A globally leading 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:
Luxembourg is a stable and recognized fund centre in the heart of Europe, ideally positioned to use the EU passporting rights to distribute an investment 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 an investment fund?
Investment funds are collective investment vehicles, which invest in assets and may operate according to the principle of risk spreading. Investment funds may raise capital from the public, when capital is raised from a group of investors that go beyond a small circle of persons or may raise capital in a private placement from a selected group of investors. Issuing vehicles, holding companies or special purpose vehicles (SPVs) are often not considered investment funds, although they might fulfill the above criteria.
What is the SICAR?
The investment company in risk capital (SICAR) is an investment fund in Luxembourg that can invest into assets representing risk capital and that is subject to the Luxembourg Law of 15 June 2004 (the SICAR Law).
The SICAR is subject to the approval and ongoing supervision by the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier or CSSF).
According to the CSSF, there were around 240 SICARs established in Luxembourg as of March 2020 with more than EUR 57 billion of assets under management.
Which asset class can the SICAR invest in?
The SICAR can make investments in risk capital, which are defined in the SICAR Law as the direct and/or indirect contribution of assets to entities in view of their launch, development or listing on a stock exchange. This means that the investment must have a certain element of risk.
Which investors are eligible to invest into a SICAR?
Investments in a SICAR may be made by “well-informed investors”. These are defined as:
1. Institutional investors;
2. Professional investors; or
3. Any other investors who have stated in writing that they adhere to the status of a “well-informed investor” and either (i) invest a minimum of €125,000 or (ii) have obtained an appraisal from a credit institution, an investment enterprise or a management company, certifying the investor’s expertise, experience and knowledge in adequately appraising an investment in the SICAR.
Who manages the SICAR?
The CSSF will consider the qualifications and experience of the management team during the approval of the SICAR.
In addition, SICARs must appoint an authorised external Alternative Investment Fund Manager (AIFM), if they fall within the scope of the Alternative Investment Fund Managers Directive (AIFMD). As a benefit of the appointment of the AIFM, SICARs may be marketed to professional investors and other well-informed investors in the EU on the basis of the AIFMD passport. The AIFM may be established in Luxembourg or in another EU Member State.
What are the main advantages of the SICAR?
The main advantages of the SICAR are:
1.Structuring flexibility: The SICAR may be established as an investment company with variable capital (SICAV) or an investment company with fixed capital (SICAF). The SICAV and SICAF may be established in various corporate forms available under Luxembourg law: (i) public limited company (SA), (ii) private limited company (S.àr.l.), (iii) limited partnership (CLP), (iv) special limited partnership (SLP) or (v) partnership limited by shares (SCA))
2. Umbrella fund: The SICAR may be set up as a single fund or an umbrella fund with multiple ring-fenced compartments or sub-funds. Depending on the needs of the investors, the compartments may also have an unlimited number of shares or unit classes.
3. Asset protection: The assets of the SICAR must be entrusted to a custodian or depositary, who must either have its registered office in Luxembourg or have a Luxembourg branch, if the registered office is in another EU Member State.
4. Supervision: The SICAR has to be authorised before beginning its activity and remains under the supervision of the CSSF. This supervision adds a layer of protection often required by institutional investors. If the SICAR falls within the scope of the AIFMD, the SICAR has to appoint additionally an AIFM, which is also an entity supervised by the competent authority of the AIFM.
5. Attractive flexible tax regime: The SICAR can be formed as a limited partnership without legal personality (CLP or SLP) and would in that case be considered tax transparent and not subject to corporate, municipal business and net wealth tax. The SICAR can also formed in a corporate form with legal personality (SCA, SA or S.àr.l.), in which case the SICAR is a fully taxable company with income from transferable securities being exempt, provided certain conditions are met. If the SICAR us a taxable company, then it should benefit from access to Luxembourg’s tax treaties.
Which service providers does a SICAR require?
The SICAR must appoint the following service providers:
1. Luxembourg depository or custodian bank
2. Authorised external AIFM, if within the scope of the AIFMD
3. Statutory auditor approved by the CSSF to act for regulated funds
4. Central administrator based in Luxembourg
Does the SICAR have access to the EU passport for distribution of the fund?
The SICAR may take advantage of the EU passport, if it has appointed an AIFM, allowing the fund to be passported to well-informed investors within the EU.
How long does it take to set up a SICAR in Luxembourg?
A SICAR is subject to supervision by the CSSF and can thus be established once approved by the CSSF, typically 2-3 months. The timeframe for the drafting of the documentation, will depend on the complexity and the input of all parties involved.
What are the capital requirements of a SICAR?
The minimum net assets of a SICAR may not be less than EUR 1.250.000. This amount must be reached within a period of twelve months following its establishment. At least 5% of the capital must be paid up at subscription.
How much does it cost to establish a SICAR?
The cost of setting up a SICAR differ, depending on the exact structure and the service providers used.
As the SICAR is a supervised fund, CSSF approval must be obtained and CSSF fees paid, as set out in the Grand-ducal Regulation of 21 December 2017 relating to the fees to be levied by the CSSF.
The CSSF will levy an examination fee, which is a single lump sum for the examination of each authorisation request for a SICAR. This examination fee currently amounts to:
- EUR 4,000 for traditional SICARs and SICAR-AIF
- EUR 8,000 for umbrella SICARs and SICAR-AIFs
In addition, an annual lump sum is to be paid by each SICAR to the CSSF:
- EUR 4,000 for traditional SICARs and SICAR-AIFs
- EUR 8,000 for umbrella SICARs and SICAR-AIFs for 1-5 subfunds
- EUR 15,000 for umbrella SICARs and SICAR-AIFs for 6-20 subfunds
- EUR 24,000 for umbrella SICARs and SICAR-AIFs for 21-50 subfunds
- EUR 35,000 for umbrella SICARs and SICAR-AIFs for over 50 subfunds
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