setting up an investment fund in luxembourg ... - Casa4Funds

investment management 

setting up an investment fund 

in luxembourg

table of contents 

Definitions 5 

I. Legal framework for setting up an investment fund in Luxembourg 6 

II. Investment funds subject to the 2002 Law 7 

III. Specialised investment funds (“SIFs”) 12 

IV. Available structures 14 

1. FCP - SICAV - SICAF 14 

2. Umbrella funds/share classes 15 

3. Main features of the different company forms 16 

V Main players 18 

1. The management company 18 

2. The custodian bank 19 

3. The central administration agent 20 

4. The auditor 20 

VI. Regulatory supervision 21 

VII. Taxation 22 

VIII. Once-off and ongoing costs at a glance 24 

3

definitions 

1993 Law Law of 5 April 1993 on the financial sector, as amended 

2002 Law Law of 20 December 2002 on undertakings for collective investment, as amended 

2007 Law Law of 13 February 2007 on specialised investment funds, as amended 

UCITS Directive 

EU Savings Directive 

MiFID Directive 

Grand Ducal Regulation 

on eligible assets 

Circular 91/75 





Council directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative 

provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended 

Council directive 2003/48/EC on taxation of savings in the form of interest payments 

Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial 

instruments 

Grand Ducal Regulation of 8 February 2008 relating to certain definitions of the law of 20 December 2002, 

as amended, concerning undertakings for collective investment and implementing directive 2007/16/EC of 

the European Commission implementing Council directive 85/611/EEC on the coordination of laws, 

regulations and administrative provisions relating to undertakings for collective investment in transferable 

securities (UCITS) as regards the clarification of certain definitions 

CSSF circular 91/75 of 21 January 1991 on the revision and remodelling of the rules to which Luxembourg 

undertakings governed by the law of 30 March 1988 on undertakings for collective investment (“UCIs”) are subject 1 

CSSF circular 02/80 of 5 December 2002 concerning the specific rules applicable to Luxembourg 

undertakings for collective investment (UCIs) pursuing alternative investment strategies 

CSSF circular 02/81 of 6 December 2002 concerning the task of auditors of undertakings for collective investment 

CSSF circular 03/88 of 22 January 2003 concerning the classification of undertakings for collective investment 

subject to the provisions of the law of 20 December 2002 relating to undertakings for collective investment 

CSSF circular 05/186 of 25 May 2005 concerning Luxembourg management companies subject to the 

provisions of chapter 13 of the law of 20 December 2002 relating to undertakings for collective investment, 

as well as self-managed investment companies subject to the provisions of article 27 or article 40 of the law 

of 20 December 2002 relating to undertakings for collective investment 

1 

The title of this circular has not been amended in order to take into account the fact that the law of 30 March 1988 has been replaced by the 2002 Law.




CSSF 

EEA 

EU 

FCP 

OECD 

Mémorial 

SICAV 

SICAF 

SIF 

TA 

UCI 

UCITS 

CSSF circular 07/308 of 2 August 2007 concerning the rules of conduct to be adopted by undertakings for 

collective investment in transferable securities with respect to the use of a method for the management of 

financial risks, as well as the use of financial derivative instruments 

CSSF circular 07/309 of 3 August 2007 concerning risk diversification in relation to specialised investment funds 

CSSF circular 08/356 of 4 June 2008 concerning the rules applicable to undertakings for collective investment when 

they employ certain techniques and instruments relating to transferable securities and money market instruments 

Commission de Surveillance du Secteur Financier (the Luxembourg supervisory authority of the financial sector) 

European Economic Area 

European Union 

Fonds Commun de Placement (common fund) 

Organisation for Economic Cooperation and Development 

The official gazette of Luxembourg, Mémorial C, Journal Officiel du Grand-Duché de Luxembourg, Recueil des 

Sociétés et Associations 

Société d’investissement à capital variable (investment company with variable capital) 

Société d’investissement à capital fixe (investment company with fixed capital) 

Specialised investment fund, subject to the 2007 Law 

Transfer agent 

Undertaking for collective investment, subject to Part II of the 2002 Law 

Undertaking for collective investment in transferable securities, subject to Part I of the 2002 Law 

5

I. legal framework for setting up an investment fund in luxembourg 

2002 LAW 

PART I (UCITS) 

or PART II (UCIs) 

2007 LAW 

(SIFs) 

Criteria to be 

cumulatively met 

in order to be subject 

to the 2002 Law 

or the 2007 Law 

The savings must be invested on a 

collective basis; 

The savings used for collective 

investment must have been 

collected from the public; 

The investment which forms the 

object of the collective investment 

must be made in accordance with 

the principle of risk spreading. 

The assets must be invested on a 

collective basis in order to spread 

the investment risks and to ensure 

that the investors receive the benefit 

of the results of the management of 

the assets; 

The securities of the SIF must be 

reserved to one or more 

well-informed investors; 

The constitutional documents or 

offering documents must provide 

that the SIF is subject to the 2007 Law. 

6

II. investment funds subject to the 2002 law 

Key features 2 

Part I (UCITS) 

Part II (UCIs) 

Part I funds invest in transferable securities and 

other liquid financial assets authorised by the 

UCITS Directive. They qualify as UCITS and, as 

such, benefit from the European passport. 

Part II funds may invest in securities other than 

those authorised by the UCITS Directive, but they 

do not benefit from the European passport, since 

they are outside the scope of the UCITS Directive. 

In order to qualify as a UCITS, the following criteria 

need to be met: 

The sole object must be the collective investment in 

transferable securities and/or in other liquid 

financial assets authorised by the UCITS Directive; 

The UCITS must be open to the public of the EEA; 

The UCITS must redeem the units at the request 

of the investors; 

The UCITS must not be excluded from the UCITS 

status by reason of its investment or borrowing 

policy. 

