The Luxembourg Special Limited Partnership is a highly flexible, tax-efficient, and investor-friendly structure, well-suited for alternative investment funds. Its combination of contractual freedom, favorable tax treatment, and options for regulatory oversight makes it an attractive choice for fund managers and investors looking to take advantage of Luxembourg’s robust financial sector. The SLP’s simplicity, including the lack of an annual accounting report requirement, further enhances its appeal, positioning it as a leading choice for structuring alternative investment vehicles.

Damalion supports investors who want to structure their investments throughout Luxembourg. To benefit from the Luxembourg Special Limited Partnership, please contact your Damalion expert now.

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