Market trends in Luxembourg



Publication February 2018


Over the course of the past months, we have seen a strongly increasing interest for alternative investment funds (AIF) not being subject to a specific fund regime, a strongly increasing interest for reserved alternative investment funds (RAIF) and an ongoing interest for specialised investment funds (SIF). The main asset classes in these fund structures are typically private equity, venture capital, infrastructure, clean technology (and alike) real estate and debt. Furthermore there remains continuous demand for UCITS, especially in those having particular strategies or investing in more “exotic” markets.

Furthermore, additional asset managers, financial institutions and insurance companies are moving forward with their plans to relocate or re-domicile all or parts of their business (e.g. their foreign investment funds or management companies/AIFM) to Luxembourg. Despite the current political uncertainty over Brexit, the deadline implemented by Article 50 of the Treaty on European Union means that more and more market participants are having to take steps based on the best available knowledge.

Relocation or Re-domiciliation of all or parts of the business – Brexit

As a consequence of investor demand and the uncertainties as to the implementation of a third-country AIFM passport as well as the limitation of reverse solicitation capacities, numerous re-domiciliation or next product domiciliation projects in Luxembourg involving both regulated and non-regulated funds have been realised and are under examination.

On the one side the possibility to transfer a foreign investment fund’s registered office to Luxembourg with the continuation of its legal personality is creating some strong interest for asset managers wishing to raise assets in the European Union. This process allows for a foreign fund to preserve its full corporate history, including track record and it is also worth noting that it is generally completely tax neutral.

On the other side Luxembourg offers with its broad range of legal structures (e.g. the special limited partnership) appropriate solutions for the next fund generation.

Parallel structures are also raising strong interest.

The possibility of re-domiciliation or shifting licensed business to Luxembourg may also be particularly relevant in the Brexit context for promoters wishing to keep the benefit of their funds’ passport and ensure it for their future products. This in particularly the case for asset managers. Recent months have seen more and more asset managers announce Luxembourg as the jurisdiction taking over these functions after Brexit. An increasing number of asset managers are also seriously considering possible localisation of their UCITS management companies or regulated AIFMs in Luxembourg and discussions with the Luxembourg regulator are increasing.

In addition during the past months more financial institutions and insurance companies have expressed their intention to either increase their business presence in their existing Luxembourg entities or establish newly formed entities to relocate business post Brexit.

Strongly increasing interest for RAIF and other non-regulated AIF

The RAIF, the flexible investment vehicle which has been in existence for slightly more than 18 months (it has been implemented in July 2016), continues to create strong interest. Since implementation, 296 RAIF structures (official list at the companies register as at 3 Feb 2018) have been created in Luxembourg with a variety of different investment policies and for a number of different purposes (time-to-market, incubation, private wealth management etc.). The RAIF-product is not only fit for illiquid asset classes but, mainly due to the availability of variable capital structuring, also to liquid asset classes including strategies involving a high trading frequency.

It may be observed that investors, especially institutional investors, in Europe and around the globe, have now got used to the RAIF perhaps seeing it as an SIF alternative (and to a lower number a SICAR alternative), a Luxembourg investment fund meeting the highest standards of structural quality and flexibility, as they were used to in a “real” SIF (or “real” SICAR) but without an add-on regulation on the fund product itself.

Besides this, for illiquid asset classes there has been increasing demand for AIF’s structured as unregulated partnerships (SCS or SCSp). Promoters and investors appreciate the legal framework allowing (to the extent applicable requirements are met) for a choice of set ups which range from an AIF which is only managed by a registered AIFM (and, for instance, not requiring a depositary) to an AIF managed by an authorised AIFM. In both instances investments without the requirement of minimum diversification is allowed, to the extent it is intended.

Even though the RAIF and the unregulated AIF as described above are currently dominating the structural demand in the alternative asset classes, the SIF as the traditional regulated fund vehicle with its year-long market position and flexibility continues to preserve its importance within the range of available fund products. This particularly applies to strategies involving liquid asset classes and/or markets where certain investors are more comfortable or the legal framework is favouring/requiring regulated fund vehicles.

