Set up a SICAV in Luxembourg
Updated on Thursday 09th November 2023
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The SICAV vehicle in Luxembourg refers to an investment company with variable capital, which has a legal personality. Businessmen interested in how to start a fund in Luxembourg as SICAV should know that this type of vehicle can be incorporated following the regulations applicable for Collective Investment in Transferable Securities (UCITS) or the ones regulating the Specialized Investment Funds (SIF). One of the main characteristics of the SICAV refers to the fact that its capital should always match the fund’s net assets.
Who can set up a SICAV in Luxembourg?
Even if it can be registered as any other legal entity in Luxembourg, the SICAV is employed by local and foreign professional investors interested in entering the financial market in the Grand Duchy. For this purpose, one must make sure he or she meets the eligibility criteria that apply to the type of fund to be created.
The SICAV can be used by any investor, as long as the UCITS regulations are respected.
Other aspects that should be considered about the SICAV are that:
- this type of entity is usually employed for investments in the fund’s share capital, in liquid financial assets, such as securities;
- also, allows investors to pool their investments in various assets, including in real estate;
- the fund created can also take the form of a securities or money market fund.
If you want to know more about how to start an investment fund in Luxembourg or any other jurisdiction in Europe or outside it, we have affiliates in some of the most attractive jurisdictions. Tehy can also offer guidance on starting a hedge fund in these countries.
Requirements to create a Luxembourg-based SICAV
There are several requirements to meet in order to create a SICAV in Luxembourg, among which:
- it must be incorporated in accordance with the requirements of the Company Law;
- for this purpose, it must have a legal address and management in Luxembourg;
- it must appoint a Luxembourg-based custodian bank.
Just like the SICAF company, the SICAV must also meet specific share capital requirements, and the minimum amount required is EUR 1.25 million. The amount must be deposited at once, but within 6 months after obtaining the license from the CSSF, in the case of UCITS funds. For SIF funds, the amount must be drafted within a maximum of 12 months from being acknowledged by the CSSF.
Also, a SICAV in Luxembourg is allowed to issue shares at any time, with the requirement that these shares have a higher value than the fund’s net assets. When registered as a UCITS, this legal form can only be used by qualified investors.
One of the main requirements to create a SICAV is to appoint a custodian with the purpose of ensuring the integrity of Luxembourg’s fund income and its use for the purpose mentioned in the Articles of Association. Also, the custodian will make sure the shareholders’ interests are protected.
If you need more information on the requirements associated with starting a hedge fund in Luxembourg, our local partners can offer detailed information.
Conditions and documents required to set up a SICAV in Luxembourg
There are several conditions to be met when establishing a SICAV in the Grand Duchy. Among them:
- the assets in the SICAV must be worth at least EUR 5 million;
- the legal status of the business must be specified in the company name or abbreviated as SICAV;
- the shares of the company and the investors must be freely transferable and have no nominal value;
- the capital will be paid up in full in cash.
It must be demonstrated to the notary that a minimum capital of EUR 30,000 was blocked on the SICAV's account at the time of its incorporation for UCITS set up in the form of a SICAV. Such a barrier for self-managed SICAVs is set at EUR 300,000.
It is also necessary to define the investment rules utilized by the SICAV. The entity can be self-managed, or it can use external management. Self-managed SICAVs are permitted to handle their own administration and assign portfolio management responsibilities. SICAVs that are externally managed can delegate administration and portfolio management tasks. The management of funds and/or sub-funds must be the only purpose of the SICAV.
Local and foreign investors setting up SICAV companies in Luxembourg must first incorporate the legal entity with the Trade Register followed by obtaining approval from the CSSF.
The following are the principal documents that must be submitted to the CSSF for approval:
- the company’s prospectus;
- the Articles of Incorporation for the SICAV;
- agreements with the major service providers (the depositary, the investment manager, and, if applicable, investment advisors);
- proof of appointing an independent auditor;
- information on the potential board of directors;
- a business plan.
