Open an UCI in Luxembourg
Create an UCI in LuxembourgUpdated on Monday 04th May 2020
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A UCI – undertaking for collective investment – is a type of investment fund in Luxembourg that offers investors the possibility to generate income, access a portfolio with multiple investments and share the associated costs.
Three of the most important characteristics of an undertaking for collective investment in Luxembourg are:
- the collective investment of funds;
- the capital is raised from multiple investors;
- the capital is invested following a specific investment policy and for the benefit of the investors.
Our lawyers in Luxembourg can help you open an UCI and manage your investments.
How to register a UCI in Luxembourg
Undertakings for collective investment funds may take several forms in Luxembourg. These are:
- open-ended investment companies with a variable capital;
- closed-ended investment companies with fixed capital;
- common funds.
While the investment companies are legal entities and can be set up as limited liability companies or partnerships, the common fund does not have its own legal personality which is why it must be managed by a management company. Luxembourg UCIs must be managed by alternative investment fund managers (AIFMs) which are regulated by the EU directive with the same name. The minimum amount to register a UCI as an investment company is 300, 000 euros and must increase to 1,250,000 euros within 6 months, while for the common fund the minimum amount is 300,000 euros.
Our local agents can assist foreign investors with the company registration procedure of the UCI in Luxembourg.
Legislation on UCI funds in Luxembourg
UCI funds are governed by Part II of Law No. 17 issued in December 2010. UCI funds can invest in all types of assets and can qualify as an Alternative Investment Fund (AIF) when it the assets can be sold to all types of investors. UCI funds can also be marketed in other EU countries through passporting rights obtained under the EU AIFM (EU Alternative Investment Fund Manager) Directive.
For complete information on the legislation governing UCI funds, you can rely on our Luxembourg lawyers.
Requirements for setting up an UCI fund in Luxembourg
A Luxembourg UCI fund can take the form of a corporate or non-corporate entity, which can be established under the provisions of the Company Law. The open-ended investment company (SICAV) and the closed-ended investment company (SICAF) are the two corporate forms of the UCI, while the common fund (FCP) is the non-corporate form of such an investment fund. The FCP must be administered by a management company.
The following requirements must be respected when registering an UCI fund in Luxembourg:
- the net assets held by an UCI registered as an FCP must have a minimum value of 1,250,000 euros and must be reached in 6 months after authorization;
- in the case of a SICAV and SICAF company, the minimum value is 300,000 euros at the moment of the authorization;
- the capital of the company (no matter if SICAV or SICAF) must reach 1,250,000 within 6 months from authorization;
- there are no restrictions related to the assets eligible when setting up an UCI in Luxembourg;
- the fund must appoint a Luxembourg depositary which ensures the safety of the assets held by the fund.
UCI funds must undergo authorization with the Luxembourg Financial Regulator.
Our law firm in Luxembourg can help foreign investors who want to register UCI funds in the Grand Duchy.
The structure of an UCI in Luxembourg
There are various options available for the creation of an UCI in Luxembourg. UCIs can take the form of Undertakings for Collective Investment in Transferable Securities (UCITS) or the form of Alternative Investment Funds (AIF). UCITS can be marketed to all investors in the EU/EEA countries. AIFs need to be marketed according to special requirements for AIF managers.
UCIs in Luxembourg can be set up as a common fund (FCP) or as an investment company with variable capital (SICAV) or an investment company with fixed capital (SICAF). A common fund (FCP) has no legal personality and must be managed by an authorised management company. Our Luxembourg lawyers can help you open a SICAV or a SICAF.
UCIs need to have a board of directors and it can be tax transparent (for FCP) or non-tax transparent (for SICAV and SICAF). Regardless of the basic structure chosen for the UCI, investment funds need to comply with VAT regulations in Luxembourg.
Legal structures of an UCI in Luxembourg
If you plan to open an UCI in Luxembourg, there are several entities through which you can conduct your investments:
• Fonds Commun du Placement (FCP) – the assets of FCP are under the surveillance of a management company, appointed to represent the FCP, as such this type of investment fund does not have a legal entity. It is necessary that the net assets of the FCP to be of minimum EUR 1,250,000;
• Societe d’Investissement a Capital Variable (SICAV) - is an open-ended investment company with a variable capital, which must always have the same value as the fund’s net assets; the minimum value of the net assets have to be of EUR 300,000;
• Societe d’Investissement a Capital Fixe (SICAF) – is a closed-ended investment company in which the net assets of the fund do not have to be of the same value as the capital.
Authorization of an UCI in Luxembourg
UCI in Luxembourg can function under the supervision of the Commission de Surveillance du Secteur Financier (CSSF). Under the law issued on 17th of December 2010, an UCI can start its activity on the territory of Luxembourg after having received the CSSF authorization.
