“Luxembourg is a popular business hub for foreign legal entities that are looking to expand their business reach in Europe. The Grand Duchy is well known for its beneficial economic policies that encourage the entry of international businesses to its local market. It’s strategic geographical position in Europe, strong legal framework, stable political regulations, and extensive business incentives are attracting more foreign investors to incorporate a company in Luxembourg.”

What is Special Limited Partnership?

The special limited partnership or SCSp is a relatively new business structure that operates like a traditional limited partnership. As the SCSp is still new on the Luxembourg business environment and is yet to be considered as an ideal alternative investment vehicle for foreign investors who are keen on placing investments in Luxembourg. In essence, a SCSp shall operate as a commercial company with no legal personality.

Due to the flexibility that a SCSp offers, this business structure is perfect for alternative investment vehicles such as hedge funds, real estate, private equity, valuable collections, cryptocurrencies, and FoFs. The formation of a special limited partnership offers the advantage of being domiciled in the reputable jurisdiction of Luxembourg.

Purpose and Objective

The formation of a SCSp further supports the aim of Luxembourg to grow as a highly competitive market for foreign investors. With an appealing common law framework, SCSps were designed for fund managers and investors looking to leverage alternative investment vehicles. SCSps has the contractual freedom to perform private equity funds placement and leverage favorable tax treatments.

With the exclusion of several statutory provisions, a SCSp enjoys a greater level of flexibility in creating the rules that govern the overall operations within a special limited partnership. A SCSp may also function as a feeder fund vehicle as established by a fund manager or sponsor to accommodate investments made into the fund by one or multiple investors with their own unique needs or obligations and not shared by other shareholders.

Tax Regime I Fiscal benefits

• For net worth and income tax purposes, special limited partnerships are technically tax transparent business entities.
• Special limited partnerships that carry out commercial activities are assessed with a 6.75% municipal business tax rate.
• A special limited partnership is required to operate as a commercial company if the general partners are public or private limited liability companies with 5% partnership each.
• An unregulated SCSp that handles alternative investment funds are tax neutral provided that none of its partners is a Luxembourg holding company with more than 5% of partnership interest.
• Special limited partnerships do not benefit from Luxembourg double taxation avoidance treaties nor from the EU-Parent Subsidiary Directive.
• All management services that a SCSp operation as an alternative vehicle fund are not assessed with value added tax.
• All dividend contributions of an SCSp to local and foreign partners will not be assessed with withholding tax.

Income Tax Exemption on Dividends Received

• All payments made to SCSps that carry other alternative investment funding will be subject with 10% tax rate under special conditions.
• Any management fee or payment received by a regulated or unregulated SCSp will be fully exempt from VAT assessment.
• SCSps may receive advanced tax clearance from Luxembourg tax authorities similar to that obtained by SOPARFIs.

 Benefits to Set Up and Manage a Special Limited Partnership

• Excellent contractual flexibility determines the main functions and activities of a SCSp in Luxembourg.
• Incorporation of a SCSp under the private deed and the easy registration process makes investment vehicles active on the market in less than one month.
• The Luxembourg Trade and Companies Register is only allowed to publish the name of the limited partnership, unlimited partner and managers, duration, and signatory powers. Limited partners don’t need to be disclosed altogether.
• There is no minimum share capital requirement when incorporating a special limited partnership.

 To Whom a SCSp is Addressed?

 Under a SCSp legal regime, partners can customize their level of participation in terms of profits and losses, and distributions. The greater level of freedom of legal provisions in special limited partnerships empower partners of private equity partnerships to manage their provisions accordingly.

 Legal Framework

A partnership agreement may be used to create a SCSp through public or private deed. The company must have a company name clearly identified in its deed of incorporation. It shall have a unique company name or named after its business purpose.

Cost to Incorporate

An unregulated SCSp may be incorporated through a private deed and without depositary requirement, thus making the special limited partnership business structure cost-effective and practical compared to other investment vehicles available on the Luxembourg market.

The establishment of a SCSp requires the enactment of these steps:

• Publication in the Trade and and Companies Register (RCS)
• Additional administrative costs by concerned tax authorities
• Notary costs, if required
• Auditor costs, if required

 Investment Policy

• Unrestricted
• Unregulated Alternative Investment Fund under FAIM

 Rules and Regulations

• General partners assume limited liability in a SCSp.
• General partners may exercise the right to approve an account and discretionary right to appoint and dismiss managers.
• General partners’ rights must be clearly defined in a SCSp partnership agreement.
• Partners assume the passive investor role but may still be involved in internal company management and operations.

 Administration of the Company

• There can be one or more managers in a SCSp. A SCSp with more than one manager may prompt the creation of a board.
• A general partner may also take on the manager role.
• A non-partner may assume the role of a manager but not a limited partner.
• A manager’s primary role is to act as a representative of the SCSp and handle all management tasks and decisions.
• A SCSp may invest in all types of assets such as bonds, hedge funds, private equities, artwork, loans, real estate, liquid instruments, illiquid instruments, artwork, cars, and participation bonds.
• The management position of a SCSp may be assigned to a third party. Third party managers will only be held liable for the performance of his or her own mandate.

 Why Open a SCSp in Luxembourg?

A special limited partnership is an appealing company to establish in Luxembourg and enhances a foreign investors investment toolbox.

Top-Rated Investment Vehicle – It can be used for master-feeder investments, joint ventures, venture capitals, real estate, and private equity purposes.

Easy and Fast Incorporation – SCSp formation takes less than 30 days to complete.

Flexibility – While a SCSp is not categorically an alternative investment vehicle, it can be used for collective investment activities using multiple compartments to raise capital for investors.

Public Access- SCSp may be offered to the general public.

Minimum Share Capital Requirement – Young entrepreneurs can form a SCSp with as little as EUR 1 minimum share capital requirement.

Damalion leverages its vast network of professional relationships with top-notch law firms, accounting firms, and consultants to assist natural persons in the establishment of a special limited partnership in Luxembourg. Our expertise and experience allow us to provide the best advice in setting up and managing business under different business structures. For more details about SCSp company formation, contact our Damalion experts 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.