If the SICAV is used to launch an UCITS fund in Luxembourg, there should be a minimum of 3 directors, each of which must have the necessary qualifications.
If you want to find out how to start an investment fund in Luxembourg under this structure, our affiliates in the Grand Duchy can advise you.
Main characteristics of the Luxembourg SICAV
The SICAV in Luxembourg is incorporated as a limited liability company, but the legal structure is not considered a commercial company and thus, the vehicle is to be registered with the Commission du Surveillance de Secteur Financier (CSSF), the main institution regulating and supervising the activity of the investment vehicles incorporated in this jurisdiction.
You can also read in our magazine about the requirements for hedge fund startups in various countries.
SICAV funds in Luxembourg
The SICAV is not used in Luxembourg only, as it is employed in most European countries, especially in EU countries, as it can be divided into:
- harmonized funds;
- non-harmonized funds.
The first type of funds meets the requirements of the EU UCITS Directive and can be marketed in all EU countries, while the second one, cannot be marketed freely. However, they can apply for specific licenses to operate in the desired jurisdictions.
The SICAV in Luxembourg can also be used for the creation of umbrella, independent, and retail funds.
If you want to find out more about how to start a hedge fund, and the legal entity suitable for such a fund, our affiliates can advise you.
Comparison between the SICAV and SICAF in Luxembourg
SICAVs and SICAFs are frequently compared. SICAFs resemble closed-end funds in the United States. SICAFs have a set number of shares and are traded on public market exchanges.
The cross-border marketing of UCITS structured as SICAVs is usually used in Europe. They are among the most frequently traded investment instruments in Europe. Such funds are traded on stock exchange markets.
This business form can also be used for a hedge fund startup in Luxembourg.
Taxation of SICAV in Luxembourg
Investors interested in how to start an investment fund in Luxembourg as a SICAV vehicle will be exempted from paying certain corporate taxes, as follows:
• corporate income tax;
• capital gains tax;
• withholding tax.
Although the SICAV is incorporated as a company, it will be treated following the regulations applicable to investment funds. In this sense, it is important to know that the vehicle will be liable to paying the annual subscription tax, which is imposed at the rate of 0,05% of the fund’s net assets.
Foreign businessmen who want to register a SICAV should know that if the fund will be regulated following the rules applicable to UCITS, there will be no restrictions related to the company’s investors.
However, in the case of SICAVs registered under the SIF regulations, the company’s investors can only be represented by qualified investors.
The investment market available in Luxembourg provides the same rights for foreign businessmen as the ones available for the local investors. Thus, businessmen may set up a hedge fund startup or a SICAV/ SICAF vehicle, or another type of business form.
The SICAV may set its investment operations as one of the following:
• security funds;
• real estate funds;
• money market funds;
• holding funds.
Why open an investment fund under a SICAV in Luxembourg?
With more than USD 5 trillion in assets under administration, Luxembourg is the second-largest fund market in the world behind the United States of America. The following factors have contributed to the growth of the Luxembourg funds market:
- political and social system stability;
- favorable industry regulation and simplified taxation;
- high level of internationalization and great professional concentration in the financial sector;
- specialization in the distribution of funds internationally.
Our partners in Luxembourg can also advise on how to start a hedge fund.
If you are interested in another jurisdiction outside Europe, we also have extensive information about the Cayman Islands in our articles. In many of them, you can read about the Special Purpose Company (SPC) in the Caymans.
Statistics on investment funds in Luxembourg
UCITS and AIF are the most important types of investment funds in Luxembourg. According to data compiled here:
- in 2022, Luxembourg held the largest market share of investment funds in Europe, representing 26.3% of the total number of funds;
- the net value of assets held by Luxembourg non-UCITS funds in the last quarter of 2022 was EUR 7,142 billion;
- the net value of assets held by UCITS funds during the same timeframe was EUR 11,951 billion.
Using the SICAV in Luxembourg to create an investment fund comes with various advantages, among which are also tax-related ones.
Our team of affiliates in Luxembourg can provide more details on the SICAV legislation. Please contact our partners for assistance on this matter.