Part II of the 2002 Law applies to: 

All funds, the principal object of which is the 

investment in securities other than transferable 

securities and other liquid financial assets; 

All UCITS excluded from Part I of the 2002 Law, i.e.: 

UCITS of the closed-ended type; 

UCITS which raise capital without promoting 

the sale of their units or shares to the public 

within the EU or any part of it; 

UCITS, the units or shares of which may, under 

their constitutional documents, only be sold to 

the public in countries which are not members 

of the EEA; 

Specific categories of UCIs which, in light of 

their investment and borrowing policies, must 

be subject to Part II of the 2002 Law. 

Eligible assets and general 

investment restrictions 


Article 41 of the 2002 Law sets out the list of 

eligible assets; 

The Grand Ducal Regulation on eligible assets 

clarifies a certain number of definitions 

contained in the 2002 Law; 

Article 41 (1) of the 2002 Law: 

1. Transferable securities and money market 

instruments admitted to or dealt in on a 

regulated market; 

2. Transferable securities and money market 

instruments dealt in on another market in a 

Member State of the EU which is regulated, 

operates regularly and is recognised and open 

to the public; 


Part II of the 2002 Law does not contain a defined 

list of eligible assets and there are no restrictions 

with respect to investment strategies that may be 

used by UCIs; 

Thus, there is a larger flexibility regarding the 

investments which may be undertaken by UCIs; 

Circular 91/75 sets out general rules applicable to 

all UCIs and specific investment rules applicable 

to UCIs investing in options and futures, venture 

capital UCIs and real estate UCIs; 

2 

Circular 03/88 highlights the classification of investment funds subject to either Part I or Part II of the 2002 Law. 

7



3. Transferable securities and money market instruments 

admitted to official listing on a stock exchange 

in a non-member state of the EU or dealt in on another 

market in a non-member state of the EU which is 

regulated, operates regularly and is recognised 

and open to the public, provided that the choice of 

the stock exchange or market has been provided 

for in the constitutional documents of the UCITS; 

4. Recently issued transferable securities and 

money market instruments, provided that: 

The terms of issue include an undertaking that 

application will be made for admission to official 

listing on a stock exchange or on another regulated 

market as described under (1)-(3) above; 

Such admission is secured within one year of issue. 

5. Units of UCITS and/or other UCIs within the 

meaning of the first and second indents of article 1(2) 

of the UCITS Directive, whether situated in an EU 

member state or in another state, provided that: 

Such other UCIs are authorised under laws which 

provide that they are subject to supervision 

considered by the CSSF to be equivalent to that 

laid down in Community law, and that ooperation 

between authorities is sufficiently ensured; 

The level of protection for unitholders in such 

other UCIs is equivalent to that provided for 

unitholders in a UCITS, and in particular that the 

rules on assets segregation, borrowing, lending, 

and uncovered sales of transferable securities 

and money market instruments are equivalent to 

the requirements of the UCITS Directive; 

The business of the other UCIs is reported in 

half-yearly and annual reports to enable an 

assessment of the assets and liabilities, income 

and operations over the reporting period; 

No more than 10% of the assets of the UCITS 

or of the other UCIs, the acquisition of which 

is contemplated, can, according to their 

constitutional documents, in the aggregate be 

invested in units of other UCITS or other UCIs. 

6. Deposits with credit institutions which are repayable 

on demand or have the right to be withdrawn, and 

which mature in no more than 12 months, provided 

that the credit institution has its registered office in a 

member state of the EU or, if the registered office of 

the credit institution is situated in a non-member 

state, provided that it is subject to prudential rules 

considered by the CSSF to be equivalent to those 

laid down in Community law; 

Investment limits applicable to UCIs investing in 

transferable securities which do not represent 

investments in real estate or venture capital are 

the following: 

No more than 10% of the net assets may be 

invested in securities not listed on a stock 

exchange or dealt in on another regulated 

market which operates regularly and is 

recognised and open to the public; 

No more than 10% of the securities of the same 

kind issued by the same issuing body may be 

acquired; and 

No more than 10% of the net assets may be 

invested in securities issued by the same 

issuing body. 

These restrictions are not applicable to securities 

issued or guaranteed by a member state of the OECD 

or their local authorities or a public international body 

with an EU, regional or worldwide scope. 

Units/shares of closed-ended investment funds 

are treated in the same way as other transferable 

securities and are therefore subject to the general 

rules applicable to transferable securities. 

UCIs may borrow up to 25% of their net assets 

(except leveraged UCIs where the investment policy 

provides for a permanent borrowing for investment 

purposes of at least 25% of their net assets); 

Derogations to Circular 91/75 may be granted 

on a case-by-case basis; 

8



7. Financial derivative instruments, including 

equivalent cash-settled instruments, dealt in on a 

regulated market referred to in (1), (2) and (3) above, 

and / or financial derivative instruments dealt in over 

the counter (“OTC derivatives”), provided that: 

The underlying consists of instruments covered 

by article 41 (1) of the 2002 Law, financial 

indices, interest rates, foreign exchange rates 

or currencies, in which the UCITS may invest 

according to its investment objectives; 

The counterparties to OTC derivative 

transactions are institutions subject to 

prudential supervision, and belonging to the 

categories approved by the CSSF; and 

The OTC derivatives are subject to reliable and 

verifiable valuation on a daily basis and can be 

sold, liquidated or closed by an offsetting 

transaction at any time at their fair value at the 

UCITS’ initiative. 

8. Money market instruments other than those dealt in 

on a regulated market, to the extent that the issue or 

the issuer of such instruments is itself regulated for 

the purpose of protecting investors and savings, and 

provided that such instruments are: 

Issued or guaranteed by a central, regional or 

local authority or by a central bank of an EU 

member state, the European Central Bank, the EU 

or the European Investment Bank, a non-member 

state of the EU or, in case of a federal state, by one 

of the members making up the federation, or by a 

public international body to which one or more EU 

member states belong, or 

Issued by an undertaking any securities of 

which are dealt in on regulated markets 

referred to in (1), (2) or (3) above, or 

Issued or guaranteed by an establishment 

subject to prudential supervision, in 

accordance with criteria defined by Community 

law, or by an establishment which is subject to 

and complies with prudential rules considered 

by the CSSF to be at least as stringent as those 

laid down by Community law; or 

Issued by other bodies belonging to the 

categories approved by the CSSF provided that 

investments in such instruments are subject to 

investor protection equivalent to that laid down in 

the first, second or third indent and provided that 

the issuer is a company whose capital and 

reserves amount to at least EUR 10 million and 

Specific rules regarding UCIs pursuing 

alternative investment strategies (hedge funds 

and funds of hedge funds) are set out in Circular 

02/80 and consist, in particular, of: 

Risk-diversification rules regarding short sales; 

Restrictions applicable to target UCIs; 

Restrictions relating to financial derivative 

instruments; 

Provisions applicable to securities lending 

transactions; and 

Provisions applicable to sale with right of 

repurchase transactions and repurchase 

transactions. 

