Choosing between Luxembourg Reserved Alternative Investment Fund and the Special Limited Partnership

Here’s a structured note for comparing Luxembourg’s Reserved Alternative Investment Fund (RAIF) and the Special Limited Partnership (SCSp), focusing on aspects like legal regime, supervision, diversification, and tax matters. Each fund structure has distinct features that cater to different investor needs. You may also check our comparison tables: Luxembourg investment vehicles part 1, Luxembourg investment vehicles part 2

1. Legal Regime: RAIF Vs SLP

The RAIF and SCSp each have unique legal frameworks. The RAIF, established in 2016, is governed by the RAIF Law and must be managed by an authorized Alternative Investment Fund Manager (AIFM) as per the AIFM Directive. This fund can be structured as an SCS (Société en Commandite Simple) or SCSp (Société en Commandite Spéciale), allowing for flexible corporate setups​.

On the other hand, the SCSp is a flexible partnership model governed by the amended 1915 Luxembourg Company Law. Unlike RAIFs, SCSp entities do not possess a legal personality but are structured to support private equity, real estate, and private debt investments. An SCSp’s general partner has unlimited liability, while limited partners’ liability is restricted to their investment, and management powers are primarily granted to the general partner​.

2. Supervision and Regulatory Compliance: RAIF Vs SLP

RAIFs operate outside the scope of direct supervision by the CSSF (Commission de Surveillance du Secteur Financier). However, the fund manager (AIFM) remains under CSSF’s indirect oversight, making RAIFs relatively easy to establish compared to regulated alternatives. RAIFs benefit from the efficiency of rapid setup while still aligning with EU-regulated AIFM standards. They are also required to produce annual reports and other regulatory disclosures​.

In contrast, SCSp partnerships have minimal regulatory requirements as long as they operate unregulated. SCSp’s lack of mandatory CSSF oversight makes them particularly attractive for private and institutional investors preferring a streamlined approach. Compliance obligations are primarily set out in the Limited Partnership Agreement (LPA), allowing for broad customization in governance and administration​.

3. Investment Diversification and Asset Requirements: RAIF Vs SLP

RAIFs mandate asset diversification, typically aiming to mitigate investment risk in line with AIFM directives. RAIFs provide a streamlined option for multi-asset investments, making them popular in private equity and hedge fund sectors​.
Conversely, SCSps are highly customizable, with no diversification requirements, making them ideal for targeted investments or single-asset structures. SCSp’s adaptability is beneficial for investors focused on niche assets, such as private debt or real estate​.

4. Tax Aspects: RAIF Vs SLP

The RAIF tax regime offers significant benefits. RAIFs are only subject to a 0.01% annual subscription tax on net assets, with certain exemptions. Profit distributions are exempt from Luxembourg withholding tax, making RAIFs tax-efficient for cross-border investment structures. RAIFs also benefit from Luxembourg’s extensive tax treaties, aiding in tax optimization, especially for investors in jurisdictions with favorable tax agreements​.

SCSps also enjoy tax neutrality. They are typically exempt from corporate income taxes, municipal business taxes, and net wealth tax, provided they are unregulated and do not perform commercial activities. This setup creates an efficient structure for partnerships seeking tax neutrality, especially for limited partners in cross-border settings​.

RAIFs and SCSps each serve different investor needs, with RAIFs aligning well with diversified, regulated funds, and SCSps offering flexibility and minimal regulation for specialized, single-asset investments.

Damalion helps international investors to structure their investments thanks to the Luxembourg investment vehicles which offer strong stability and advantages. Contact your Damalion expert now.