An UCI set up as a FCP will receive the authorization only after the CSSF has approved the management company that will supervise the fund’s investment activities.
Under the Article 129 of the 2010 Law, the manager of the investment fund or the management company representing the fund must always notify CSSF if there are any changes on the information provided to CSSF after the incorporation of the fund.
Appointing a fund manager for an UCI in Luxembourg
UCI funds are required to appoint a manager under the EU AIFM Directive if they want to market their assets in other EU member states. The manager can be located in Luxembourg, in another EU country or even in a non-EU state. Also, Luxembourg UCI funds can be administered by an internal manager provided that it complies with the AIFM legal requirements.
UCI funds managed by an EU AIFM manager can market shares, units or partnership interests to professional investors in the EU.
If you have any questions related to the management of UCI funds, you can discuss with our attorneys in Luxembourg.
Authorization of an UCI fund in Luxembourg
As mentioned earlier, an UCI fund must obtain an authorization from the Financial Regulator in Luxembourg. The following documents must be filed for authorization:
- the Articles of Association or the management regulations in the case of FCPs;
- the UCI fund’s prospectus and the contracts with the service providers;
- information about the directors or the managers of the fund (or the management company);
- information about the Luxembourg bank selected as a depositary and about the auditor;
- information about the promoter’s experience and proof of financial soundness.
Our lawyers in Luxembourg can help foreign investors setting up UCI funds to prepare the documents required for authorization.
You can also find out how to open a UCI fund from the video below:
The organization of an UCI in Luxembourg
An UCI in Luxembourg needs several service providers who have various duties and who are appointed accordingly. The main service providers are:
- a sponsor, promoter or initiator;
- a management company;
- a portfolio manager;
- an investment adviser and an administrator
- a domiciliation agent;
- a distributor and a nominee.
The organizational model can include other service providers. For example, the financial statements of an UCI must be audited by an independent auditor in Luxembourg. The organizational model depends on a number of factors and it is decided at the time of the incorporation.
UCIs in Luxembourg need to be authorised by the CSSF (Commission de Surveillance du Secteur Financier).
Taxation of UCI funds in Luxembourg
From a taxation point of view, these types of funds are subject to an annual subscription tax which is set at a rate of 0.05% on the net value of the assets calculated on the last days of each calendar quarter. A reduced rate of 0.01% applies to funds marketing cash and institutional funds.
UCI funds can also benefit from tax exemptions if they invest in special pension funds or in funds which already benefit from exemptions from the subscription tax.
UCI funds registered as investment companies must also pay a registration duty of 75 euros. These funds are also subject to extensive reporting requirements with the Financial Regulator.
You can rely on our Luxembourg lawyers for detailed information on the taxation and reporting requirements applicable to investment funds.
Types of withholding taxes applicable to UCIs in Luxembourg
Those who want to open a fund set up as an UCI should know that such funds are subjected to withholding taxes on the income received.
This type of tax is non-refundable (but several exceptions may apply), but in the situation of UCIs established as SICAVs, that is a type of investment company, the investors can benefit from the stipulations of the double taxation treaties signed by Luxembourg. However, this can be applied only in the situation in which Luxembourg signed an agreement for the avoidance of double taxation with the country in which the investor is a tax resident.
Obtain refunds on withholding tax in Luxembourg
Investors who own an UCI fund in Luxembourg can also claim a refund for the withholding tax in several situations. The refund on the withholding tax is applicable only for the dividend taxation. This can be achieved only if the European Court of Justice has decided that the taxation was discriminatory.
Several European countries have already created a legal system in which investors can file claims referring to the application of the withholding tax.
Can UCITS invest in UCIs in Luxembourg?
Following a press release at the beginning of 2018, the Commission de Surveillance du Secteur Financier (CSSF), the main regulator of the investment funds in Luxembourg, announced that UCITS can now invest in UCIs, provided that certain conditions are met. The eligibility is given by the characteristics of the fund (open-ended/closed-ended), the value of the investment (limited at 10% of the value of the assets) and others.
The investment funds industry in Luxembourg
Investment funds represent one of the most important segments of the financial industry in Luxembourg, according to the Association of the Fund Industry (ALFI):
- the current value of the assets held under management by Luxembourg funds is 4,404 billion euros;
- there are 679 RAIFs registered in Luxembourg in 2019, 60% more than last year;
- ALFI has 1,593 member companies at the moment;
- Luxembourg occupies the 1st position among fund domiciles in Europe.
Please contact our law firm in Luxembourg for information about other types of business structures in Luxembourg.