9



which presents and publishes its annual accounts in 

accordance with directive 78/660/EEC, is an entity 

which, within a group of companies which includes 

one or several listed companies, is dedicated to the 

financing of the group or is an entity which is 

dedicated to the financing of securitisation vehicles 

which benefit from a banking liquidity line. 


Transferable securities and money market 

instruments not fulfilling the requirements of (1)–(8) 

above also constitute eligible assets, provided that 

they do not in the aggregate exceed 10% of the 

assets of the UCITS. 


A UCITS may hold ancillary liquid assets. 

Circular 08/356 clarifies the rules applicable to 

UCIs when they employ certain techniques and 

instruments relating to transferable securities 

and money market instruments: 

Circular 08/356 clarifies the rules applicable to 

UCIs when they employ certain techniques and 

instruments relating to transferable securities 

and money market instruments: 

Securities lending transactions 

- UCITS may lend directly to a borrower or 

through a standardised lending system 

(organised by a recognised clearing institution 

or organised by a financial institution subject 

to equivalent prudential supervision rules); 

- The counterparty must be subject to 

equivalent prudential supervision; 

- The UCITS must receive a guarantee the value 

of which is at least equivalent to 90% of the 

global valuation of the securities lent; 

- The volume of securities lending transactions 

must be kept at an appropriate level; 

- Disclosure of the global valuation of the securities 

lent must be made in the financial reports; 

Securities lending transactions; 

- UCIs may lend directly to a borrower or 

through a standardised lending system 

(organised by a recognised clearing institution 

or organised by a financial institution subject 

to equivalent prudential supervision rules); 

- The counterparty must be subject to 

equivalent prudential supervision; 

- The UCIs must receive a guarantee the value 

of which is at least equivalent to 90% of the 

global valuation of the securities lent; 

- The volume of securities lending transactions 

must be kept at an appropriate level; 

- Disclosure of the global valuation of the securities 

lent must be made in the financial reports; 

Sale with right of repurchase transactions 

The purchase or sale of securities with a 

repurchase option is allowed (i) if the 

counterparties are subject to equivalent prudential 

supervision, (ii) if disclosure of the total amount 

of the open transactions is made in the financial 

reports and (iii) subject to the limits set out in 

Circular 08/356. 

Sale with right of repurchase transactions. 

The purchase or sale of securities with a 

repurchase option is allowed (i) if the 

counterparties are subject to equivalent prudential 

supervision, (ii) if disclosure of the total amount 

of the open transactions is made in the financial 

reports and (iii) subject to the limits set out in 


10



- Reverse repurchase and repurchase agreement 

transactions 

Reverse repurchase agreement transactions or 

repurchase agreement transactions are allowed 

(i) if the counterparties are subject to equivalent 

prudential supervision, (ii) if disclosure of the 

total amount of the open transactions is made in 

the financial reports and (iii) subject to the limits 

set out in Circular 08/356. 

- Limitation of the counterparty risk 

The risk exposure to a single counterparty 

arising from one or more securities lending 

transactions, sale with right of repurchase 

transactions and/or reverse repurchase/ 

repurchase transactions may not exceed 10% of 

its assets when the counterparty is a credit 

institution referred to in article 41, paragraph (1) 

(f) of the 2002 law or 5% of its assets in other 

cases. The conditions and form of the guarantee 

and the possibilities to reduce the counterparty 

risk are detailed in Circular 08/356. 

- The cash provided as a guarantee may be 

reinvested, under the conditions set out in 


- Reverse repurchase and repurchase agreement 

transactions 

Reverse repurchase agreement transactions or 

repurchase agreement transactions are allowed 

(i) if the counterparties are subject to equivalent 

prudential supervision, (ii) if disclosure of the 

total amount of the open transactions is made in 

the financial reports and (iii) subject to the limits 

set out in Circular 08/356. 

- Limitation of the counterparty risk 

The risk exposure to a single counterparty arising 

from one or more securities lending transactions, 

sale with right of repurchase transactions and / or 

reverse repurchase / repurchase transactions 

may not exceed 10% of its assets when the 

counterparty is a credit institution referred to in 

article 41, paragraph (1) (f) of the 2002 law or 5% 

of its assets in other cases. The conditions and 

form of the guarantee and the possibilities to 

reduce the counterparty risk are detailed in 


- The cash provided as a guarantee may be 

reinvested, under the conditions set out in 


11

III. specialised investment funds (“SIFs”) 

The regime implemented by the 2007 Law is a 

“stand-alone” regime providing an appropriate 

statutory regime for “sophisticated” investors, 

who do not need the same level of protection 

as retail investors. 

The 2007 Law is largely based on the 2002 Law, 

but provides (i) a more flexible framework 

to accommodate various types of funds, 

in particular hedge funds, real estate funds 

and private equity funds, and (ii) a lighter 

prudential regime than that applicable 

to funds dedicated to retail investors. 

Key features 

of the 2007 Law 

Large eligible 

investor base 

No limitation regarding 

eligible assets and 

low risk diversification 

SIFs are reserved to well-informed investors. 

