A globally leading real estate fund centre:
Luxembourg is the globally leading fund centre in the world for cross-border funds, Luxembourg is the second largest investment fund centre in the world after the United States and the largest fund domicile in Europe with currently more than EUR 4,7 trillion of assets under management.
The country is a politically and financially stable EU country with a AAA-Rating. As an EU domicile, investment funds established in Luxembourg can be more easily distributed within the EU and have gained furthermore global recognition for the ease of cross-border distribution.
The key advantages of Luxembourg as a fund domicile are:
1.Stability
Luxembourg is a stable and recognized fund centre in the heart of Europe, ideally positioned to use the EU passporting rights to distribute the fund across the EU and to global markets.
2.Global Leadership
Luxembourg is the global leader for cross-border fund distribution. All relevant service providers in the asset management industry have a presence and offer services in Luxembourg. The country is known around the world for its capabilities in asset management and its funds are distributed and known around the world.
3.One Stop Solution
Setting up a fund with an EU passport, using leading service providers, listing it on a recognized stock exchange, setting up SPVs to benefit from double tax treaties and outsourcing certain functions back to other countries. Luxembourg has the flexibility to offer a one stop solution for operating and distributing investment funds, as well as deploying the funds in an efficient and structured manner.
Why set up a real estate fund in Luxembourg?
Luxembourg offers a toolbox of solutions to establish real estate funds, offering fund promoters a high degree of flexibility for their investments. Precisely, this flexibility has made Luxembourg a globally leading domicile for real estate funds.
Setting up a Luxembourg real estate fund has a variety of advantages:
1. Fund promoters have the choice between unregulated or regulated real estate funds: Depending on investor demands, they can either opt for:
(i..) an unregulated fund that is quickly set up and needs no approval by the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier or CSSF),
(ii.)a real estate fund that is supervised by the CSSF, or
(iii.)a fund that is not supervised but has appointed a supervised Alternative Investment Fund Manager (AIFM).
2. Investors are comfortable with Luxembourg, as it has the following advantages for investors:
(i.)professional and globally recognized fund service providers are established in Luxembourg,
(ii.)depository/custodian is in Luxembourg, if within the scope of the AIFMD,
(iii.)Luxembourg is a reputable fund jurisdiction with established legal frameworks for funds.
3. The real estate fund could be distributed on the basis of the AIFMD passport, if the fund has appointed an AIFM.
4. More advantageous tax treatment, with the choice of tax treatment according to the choice of investment fund:
(i.)real estate funds can be fully taxable and have access to Luxembourg’s double tax treaties network,
(ii.)real estate funds can be tax exempt, but with very limited access to double tax treaties,
(iii.)real estate fund can be tax neutral with either legal or no legal personality. In that case the partners of the fund will be become taxable and not the fund itself.
Which real estate investment funds exist in Luxembourg?
1. SIF (Specialised Investment Fund) is a flexible real estate fund and is currently the most commonly used real estate fund type, with 54% of all Luxembourg real estate funds set up as SIFs, currently holding more than EUR 83 billion of real estate directly. The SIF is:
(i.)reserved for well-informed and professional investors,
(ii.)can either hold participations in real estate companies or hold real estate directly,
(iii.)requires a low level of diversification,
(iv.)can be set up as an umbrella fund
(v.)may also qualify for the AIFMD passport, provided the conditions are met.
2. SICAR (Investment Company in Risk Capital) is also a supervised real estate fund. The SICAR must invest in risk-bearing assets. For real estate that means, that the assets held by the fund must have an element of risk. It is not sufficient that the fund holds prime real estate. Due to this criteria, the SICAR has been used less commonly than the SIF. The SICAR is:
(i.)not subject to any diversification rules,
(ii.)restricted to well-informed and professional investors,
(iii.)may also qualify for the AIFMD passport, provided the conditions are met,
(iv.)interesting fiscal regime and double tax treaty access.
3. RAIF (Reserved Alternative Investment Fund) has been a highly successful real estate fund type, since its introduction in 2016. The RAIF allows for a significantly reduced time to market, with the option to transform later to a SIF or SICAR. The RAIF is becoming increasingly a preferred choice with now 18% of all Luxembourg real estate funds, set up as RAIFs. The RAIF is:
(i.)structurally similar to the SIF or SICAR regime but is not subject to a direct supervision by the CSSF,
(ii.)can also be set up as an umbrella structure,
(iii.)the RAIF has to appoint an AIFM (Alternative Investment Manager) in Luxembourg, which itself is regulated by the CSSF, but can therefore benefit from the AIFMD passport.
4. Limited Partnership (CLP/SLP) is a highly flexible real estate fund that has been very successful in the last years. Currently 12% of all Luxembourg real estate funds, are set up as limited partnerships. The limited partnerships (CLP/SLP) are:
(i.)not supervised and similar to the partnership structures in Common Law jurisdictions,
(ii.)contractual flexibility: The limited partnership agreement (LPA) is the main document organizing the functioning of the partnership, which gives the fund the flexibility to organize the structure of the fund,
(iii.)this fund type is not restricted to any asset type and not subject to any risk diversification rules.
How long does it take to set up a real estate fund in Luxembourg?
The time to set-up depends on whether the real estate fund is a supervised or non-supervised fund vehicle. Whilst a non-supervised investment vehicle can be set up within 2 weeks, a supervised vehicle can be established with 2-4 months, depending on the complexity of the fund structure and its investment policy.
How much does it cost to establish a real estate fund?
As Luxembourg offers a toolbox of different solutions, the establishment cost greatly varies between the solution chosen and the service providers used to service the fund. Setting up a fund which is not supervised, is less costly than a supervised fund targeted for retail clients.
Apart from setting up your own fund, you can also rent a sub-fund of an existing umbrella structure (whether SIF or RAIF). For More Information, Contact us
