Today, the Luxembourg Parliament adopted the bill on the introduction of a new alternative investment fund (AIF) regime: the reserved alternative investment fund (RAIF) or “fonds d’investissement alternatif réservé”. The law will enter into force shortly.
The RAIF regime will add an important and efficient option to the existing catalogue of Luxembourg fund regimes like the SIF and the SICAR. The RAIF can be organized using a wide variety of legal forms, including the mutual fund (FCP), the well-known limited partnership (SCS and SCSp), but also corporate legal forms like the SA, Sarl or SCA. The RAIF regime can best be described as a hybrid between the SIF and SICAR regimes as regards its operational flexibility and tax efficiency, be it with two significant differences:
- a RAIF may be set up without the prior authorization of the CSSF and, as a result thereof, will not be subject to any direct prudential supervision; and
- only alternative investment funds within the meaning of the alternative investment funds managers directive (AIFMD) can be organised under the RAIF regime and they must be managed by an authorised external alternative investment fund manager (AIFM) established in Luxembourg or another country of the European Union.
The RAIF regime has the same possibilities as the SIF in terms of available legal forms, the possibility to launch multiple compartments and the type of eligible assets. 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 similar 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 only subject to an annual subscription tax of 0.01%. A RAIF which takes a corporate legal form (like the SA., Sarl or SCA) 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.
Management services rendered to the RAIF benefit from a VAT exemption in Luxembourg.
We expect that the international investment management industry will embrace the RAIF regime, in particular in combination with the legal form of the Luxembourg limited partnership (SCS and SCSp), as this combination will provide for the maximum flexibility, is recognizable internationally and will have a shorter ‘time to market’ due to the absence of CSSF authorization (assuming the manager will have an existing AIFMD license).
Click here to read our memorandum on the RAIF.