Bill no. 6929 on the introduction of a new alternative investment fund (AIF) regime, the reserved alternative investment fund (RAIF) or “fonds d’investissement alternatif réservé” (FIAR) was adopted today by the Luxembourg Parliament (the RAIF Law). The RAIF Law will enter into force three days following its publication in the official gazette.
RAIFs provide further options to the managers of Luxembourg based AIFs who currently structure their vehicles either as regulated SICARs, SIFs and UCIs or, in some circumstances, as unregulated companies or partnerships (such as the SCS or SCSp). The RAIF is a hybrid between the SIF and SICAR regimes as regards its operational flexibility (including, but not limited to, the legal forms available, the possibility to launch multiple compartments and the type of eligible asset classes) and tax efficiency, with the two most significant differences being:
- a RAIF may be set up without the prior authorisation of the CSSF and, as a result thereof, will not be subject to any direct prudential supervision; and
- only AIFs within the meaning of the alternative investment funds manager directive (AIFMD) can be organised under the RAIF regime and must be managed by an authorised external alternative investment fund manager (AIFM) established in Luxembourg, another country of the European Union or, upon the AIFMD distribution passport becoming available to third countries, in a third country according to the provisions of the AIFMD.
To the extent a RAIF provides in its constitutional documents that its corporate object is restricted to investment in risk capital, it will not be subject to any risk diversification requirement.
The tax regime of the RAIF is equal to that of a SIF as it is exempt from income and net wealth taxes, its distributions are exempt from withholding tax and it is subject to an annual subscription tax of 0.01% (exemptions of subscription tax apply depending on the investment assets).
A RAIF can, however, opt for being taxed as a SICAR if its constitutive documents provide that its sole object is to invest in risk capital assets. A RAIF which takes a corporate legal form (like the S.A., S.à r.l. or S.C.A.) will be a normally taxable entity for income tax purposes, but with an exemption from its taxable basis for any profits and gains derived from securities (valeurs mobilières) representing risk capital. It will further be exempt from net wealth and subscription taxes. The RAIF organised as an FCP or limited partnership (SCS or SCSp) and that opts to be taxed as a SICAR is not liable to income, net wealth, or subscription taxes in Luxembourg.
Management services rendered to the RAIF benefit from a VAT exemption in Luxembourg.
Click here to read our memorandum on the RAIF.