Consider certain aspects on the tax environment for Luxembourg funds.

Introduction of the RAIF one year ago, market position of Luxembourg and political agenda: Jacques Elvinger, partner at Elvinger Hoss Prussen, shares his views on the Luxembourg asset management industry.

RAIF, a competitive advantage for Luxembourg?

As per the official list of RAIFs published by the registrar of companies, about 50 RAIFs have been set up since the coming into force of the RAIF Law in July 2016. It is interesting to see that the RAIF structure is used across all asset classes ranging from plain vanilla securities strategies to debt funds, infrastructure funds, real estate funds and private equity funds, some of which are structured as master funds, others as feeder funds. This clearly demonstrates that there is a demand for a fully AIFMD-compliant AIF that, by contrast to the SIF, is not subject to direct supervision by the CSSF.

The RAIF should not, however, be considered as the only recent innovation that has attracted significant interest: although there are no official figures available, practitioners will confirm that the legal structure of the special limited partnership (SLP) introduced into Luxembourg law in 2013, being similar in structure to the Anglo-Saxon LP and characterised by freedom and flexibility in its structure, has become the legal structure of choice for structuring AIFs by asset managers that so far predominantly used offshore fund structures.

The manager or its investor can choose to structure the SLP as a SIF, a SICAR or a RAIF; or it can only be subject to Luxembourg company law, in which case – and in the same way as the RAIF - it is not subject to CSSF supervision.

How to retain the leading position in the asset management world?

There have been discussions, for quite some time already, between industry practitioners and the authorities to create a dedicated ELTIF regime (in accordance with the relevant EU regulation on ELTIFs), as well as a specific Luxembourg regime for real estate funds (L-REITS) to promote and create visibility as regards the possibility to create Luxembourg AIFs in relation to these asset classes. The current Luxembourg tool box already allows the creation of real estate and infrastructure funds but a specific legal framework for ELTIFs and L-REITS with an appropriate tax regime would increase the competitiveness of Luxembourg in this area and the authorities should be encouraged to pursue these initiatives.

More generally, certain aspects on the tax environment for Luxembourg funds should be reconsidered to increase our competitiveness in relation to certain types of funds compared to other jurisdictions. Overall tax rates, VAT on directors’ fees, the taxe d’abonnement regime and increased access to double tax treaties are some of the issues that have been raised for discussion and should be further revisited in an ever increasingly competitive environment.

Political developments in EU

Following the UK’s EU referendum of 23 June 2016, a number of asset management groups have started taking actions or are seriously considering extending the activities of their existing management companies or creating management companies in Luxembourg to provide cross-border services. In the alternative space, a number of managers have announced their plans to create an AIFM and AIFs in Luxembourg. Some have been using Luxembourg in the past for structuring their acquisition vehicles and now recognise that by using Luxembourg as a domicile for both their AIFs and their AIFM they will be reinforcing substance and strengthening their tax situation.

Generally, they aim at delegating part of those services to their operations in the UK or other jurisdictions to minimise disruption from the way in which they currently operate. These plans require having an appropriate organisational structure and human and technical resources in place in Luxembourg, but they can certainly avoid the need to relocate substantial resources from the UK or other jurisdictions to Luxembourg.

So, yes, this creates opportunities for Luxembourg in an environment which we would certainly have preferred not to have arisen, but it provides solutions that are looked at favourably by UK asset management groups.