1.8 What rules apply to foreign managers or advisors who wish to manage, advise or otherwise operate funds domiciled in your jurisdiction? It is not necessary to obtain a tax ruling in Luxembourg before creating an AIF. However, depending on the complexity of the structure (e.g. the use of certain financial instruments or non-standard structuring), it may be advisable to secure the structure with a tax ruling from the Luxembourg tax authorities before implementation. Depending on the complexity of the case, administrative costs of €3,000 to €10,000 are charged for the tax ruling procedure. There is no legal requirement limiting a manager`s ability to restrict buybacks. the success of the modernisation of the Luxembourg partnership regime, which has been able to offer fund initiators accustomed to Anglo-Saxon partnerships a new onshore alternative for fund structuring; and it is, however, common to provide for rules providing for the occasional suspension of the calculation of net asset value (“NAV”) and thus of subscription, conversion and redemption in certain prescribed and disclosed circumstances (e.g. failure of communication equipment / political instability / emergency). Suspensions shall be notified to investors by the AIFM in an appropriate manner. In this respect, no distinction is made between open and closed AIFs. The increasing use of Luxembourg as a jurisdiction of choice within the EU for the creation of AIFs means that, in the context of fund financing operations, it is essential to have a clear understanding of depositaries` obligations and the interactions between their obligations and creditors` rights. The tasks of a depositary of a Luxembourg fund can generally be described as including: (i) the custody and supervision of assets; (ii) day-to-day asset management; and (iii) monitoring of the Fund`s operations (including compliance with investment policy and monitoring of cash flows). With the ultimate goal of increasing investor protection, the exact scope of a depositary`s tasks depends on whether the AIF in question is subject to SICAR, SIF, RAIF and/or AIFM.
It is therefore essential to seek advice in order to use the optimal asset class and structure for each individual case. With the introduction of the AIFMD, the initial role of depositaries has been complemented by additional overview requirements concerning: (i) the valuation of assets; (ii) the subscription and redemption of shares or units; (iii) the execution of the aisle`s instructions; (iv) the timely execution of transactions; and (v) the distribution of AIF revenues. In addition to the custody of the assets of the respective AIF, depositaries are now required to monitor and reconcile the AIF`s cash flows by providing a comprehensive overview of its cash positions and cash movements. These obligations apply to any depositary designated in relation to an AIF, whether organised in SICAR, SIF, RAIF or SOPARFI not regulated as an AIF (with the exception of a SOPARFI managed by an exempt AIFM). Luxembourg is actively implementing all OECD BEPS action plans through various national measures. AIF consultants based in Luxembourg (or its managers) are (i) either subject to the CSSF and must be approved in accordance with the law of 5 April 1993 on the financial sector, as amended (the “1993 law”), subject to exceptions, or (ii) can comply with law no. 2. September 2011 to regulate access to the professions of craftsman, commercial, industrial and certain liberal professions, as amended (the “2011 Law”) and to file an application for a business license as an economic advisor to the Minister of the Economy, subject to exceptions. (Please also refer to question 1.8 on foreign consultants.) A VAT exemption (Article 44(1)(d) of the Luxembourg VAT Law) is available for portfolio management services, investment advisory services and certain administrative services, while purely technical, supervisory and control services provided by a depositary are not exempt services. The VAT exemption for administrative and administrative services is also available for outsourced services, provided that those services, strictly invoiced, form a separate whole and constitute essential functions for the exempt administrative services, so that isolated technical supplies do not fall within the scope of the VAT exemption. 2.2 Please describe the limited liability of investors in relation to different legal structures and types of funds (e.g.
private equity funds and LPPACs). Luxembourg law does not provide for any specific restrictions. In addition, operations covered by the `specialised loans` exception (as defined in Article 147(8) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26). June 2013 on prudential requirements for credit institutions and investment firms (CRRs), not the EU Securitisation Regulation, even if the above conditions are met. For foreign managers, proof of supervision or breach of the CSSF`s due diligence is required (see question 1.2). 7.1 What reforms (if any) in the area of alternative investment funds are proposed? The AIFM law establishes the procedures for the marketing/distribution of shares of Luxembourg AIFs or non-Luxembourg AIFFs by Luxembourg MANAGEMENTNAIRes or non-Luxembourg MANAGEMENTNAIREs in Luxembourg or abroad. Only authorized MANAGERS benefit from the Marketing Pass; In order to market EU AIFs in Luxembourg, AIFMs established in another Member State must be authorised as AIFMs. In the case of corporate AIFs (with the exception of SCS and SCSp), redemption is not possible at the request of investors. Only SICAR are subject to a strategic restriction (exclusive investment in venture capital within the meaning of Circular CSSF 06/241 of 5 April 2006 on the concept of venture capital within the meaning of the SICAR Law (“Circular 06/241”)). SIPARs are limited to direct and/or indirect investments in securities that constitute risk capital, i.e. mainly high-risk investments made in various forms with a view to their introduction, development or listing on the stock exchange.
Regulation (EU) 2017/2042 of the European Parliament and of the Council of 12 December 2017 establishing a general framework for securitisations and establishing a specific framework for simple, transparent and standardised securitisations (EU Securitisation Regulation) entered into force on 1 January 2019. Certain fund financing operations (in particular leveraged transactions) and corporate borrowers may potentially fall within the scope of the EU Securitisation Regulation, which would entail a wide range of obligations for the corporate borrower, but also for originators, promoters and certain investors (including risk retention requirements, due diligence, transparency and disclosure, restrictions on selling to Retail Investors, etc.). In order to determine whether such obligations would be applicable, it is necessary to assess whether the transaction meets the definition of `securitisation` within the meaning of the EU Securitisation Regulation and whether one of the undertakings concerned can be considered as a special purpose vehicle (SSPE) for the purposes of the EU Securitisation Regulation. The AIFM law defines leverage as any method by which the AIFM increases the exposure of an AIF it manages, whether through the borrowing of cash or securities, leverage embedded in derivative positions or other means. 6.4 How are (a) residents, (b) non-residents and (c) pension fund investors (or other common types of investors) treated locally in other mutual funds for tax purposes? 6.9 Are there other tax issues that are important to investors, AIFMs, advisors or AIFs? Leverage under the AIFMD and the AIFM Act 1.5 What is the authorisation procedure and how long does the procedure usually take? On 21 March 2020, the Luxembourg draft law transposing European Directive 2018/822, commonly known as DAC 6 (or “Tax Intermediaries Directive”), was adopted into national law. DAC 6 broadly reflects the elements of BEPS Action 12 on mandatory disclosure obligations and is the fifth amendment to Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC). DAC 6 introduces the obligation for certain intermediaries and taxpayers concerned to disclose to tax authorities information on cross-border arrangements that meet certain criteria. It also regulates the regular exchange of information between the tax administrations of the EU Member States. DAC 6 entered into force in the EU on 25 June 2018 and will enter into force on 1 July 2020.
2.1 What are the main legal structures used for alternative investment funds? AIFs must submit their annual reports to the CSSF and are subject to reporting obligations.