Real estate – Luxembourg assets on the rise

ALFI’s annual Real Estate Investment Fund Survey revealed that real estate assets held through Luxembourg fund vehicles (Real Estate Investment Fund, REIF) reached an all-time high of over €57.000 billion in more than 300 vehicles (not even taking into account fund of fund vehicles or debt fund vehicles related to real estate). Over more than a decade Luxembourg has positioned and increased its importance as the crossborder hub for REIFs and the strong activity on international real estate markets, for instance in Germany has, translated into a high demand for Luxembourg REIF structures.

Typical Private Equity (and alike) structures

The Luxembourg market sees a further strengthening of its position as the recognised on-shore hub for all kinds of private equity, venture capital, real estate, infrastructure etc. (and alike) fund structures. In particular professional and institutional investors from Europe and abroad trust the recognised stable and flexible Luxembourg market and its fund products, whether regulated or not. Notably, increasing investment in infrastructure and clean energy is being realised through Luxembourg fund vehicles which can be easily adapted.

Debt funds

Debt and credit funds are continuing their steady growth in Luxembourg thanks to the flexible legal and regulatory environment allowing them to implement all types of debt/credit strategies: mezzanine, distressed, including in particular origination, etc.

Luxembourg is strengthening its position as a key on-shore domicile for structuring debt funds: over 70 per cent of the top 30 debt fund managers worldwide are present in Luxembourg.

Cryptocurrency - Bitcoin

We see an increasing demand for a potential structuring of Luxembourg funds investing in the Cryptocurrency/Bitcoin sector. It is an interesting and challenging exercise to bring together on-shore market requirements and a dynamic and new asset class which functions very differently from the “traditional” alternative world. We are confident that the Luxembourg market will have a workable answer to this challenge.

Updated version of the regulators application form for the set-up of a fully licensed alternative investment fund manager

On 16 January 2018, the Commission de Surveillance du Secteur Financier (CSSF) published a revised version of its Application Questionnaire which needs to be filed when seeking authorisation of an alternative investment fund manager.

The Application Questionnaire includes, inter alia, the following:

  • Ownership and qualifying holdings: The repeal of CSSF Circular 09/392 has been taken into account by the CSSF and it has been replaced by CSSF Circular 17/669 adopting the joint guidelines of ESMA, EBA, and EIOPA on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector.
  • For self-managed AIFM and for existing Chapter 15 management companies applying for the AIFM license, the amount of the own funds must be at least equal to (a) 300,000 EUR plus 0.02 per cent of assets under management above 250 million EUR or (b) a quarter of the previous year’s general expenses, whichever is higher.


A draft bill of law has been introduced in Luxembourg on 6 December 2017 in order to implement the Fourth Anti-Money Laundering Directive (the AML Directive) into Luxembourg Law.

Further to this draft bill a register of beneficial owners (registre de bénéficiaires effectifs = REBECO) will be created. It is expected that the draft bill will be adopted around the end of Q1 2018.

Briefly, for every beneficial owner (BO) who directly or indirectly holds more than 25% in an entity the following information will need to be provided to the REBECO:

    • date and place of birth
    • nationality
    • private or professional address of residence
    • BO’s nature and extent of beneficial interests held in the relevant entity.

The information must be accurate, complete and up-to-date.

In practice, access to this information will be limited. The information contained in the REBECO will be made available electronically only to national competent public authorities, including but not limited to the prosecutor, the Commission de Surveillance du Secteur Financier (CSSF), the Commissariat aux Assurances (CAA) and tax administrations. Such electronic access is unrestricted.

Self-regulatory bodies (such as the Bar Council, Notary Chamber and the Institut des Réviseurs d’Entreprises) will also have limited electronic access to the REBECO. Such electronic access is only to be used within the strict context of their supervisory functions. Access is subject to the authorisation of the REBECO manager. Only partial information may be disclosed to these self-regulatory bodies.

Obliged entities (for instance credit institutions, professionals of the financial sector, insurance undertakings, UCITS management companies and AIFMs) will also have limited electronic access to the REBECO. Limited access will only be given where obliged entities are required to carry out client due diligence measures in relation to their clients.