A well-informed investor is an institutional investor 3 , professional investor 4 

or any other investor who meets the following conditions: 

- He has confirmed in writing that he adheres to the status of 

well-informed investor; and 

- (i) He invests a minimum of EUR 125,000.- in the SIF; or 

- (ii) He has been the subject of an assessment made by a credit 

institution within the meaning of directive 2006/48/EC, by an 

investment firm within the meaning of directive 2004/39/EC or by a 

management company within the meaning of directive 2001/107/EC 

certifying his expertise, his experience and his knowledge in 

adequately appraising an investment in the SIF. 

In practice, this means that sophisticated retail or private investors may 

invest in a SIF. 

The 2007 Law does not contain any provisions regarding eligible assets; 

thus, a SIF may invest in a very broad range of eligible assets. Although 

risk spreading must be ensured, the 2007 Law does not foresee any risk 

diversification rules. As a general principle, lower risk diversification is 

possible, since SIFs are reserved to sophisticated investors. 

Circular 07/309 provides that as a general rule, a SIF may not invest 

more than 30% of its assets or commitments in securities of the same 

type, issued by the same issuer. However, derogations may be granted 

in this respect. 

No promoter 5 

requirement 

There is no requirement with respect to the necessity to have an institutional 

promoter with significant financial resources approved by the CSSF. 

3 

There does not exist any legal definition of the term “institutional investor”. According to CSSF interpretation and 

parliamentary documents relating to laws using this concept, the main characteristic any institutional investor must 

exhibit is to have a business purpose that requires the management of substantial assets. Insurance companies, social 

security institutions, credit institutions, UCIs, local authorities, unregulated investment companies (such as, for example, 

holding companies) under certain conditions, commercial companies with substantial assets under management, pension 

funds or other professionals of the financial sector are considered to be institutional investors. Credit institutions and 

other professionals of the financial sector investing in institutional funds in their own name but on behalf of another party 

on the basis of a discretionary management relationship are also considered as institutional investors, even if the third 

party on behalf of which the investment is undertaken is not itself an institutional investor. 

4 

According to Annex II of MiFID, a professional client is a client who possesses the experience, knowledge and expertise 

to make its own investment decisions and properly assess the risks that it incurs. 

5 

The term “promoter” does not appear in Luxembourg law, but is used by the CSSF as an administrative practice. As a 

general rule, any UCI (except SIFs) must be promoted by a well known institution which commits its name and reputation 

to the proper functioning of the UCI. The promoter designates the entity under the initiative of which a UCI is created. 

The promoter’s responsibility is i.a. to make good all damage caused by managerial and administrative faults, negligence, 

irregularities or shortcomings in the management and administration of the UCI. 

12

Key features 


Investment manager 

Regulatory approval 

Capital requirement 

Issue of units/shares 

Light reporting 

requirements 

Issuing document 

No consolidation 

requirements 

The CSSF does not scrutinise the experience and reputation of the 

investment manager. 

The SIF may start its activities before having received regulatory 

approval. The application for approval must be filed with the CSSF within 

the month following the creation of the SIF. 

The minimum capitalisation amounts to EUR 1,250,000 and must be 

achieved only within a 12-month period after approval of the SIF. 

There is the possibility to issue partly paid units or shares both in an FCP 

and a SICAV or SICAF. The issue and redemption prices of units or 

shares do not have to be based on the net asset value. 

Only an annual report must be produced. There is no requirement to 

publish neither a semi-annual report nor a long form report. 

There is no requirement regarding the minimum content of the issuing 

document or other offering documents. The issuing document must 

include the information necessary for investors to be able to make an 

informed judgment of the investment proposed to them and in particular 

of the risks attached thereto. 

When investments are made through a subsidiary, there are no 

consolidation requirements with respect to the accounts. 

13

IV. available structures 

The 2002 Law and the 2007 Law permit the 

creation of FCPs and investment companies. 

The latter may be established either as SICAVs 

or as SICAFs. 

Both the 2002 Law and the 2007 Law permit 

the creation of funds as stand-alone funds or as 

umbrella funds with different sub-funds (see 

section “Umbrella Funds” hereafter). 

1. FCP - SICAV - SICAF 

FCP SICAV SICAF 

Legal form 

of vehicle 

Contractual vehicle. Corporate vehicle. Corporate vehicle. 

Key features 

- Undivided co-ownership of 

assets; 

- Has no legal personality; 

- Very flexible vehicle, 

because it is not subject to 

any specific corporate law 

requirements. 

- Variable share capital 

equal to the net assets; 

- Has a legal personality; 

- No need to formally 

increase or reduce the 

share capital. 

- Fixed share capital; 

- Has a legal personality; 

- Formal decision to increase 

or reduce the share capital is 

necessary; such decision is 

subject to specific corporate 

law requirements. 

Management 

Managed by a management 

company either subject to 

Chapter 13 or Chapter 14 of 

the 2002 Law. 

Depending on legal form, 

managed by a board of 

directors, manager(s), 

general partner(s) or a 

board of managers. 

Depending on legal form, 

managed by a board of 

directors, manager(s), 

general partner(s) or a 

board of managers. 

Shareholders/ 

Unitholders 

- One or several unitholders; 

- Liability of unitholders 

limited to the amount 

committed to the FCP; 

- Possibility to be protected 

from hostile takeovers, 

since investors usually do 

not have voting rights; 

- Voting rights may however 

be granted in respect of 

certain matters or a 

committee of investors can 

be established. 

- One or several shareholders; 

- Liability of shareholders in 

principle limited to the 

amount committed to the 

SICAV; 

- Shares entitle shareholders 

to voting rights. 

- One or several shareholders; 

- Liability of shareholders in 

principle limited to the 

amount committed to the 

SICAV; 

- Shares entitle shareholders 

to voting rights. 

Paid-in 

capital 

Partly paid units may be 

issued. 

2002 Law: 

Shares must be fully paid. 

2007 Law: 

Partly paid shares may be 

issued. 

2002 Law 

and 2007 Law: 

Partly paid shares may be 

issued. 

14

FCP SICAV SICAF 

Preferred 

company 

forms 

N/A 

2002 Law (Part I and Part II): 

- Public limited company 

(Société anonyme, S.A.). 

2002 Law (Part I): 


(Société anonyme, S.A.); 

- Corporate partnership limited 

by shares (Société en 

commandite par actions, S.C.A.). 

