Back To Basics | Specialised Investment Fund ("SIF") In Luxembourg

This Back to Basics note follows our key concepts briefings, which intend to provide high-level insights regarding funds fundamentals, funds vehicles and operational considerations, available here.

What is a SIF?

The SIF is an investment fund that can invest in all types of assets as permitted under the law of 13 February 2007 (the SIF Law).

Following the law of 12 July 2013 on alternative investment fund managers (the AIFM Law), the SIF Law was divided in two parts, with provisions concerning general provisions applicable to all SIFs (Part I of the SIF Law) and specific provisions for SIFs that qualify as alternative investment funds (AIFs) (Part II of the SIF Law).

SIFs are funds that are regulated and subject to the prudential supervision of the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg supervisory authority. SIFs must be authorised by the CSSF before commencing their activity and are supervised by the CSSF on an ongoing basis.

Key features

Eligible investors:

SIFs are reserved for "well informed investors", who are:

• Institutional and professional investors (within the meaning Annex II to Directive 2014/65/EU); or
• Other investors which have stated in writing that they adhere to the status of well-informed investor and, either (i) invest a minimum of 100,000 Euros in the SIF or (ii) have been the subject of an assessment made by a credit institution, an investment firm or a UCITS management company or an authorised alternative investment fund manager (AIFM) certifying their expertise, experience and knowledge to adequately appraise the contemplated investment in the SIF.

Eligible assets:

There is no restriction on eligible assets for SIFs.

Corporate form and structuration of a SIF:

SIFs are open or closed entities which take the form of:

• Fonds commun de placement (FCP) or common contractual fund, which is a fund without legal personality managed by a Luxembourg management company.
• Société d'Investissement à Capital Variable (SICAV) or investment company with variable capital, in the form of a corporate entity (e.g. SA, SCA, Sàrl) or of a partnership with or without legal personality (SCS or SCSp).

SIFs can be formed as single funds or as umbrella structures with an unlimited number of ring-fenced sub-funds. Each sub-fund can have its own investment policy, specific features, governing rules or investment manager.

Set up:

The SIF may be set up as a partnership, a corporate company or an FCP further to the establishment or incorporation process of such entity (e.g. execution of a LPA, management regulations or incorporation of the company in front of a Luxembourg notary).

The SIF must establish an offering document which includes the information necessary for investors to be able to make an informed assessment of the investment and related risks.

The service agreements of the mandatory SIF's service providers (as set out below) must be effective as of the date of its establishment / incorporation.

A SIF must be approved by the CSSF and is under its permanent supervision through monthly and annual reporting. The approval triggers the entry of the SIF on the official list of SIFs held by the CSSF.

Capital requirements:

The net assets of a SIF may not be less than EUR 1,250,000, which must be reached within a period of twenty-four months following the authorisation of the SIF. Only 5% of the capital must be paid up on subscription.

Diversification:

A SIF cannot invest more than 30 % of its assets in securities of the same nature issued by the same issuer. Diversification rules do not apply to:

• Investments in securities issued or guaranteed by an OECD Member State or its regional or local authorities or by EU, regional or global supranational institutions and bodies; and
• Investments in target UCIs that are subject to risk-spreading requirements at least comparable to those applicable to SIFs.

SIFs may benefit from an initial ramp-up period to comply with the above risk-spreading rules.

Marketing:

A SIF only benefits from the European marketing passport to the extent that it falls under the scope of the full regime of the alternative investment fund managers directive (AIFMD).

Service providers:

SIFs must appoint several service providers, the main ones being as follows:

• a SIF qualifying as an AIF that is not self-managed and above the AIFMD threshold is required to appoint an authorised AIFM;
• a depositary having its registered office in Luxembourg or a branch in Luxembourg (if its registered office is in another Member State of the European Union) to ensure the safe keeping of its assets;
• an authorised independent auditor with appropriate professional experience must audit the annual report; and
• a central administrator which is located in Luxembourg;
• a portfolio manager in case of delegation by the AIFM.

Tax regime:

SIFs are not subject to Luxembourg corporate income tax, municipal business tax and net wealth tax but are subject to an annual subscription tax of 0.01 % on their net assets (calculated and payable on a quarterly basis). Some exemptions from subscription tax apply depending on the investment assets (e.g., assets invested in other Luxembourg UCIs subject to this subscription tax, investment in microfinance institutions and pension fund pooling vehicles).

SIFs under the form of a corporate entity are subject to 20% real estate tax on rental income and capital gains realized upon disposal of Luxembourg real estate assets and disposal of interests or units in Luxembourg tax transparent entities or mutual funds holding Luxembourg real estate assets. Distributions made by SIFs are not subject to withholding tax.

SIFs established under the form of a corporate entity may benefit from some tax treaties concluded by Luxembourg.

Management services rendered to SIFs are exempt from VAT.

In brief

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.