Physical access may also be granted to any person or organisation that: (i) can demonstrate a legitimate interest in relation to anti-money laundering; (ii) is resident in Luxembourg; and (iii) has made an official written and duly justified request in this respect. Such access is subject to the prior approval of a formal commission created by the Minister of Justice.

Any subject entity may request a restriction of access to the REBECO where such access would expose the BO to a risk of fraud, kidnapping, blackmail, violence or intimidation, or where the BO is a minor or otherwise incapable.

Furthermore, criminal sanctions may be imposed on the self-regulatory bodies or on the obliged entities if they purposely access the REBECO outside the aforementioned circumstances.

PRIIP`s Regulation

On 25 October 2017, a draft bill of law adapting and completing Luxembourg law to the Regulation (EU) No 1286/2014 on key information documents (KIDs) on packaged retail and insurance-based investment products (PRIIPs) (the PRIIPs Regulation) and, inter alia, modifying the amended Luxembourg law of 17 December 2010 on undertaking for collective investment and the amended Luxembourg law of 7 December 2015 on the insurance sector, was lodged with the Luxembourg Parliament.

Regulation (EU) No. 1286/2014 on key information documents (KIDs) on packaged retail and insurance-based investment products (PRIIPs), which entered into force on 29 December 2014, applies since 1 January 2018.

From a legislative perspective, the draft bill of law specifies that the CSSF and the CAA will be the relevant competent authorities for the PRIIPs Regulation for, respectively, management/investment companies and insurance companies. They will have controlling powers as well as the power to impose fines. In addition to that, the draft bill of law states that the SICARs (Investment Company in Risk Capital) and investment funds other than UCITS are authorized to prepare a UCITS KIID provided they clearly state on the document that they are not subject to the UCITS Directive. In such cases, these entities and the persons who sell or provide advice on the units or shares of those funds or SICARs would benefit from the exemption contained in art. 32 of the PRIIPs Regulation and therefore, for the time being and until 31 December 2019 would not have to comply with the requirements of the PRIIPs Regulation.


A new draft bill N°7184 adapting and completing Luxembourg law to Regulation (EU) 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (GDPR) was lodged with the Luxembourg Parliament on 12 September 2017.

On 3 October 2017, the Article 29 Working Party adopted two new guidelines: the first one on data breach notification and another on automated individual decision-making and profiling.

The guidelines on data breach notification are a consequence of the requirement imposed by the GDPR to notify to the competent national supervisory authority (the CNPD in Luxembourg) any breach which is likely to result in a risk to the rights and freedoms of individuals and, in certain cases, to also notify the individuals whose personal data have been affected by the breach.

Such notification will be mandatory for controllers, but also for processors who will have to inform their controllers if there is a breach. Therefore, controllers and processors are encouraged in these guidelines to plan in advance and put in place processes to be able to detect and promptly contain a breach. Thus, these guidelines explain the steps controllers and processors can take to meet these new obligations.

Such a failure to report a breach should be taken seriously since it may lead to a sanction, including an administrative fine, the value of which can be up to EUR 10 million or up to 2 per cent of the worldwide annual turnover of the controlling entity.

As a consequence of advances in new technologies and the widespread availability of personal data on the internet, the Article 29 Working Party also decided to adopt guidelines on automated individual decision-making and profiling.

Automated individual decision-making and profiling are used in a large number of sectors, including in banking and finance, health, taxation, insurance, marketing and advertising.

The Article 29 Working Party recognises that there are two general benefits of these technologies: increased efficiencies and resource savings.

However, automated individual decision-making and profiling may also pose significant risks for individuals, which is the reason why the GDPR introduces new provisions to address these risks.

These guidelines clarify these new provisions and give good practice recommendations to the actors involved.

Taxes – Stock option plan

On 29 November 2017 the Luxembourg tax authorities issued a revised version of the Circular L.I.R. 104/2 (the Circular) depicting a favorable tax treatment for salaried Luxembourg tax payers (whether they are resident or non-resident) benefitting from stock option plans under the conditions contained therein. Download our tax newsletter to read the main amendments: Download newsletter

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