2007 Law: 

2002 Law (Part I and Part II): 





- Private limited company (Société à 

- Corporate partnership limited by 

responsabilité limitée, S.à r.l.); 

shares (Société en commandite 

- Corporate partnership limited by 

par actions, S.C.A.); 

shares (Société en commandite 

- Private limited company (Société 

par actions, S.C.A.). 

à responsabilité limitée, S.à r.l.); 

- Limited partnership (Société en 

commandite simple, S.C.S.). 

2. Umbrella funds / 

share classes 

The 2002 Law and the 2007 Law permit the 

creation of funds as stand-alone funds or as 

umbrella funds with different sub-funds, 

where each sub-fund corresponds to a distinct 

portfolio of assets and liabilities of the fund. 

Applicable 

provisions 

Objectives 

One single 

entity 

Ring fencing 

Conversion 

Crossinvestment 

- Permitted under Article 133 of the 2002 Law (constitutional documents must provide for 

the possibility); 

- Permitted under Article 71 of the 2007 Law (constitutional documents must provide for the 

possibility). 

For funds subject to the 2002 Law, Chapter J of Circular 91/75 sets out the conditions 

applicable to FCPs and investment companies in the form of umbrella funds. For SIFs, 

article 71 of the 2007 Law sets out the conditions applicable to umbrella funds. 

May accommodate various needs, such as for example: 

- Different investment policies; - Different reference currencies; 

- Different categories of investors; - Different distribution channels. 

A UCITS may not comprise simultaneously sub-funds governed by Part I and Part II of the 

2002 Law (in such case, the entire umbrella fund is subject to Part II). 

Each sub-fund is only responsible for its own debts, commitments and other obligations, 

unless the constitutional documents of the fund provide otherwise. 

In principle, possibility to convert shares/units from one sub-fund to another. 

At present, no cross-investments between sub-funds of the same fund are allowed. 

15

One or more classes of shares or units that 

match various characteristics may be created in 

a stand-alone fund or in each sub-fund of an 

umbrella fund. The classes of shares or units 

may for example have the following distinguishing 

features: 

Distribution policy (distribution or capitalization 

shares / units). 

Currency (different currencies for the shares/ 

units may be accommodated, e.g. USD, EUR, 

JPY, etc). 

Investors targeted (either retail, professional 

or institutional investors, investors of a 

different nationality, etc). 

Structure of fees (different fee structures may 

be accommodated, such as e.g. in relation to 

the subscription fee, redemption fee, conversion 

fee, deferred sales charge, distribution 

fee, management fee, etc). 

Currency hedging (hedged classes or not). 

Minimum subscription and holding 

requirements. 

3. Main features of the 

different company forms 

The table below details the most common 

corporate forms used for setting up an 

investment fund subject to the 2002 Law 

or the 2007 Law. 

S.A. S.à r.l. S.C.A. S.C.S. 

Key features 

Most commonly used 

Originally created for share- 

Particularly convenient for 

Particularly convenient for 

corporate form. 

holders with a significant 

fund initiators who want to 

fund vehicles where (i) tax 

personal relationship with one 

retain total control of the 

transparency is required at 

another (intuitu personae), as 

management. 

the level of the company itself 

evidenced by specific rules still 

and (ii) fund initiators want to 

in place (see “Transfers of 

retain total control of the 

shares”, “Listing of shares”, 

management. 

“Amendment to articles of 

Partnership formed by written 

incorporation” below) although 

agreement of its partners. 

practice shows that this form 

No need for a notarial deed. 

is now used despite a lack of 

any sort of link among the 

shareholders. 

Shareholders 

/ 

Partners 

One or more limited 

shareholders 

(no upper limit). 

One or more limited 

shareholders 

(no more than 40). 

One or more unlimited 

shareholders and several 

limited shareholders 

One or more unlimited 

partners and one or more 

limited partners 



Liability 

Shareholders are only liable 

Shareholders are only liable 

Unlimited 

Unlimited 

up to the amount committed. 


shareholders are indefinitely, 

partners are indefinitely, jointly 

jointly and severally liable 

and severally liable (but may 

(but may be incorporated as 

be incorporated as limited 

limited liability companies or 

liability companies or 

partnerships). 

partnerships). 

Limited 

Limited 

shareholders are only liable 

partners are only liable up to 


the amount committed. 

16

S.A. S.à r.l. S.C.A. S.C.S. 

Contributions 

In cash or in kind: contributions 

In cash or in kind: 

In cash or in kind: contributions 

In cash or in kind: 

in kind are in principle subject 

contributions in kind are not 

in kind are in principle subject 

contributions in kind are not 

to a valuation report from an 

subject to a valuation report 

to a valuation report from an 

subject to a valuation report 

independent auditor. 

from an independent auditor. 

independent auditor. 

from an independent auditor. 

Form of 

shares 

Bearer or registered form. Registered form only. Bearer or registered form. Registered form only. 

Transfers 

of shares 

No statutory restriction on 

transfers. 

Transfers to non-shareholders 

are subject to the prior 

No statutory 

restriction on transfers. 

Transfers not allowed unless 

authorised by the partnership 

approval of the shareholders 

agreement or approved by all 

representing three-quarters of 

the partners. 

the share capital. 

Listing 

of shares 

Listing possible. Listing not allowed. Listing possible. Listing not allowed. 

Management 

One-tier SA: by a board of 

By one or several managers. 

By the general partner. 

By the general partner. 

directors of three directors at 

Unlimited shareholder(s) 

Unlimited partner(s) act(s) 

least, if several shareholders. 

act(s) as general partner(s). 

as general partner(s). 

Two-tier SA: by a management 

board of two members at 

least, supervised by a 

supervisory board of three 

members at least, if several 

shareholders. 

Amendment 

to articles of 

incorporation 

By a quorum representing at 

least half of the share capital 7 

and a two-third majority of 

By (i) a majority in number of 

the shareholders and (ii) such 

majority representing at least 

By a quorum representing at 

least half of the share capital 7 

and a two-third majority of 

By all the partners, unless 

otherwise specified in the 

partnership agreement. 

shareholders, in the presence 

three-quarters of the share 

shareholders, including the 

of a Luxembourg notary. 

capital, in the presence of a 

general partner, in the 

Luxembourg notary. 

presence of a Luxembourg 

notary. 

7 

This quorum requirement is not applicable to the second shareholders’ meeting which may be convened if the required quorum has not been met at the first meeting. 

17

V. main players 

1. The management 

company 

FCPs subject to the 2002 Law and the 2007 

Law are necessarily managed by a management 

company. SICAVs may also appoint a 

management company, in particular in order 

to comply with the substance requirements of 

Part I of the 2002 Law. Management companies 

may either be subject to the provisions of 

Chapter 13 or Chapter 14 of the 2002 Law, 

depending on the status of the investment 

fund they manage. 

Scope of application 

Available company forms 

Permitted activities 

Requirements to be fulfilled 

Chapter 13 of the 2002 Law 

- Applies to management companies managing at 

least one UCITS; 

- Benefits from the European passport. 

- Public limited company (S.A.); 

- Private limited company (S.à r.l.); 

- Cooperative company; 

- Cooperative company set up as a public limited 

company; 

- Corporate partnership limited by shares (S.C.A). 

- Core services: provision of collective portfolio management 

services to UCITS, UCIs and SIFs (including 

asset management, administration and marketing); 

- Additional services: 

Management of individual portfolios on 

a discretionary and individual basis; 

Investment advice; 

Safekeeping and administration of shares/units 

of UCITS, UCIs and SIFs. 

- Possibility to delegate activities to third parties. 

- Minimum capital requirements: initial capital of 

at least EUR 125,000; if the value of the portfolios 

managed by a management company exceeds 

EUR 250 million, the capital must be increased 

by an amount equal to 0.02% of the amount by which 

the value of the managed portfolios exceeds EUR 250 

million, provided that a management company is not 

required to have a capital of more than EUR 10 million; 

- Directors and persons who conduct the business 

must be of good repute and have the necessary 

professional experience. Identity of directors and 

of persons succeeding them in office must be 

communicated to the CSSF. 

- Identity of shareholders or members having a 

qualified holding must be communicated to the 

CSSF. Any change in the persons having a qualified 

holding must be notified to the CSSF. 

- The organisational structure of the management 

company must be described to the CSSF; 


- Applies to management companies managing at 

least one UCI; 

- Does not benefit from the European passport. 

- Public limited company (S.A.); 

- Private limited company (S.à r.l.); 

- Cooperative company; 

- Cooperative company set up as a public limited 

company; 

- Corporate partnership limited by shares (S.C.A). 

- Activity limited to the management of UCIs and SIFs, 

the management of own assets being only an 

ancillary activity; 

- Possibility to delegate activities to third parties. 

- Must have sufficient financial resources (minimum 

paid-up capital of EUR 125,000). 

- Directors and persons who conduct the business 

must be of good repute and have the necessary 

professional experience. Identity of directors and of 

persons succeeding them in office must be 

communicated to the CSSF. 

- Identity of shareholders or members must be 

communicated to the CSSF. Any change in the 

shareholders or members should be notified to the 

CSSF. 

- The organisational structure of the management 

company must be described to the CSSF; 

18



Requirements to be fulfilled 

- Technical and human means necessary for the good 

performance of its duties: 

Head office in Luxembourg; 

Permanent staff, which is suitable for the 

contemplated activities; 

Senior management carried out by at least two 

persons (who may not be employees of the 

custodian bank) of good repute and having the 

necessary professional experience, one of which 

must in principle be on site in Luxembourg; 

Adequate technical infrastructure. 

2. The custodian bank 

Common conditions 

applicable to UCITS, 

UCIs and SIFs 

Specific conditions 

applicable to UCITS and SIFs 

Specific conditions 

applicable to UCIs 

- UCITS, UCIs and SIFs must appoint a custodian bank; 

- The choice of the custodian bank must be approved by the CSSF; 

- The custodian bank must be a credit institution within the meaning of the 1993 Law. 

The custodian bank must have its registered office in Luxembourg or be established in Luxembourg, if its 

registered office is in another member state of the EU. 

The custodian bank must have its registered office in Luxembourg or be established in Luxembourg, if its 

registered office is in another member state of the EU or in a state which is a non-member state. 

Duties of the custodian 

bank under Part I and Part II 


SICAV/SICAF 

- Safekeeping of assets; 

- Ensure that the issues and redemptions of shares are made in accordance with applicable 

law and the articles of incorporation; 

- Ensure that settlements are executed in a timely manner; 

- Ensure that income is applied in accordance with the articles of incorporation. 

FCP 


- Day-to-day administration of the fund; 

- Ensure that the issues and redemptions of units are made in accordance with applicable 

law and the management regulations; 

- Ensure that settlements are executed in a timely manner; 

- Ensure that income is applied in accordance with the management regulations; 

- Ensure that the net asset value is calculated in accordance with the law and the 

management regulations (not applicable to Part II FCPs); 

- Compliance monitoring of instructions from the management company. 

Duties of the custodian bank 

under the 2007 Law 

SICAV/SICAF 

FCP 

- Safekeeping of assets. 


- Day-to-day administration of the fund. 

19

3. The central 

administration agent 

Under the 2002 Law and the 2007 Law, a 

number of administrative duties (duties of the 

“central administration”) must be carried out 

in Luxembourg. These duties are: 

Calculation of the net asset value. 

Keeping of the accounts and making them 

available. 

Processing of issue and redemption of units/ 

shares. 

Keeping the register of units or shares. 

Establishing the prospectus and financial 

reports. 

Dispatching notices and reports from 

Luxembourg. 

4. The auditor 

Status 

Duties 

- Independent auditor, designated by the fund with CSSF approval; 

- Remunerated out of the assets of the fund. 

- Reporting on the annual accounts; 

- Reporting on the activities of the investment fund (financial and organizational aspects); 

so-called long form report (not applicable to SIFs); 

- Reporting to the CSSF. 

20

VI. regulatory supervision 

2002 Law 2007 Law 

Entity in charge 

of the supervision 

CSSF (its main function is the supervision of the Luxembourg financial sector, in particular of the investment 

fund sector). 

Approval procedure 

- A fund may only be launched upon CSSF approval. 

A written application for fund approval must be filed 

with the CSSF (if applicable, a specific application for 

approval of the management company must also be 

filed). The CSSF approval also encompasses the 

approval of the fund’s promoter; 

- SIFs may be launched without prior approval, but the 

application for approval must be filed within one 

month of the SIFs’ creation. The CSSF does not need 

to approve the promoter; 

- The documents requested for fund approval may be 

filed in French, English or German; 

- The documents requested for fund approval may be 

filed in French, English or German; 

- Approval of the following fund documents: 

Constitutional documents (i.e. management 

regulations of an FCP and articles of incorporation 

of an investment company); 

Full prospectus (which must contain at least the 

information provided for in Schedule A of Annex I of 

the 2002 Law, in so far as such information does not 

already appear in the constitutional documents); 

Simplified prospectus (required only for UCITS, 

and which must contain at least the information 

provided for in Schedule C of Annex I of the 2002 

Law); 

For UCITS and some UCIs (e.g. hedge funds), the 

description of the risk management process; 

Agreements to be entered into between the fund 

and its service providers (e.g. agreement between 

fund and management company, if applicable, and 

agreements with custodian, central administration 

agent, investment manager, investment adviser, 

paying agent, distributor, etc). 

- Approval of the following fund documents: 

Constitutional documents (i.e. management 

regulations of an FCP and articles of incorporation 

of an investment company); 

Prospectus: the content of the issuing document 

is not legally defined, but must include at least 

the information that enables investors to make 

an informed judgment on the investment proposed 

to them; 

Agreements to be entered into between the fund 

and its service providers (e.g. agreements with 

custodian, central administration agent, 

investment manager, investment adviser, paying 

agent, distributor, etc). 

- Approval process generally takes 2-3 months, 

depending on the complexity of the project; 

- Approval of the fund is announced by inscription on the 

official list of Luxembourg UCITS/UCIs (published in 

the Mémorial). 

- Approval of SIF is announced by inscription on the 

official list of Luxembourg SIFs (published in the 

Mémorial). 

21

VII. taxation 

2002 Law 2007 Law 

Subscription tax 

(levied on a quarterly 

basis on the net assets) 

- Generally 0.05% per annum calculated on the net 

asset value (valued on the last day of each quarter); 

- Exemptions: 

Portion of assets represented by holdings in units 

of other funds already subject to subscription tax; 

Institutional cash/money market funds or 

sub-funds, where the portfolio has a residual 

maturity of less than 90 days and where the assets 

have the highest possible rating; 

Pension pooling vehicles. 

- Generally 0.01% per annum calculated on the net 

asset value (valued on the last day of each quarter); 

- Exemptions: 

Portion of assets represented by holdings in units 

of other funds already subject to subscription tax; 

Institutional cash/money market funds or 

sub-funds, where the portfolio has a residual 

maturity of less than 90 days and where the assets 

have the highest possible rating; 

Pension pooling vehicles. 

- Reduced rate of 0.01% per annum: 

Money market and cash funds or sub-funds; 

Individual sub-funds or classes of shares designed 

for institutional investors. 

Corporate income tax 

and municipal 

business tax 

No. 

No. 

Registration tax 

Double tax treaty benefits 

Taxation of investors 

Contributions to a corporate investment fund structure (SICAV/SICAF) or to a management company of an FCP 

are subject to a fixed registration duty of EUR 75. This amount is also due in case of any amendment to the articles 

of incorporation. 

- FCP: the FCP is transparent for taxation purposes and is thus not entitled to double tax treaty benefits; 

- SICAV or SICAF: yes, unless excluded under a double tax treaty (the following double tax treaties are generally 

applicable to SICAVs or SICAFs, i.e. those concluded with the following countries: Austria, China, Denmark, 

Finland, Germany, Indonesia, Ireland, Israel, South Korea, Malaysia, Malta, Mongolia, Morocco, Poland, Portugal, 

Romania, San Marino, Singapore, Slovakia, Slovenia, Spain, Thailand, Trinidad and Tobago, Tunisia, Turkey, 

Uzbekistan and Vietnam). 

- Investors are not subject to capital gains or income tax in Luxembourg, except for: 

(a) Those residing or having a permanent establishment /permanent representative in Luxembourg, or 

(b) Non-residents of Luxembourg who hold more than 10% of the shares of a fund of the corporate type, who 

dispose of all or part of their holdings within six months from the date of acquisition (subject to the provisions 

of an applicable double tax treaty), or 

(c) In some limited cases, some former residents of Luxembourg who hold more than 10% of the shares of such a 

corporate type of fund (subject to the provisions of an applicable double tax treaty). 

22

2002 Law 2007 Law 

Withholding tax 

on distributions 

Generally there is no withholding tax levied on distributions made by a Luxembourg fund to its investors, except 

that under the Luxembourg laws dated 21 June 2005 implementing the EU Savings Directive and several 

agreements concluded between Luxembourg and certain associated territories of the EU, a Luxembourg paying 

agent must levy a withholding tax on interest payments made to EU resident individuals and residual entities, 

unless the beneficiary opts for an exchange of information whereby the tax authorities of the beneficiary’s state 

of residency are informed thereof. 

The same regime applies to payments made to individuals or residual entities resident or established in Aruba, 

British Virgin Islands, Guernsey, Isle of Man, Jersey, Montserrat and Netherlands Antilles. 

The withholding tax rate is currently 20% and increasing to 35% as from 1 July 2011. 

In respect of UCITS, UCIs and SIFs interest payments include (i) distributions of profits by a fund derived from 

interest payments and (ii) income - realised upon the sale, refund or redemption of units or shares if the fund 

has invested directly or indirectly more than 40% of its net assets in debt claims and to the extent such income 

corresponds to gains directly or indirectly derived from interest payments (as an exception, these rules do not 

apply if either (a) the investment in debt claims of a fund does not exceed 15% or (b) the fund is governed by 

Part II of the Law of 2002 or the Law of 2007 and is set-up as a SICAV or a SICAF). 

VAT 

- VAT taxable persons: UCITS, UCIs and SIFs are considered as taxable persons; they are deemed to carry out 

economic activities in the sense of the VAT Law; for FCPs, a management company, in principle, qualifies as a 

taxable person. The Luxembourg VAT authorities consider the activities performed by UCITS, UCIs or SIFs as 

VAT exempt with no right of input VAT deduction; 

- Management services: in Luxembourg, management services rendered to Luxembourg UCITS, UCIs or SIFs 

under the supervision of the CSSF are VAT exempt (article 44, paragraph 1, under d) of the Luxembourg VAT 

law); 

Management services comprise: portfolio management and administration services, i.e. legal and fund 

management accounting services, investor inquiries, valuation and pricing, regulatory compliance monitoring, 

maintenance of the shareholders/unitholders register, distribution of income, unit issues and redemptions, 

contracts settlements, record keeping. In case part of these management services are sub-contracted, VAT 

exemption applies if, viewed broadly, the services performed by a third party form a distinct whole and are 

specific to and essential for the management of the investment funds. 

Control and supervision services supplied by a depositary are excluded from the exemption and are therefore 

subject to VAT. 

- VAT registration: UCITS, UCIs or SIFs are not required to register for VAT purposes, except upon receipt of 

taxable intangible / intellectual services from outside Luxembourg (e.g. legal or tax advice, consulting services, 

“set up costs”). 

23

VIII. once-off and ongoing costs at a glance 

Registration duty (only for UCITS, UCIs or 

SIFs in corporate form) 

Notary fees for incorporation of UCITS, 

UCIs or SIFs in corporate form and 

management companies 

Publication fees in the Mémorial of articles 

of incorporation of UCITS, UCIs or SIFs in 

corporate form and management 

companies 

Registration costs in the Companies’ 

Registrar of UCITS, UCIs or SIFs in 

corporate form and management 

companies 

Registration costs with the CSSF for a 

UCITS/UCI/SIF 

EUR 75. 

Approximately between EUR 2,000 and EUR 5,000. 

Approximately EUR 1,200, varying in particular if the articles are drawn up in one language 

or are followed by a translation (French or German translation required if articles are drawn up 

in English). 

Approximately EUR 150. 

2002 Law - Single UCITS/UCI other than self-managed: 

EUR 2,650 (upon filing and on an annual basis); 

- Part I self-managed SICAV/SICAF: EUR 5,000 (on an annual basis); 

- Umbrella fund: EUR 5,000. 

2007 Law - Single SIF: EUR 1,500 (upon filing and on an annual basis); 

- Umbrella SIF: EUR 2,650 (upon filing and on an annual basis). 

Registration costs with the CSSF for a 

Chapter 13 management company 

2002 Law - Activity limited to collective portfolio management services: 

EUR 5,000 (on an annual basis); 

- Activity encompassing discretionary portfolio management services: 

EUR 12,000 (on an annual basis); 

- For each branch established abroad by a management company: 

EUR 2,000 (on an annual basis). 

© Arendt & Medernach, 2009 

24

alfi 

association of the luxembourg fund industry 

The Association of the Luxembourg Fund 

Industry (ALFI), the representative body for 

the Luxembourg investment fund community, 

was founded in 1988. Today it represents over 

a thousand Luxembourg-domiciled investment 

funds, asset management companies and a wide 

variety of service providers including depositary 

banks, fund administrators, transfer agents, 

distributors, law firms, consultants, tax advisers, 

auditors and accountants, specialist IT providers 

and communications agencies. 

Luxembourg is the largest fund domicile 

in Europe and its investment fund industry 

is a worldwide leader in cross-border fund 

distribution. Luxembourg-domiciled 

investment structures are distributed in 

more than 50 countries around the globe, 

with a particular focus on Europe, Asia, 

Latin America and the Middle East. 

ALFI defines its mission as to “Lead industry 

efforts to make Luxembourg the most 

attractive international centre”. 

Its main objectives are to: 

Foster dedication to professional 

standards, integrity and quality 

Investor trust is essential for success in 

collective investment services and ALFI thus 

does all it can to promote high professional 

standards, quality products and services, 

and integrity. Action in this area includes 

organising training at all levels, defining codes 

of conduct, transparency and good corporate 

governance, and supporting initiatives to 

combat money laundering. 

Promote the Luxembourg investment 

fund industry 

ALFI actively promotes the Luxembourg 

investment fund industry, its products and its 

services. It represents the sector in financial 

and in economic missions organised by the 

Luxembourg government around the world 

and takes an active part in meetings of the 

global fund industry. 

For more information, visit our website at 

www.alfi.lu 

Help members capitalise on industry 

trends 

ALFI’s many technical committees and 

working groups constantly review and 

analyse developments worldwide, as well as 

legal and regulatory changes in Luxembourg, 

the EU and beyond, to identify threats and 

opportunities for the Luxembourg fund 

industry. 

Shape regulation 

An up-to-date, innovative legal and fiscal 

environment is critical to defend and 

improve Luxembourg’s competitive position 

as a centre for the domiciliation, administration 

and distribution of investment funds. Strong 

relationships with regulatory authorities, 

the government and the legislative body enable 

ALFI to make an effective contribution to 

decision-making through relevant input 

for changes to the regulatory framework, 

implementation of European directives 

and regulation of new products or services. 

26

ALFI thanks Arendt & Medernach, which produced the content of this brochure, 

for its authorization to reprint. Arendt & Medernach is a member of ALFI. 

October 2010 

alfi | association of the 

luxembourg fund industry 

B.P. 206 

L - 2012 Luxembourg 

Tel: +352 22 30 26 - 1 

Fax: +352 22 30 93 

info@alfi.lu 

www.alfi.lu

setting up an investment fund in luxembourg ... - Casa4Funds

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