Setting up a real estate fund in Luxembourg provides a wide set of advantages, the first being that the investment vehicle will be incorporated in one of the leading financial markets in Europe and in the world. Our team of financial experts can help investor with legal advice and legal representation in the steps of opening a Luxembourg fund. Those who want to register a real estate fund can also be represented in all the incorporation steps. We can also help you open a SPF in Luxembourg. Additionally, our clients can rely on us for private equity in Luxembourg and wealth management.
| Quick Facts | |
|---|---|
| What are real estate funds? | Real estate funds in Luxembourg are incorporated for the purpose of investing in various real estate projects. |
|
Suitable vehicles for real estate funds |
Non-regulated and regulated vehicles |
|
Types of investors |
Institutional, professional and private investors |
| Types of investment funds suitable for real estate funds | Real estate funds in Luxembourg can be incorporated under various regulated structures, such as: SICAV, SICAF, FCP, SICAR, SIF. |
| Commercial companies suitable for real estate funds |
Commercial companies (also known as unregulated structures) suitable in this case can be: the public limited liability company, the private limited liability company, the special limited partnership. |
| Institution in charge with supervising real estate funds |
Luxembourg Financial Supervisory Authority (CSSF) |
| Duration of the registration process |
2 – 4 weeks |
| Passporting available (yes/no) |
Yes |
| Appointing AIFM (Alternative Investment Fund Manager) |
Real estate funds in Luxembourg can be managed by an AIFM. |
| Can real estate funds benefit from the provisions of the double tax treaties signed by Luxembourg? | Yes, but this depends on the structure under which the fund was incorporated. |
| Most popular structure selected for incorporation |
SIF (accounting for more than 55% of all Luxembourg-based real estate funds) and RAIF |
| Central administration |
Must be registered in Luxembourg. |
| Multiple compartments option |
Real estate funds can be incorporated as a single or multiple compartment structure. |
| The main advantage of multiple compartment funds |
They can carry out different investments at the same time, with different investment policies, even though all compartments are part of the same legal entity. |
| Place of taxation of real estate assets | In principle, real estate assets are taxed following the tax principles in the countries where the said assets are physically located. |
What are the main vehicles for real estate funds in Luxembourg?
One of the first steps in opening a Luxembourg fund as a real estate fund is to decide on the legal entity under which the fund will operate. This is a crucial aspect as this can influence the legislation which regulates the respective type of fund, as well as the tax obligations of the fund’s representatives.
In the case of real estate funds, the legislation is actually very flexible, as investors can register the fund as a commercial company, regulated by the commercial legislation applicable in this country (also referred to as a non-regulated entity), or as an investment fund that is regulated by the Luxembourg Financial Supervisory Authority (CSSF).
The decision of opening an investment fund in Luxembourgas a non-regulated entity or as a regulated entity relies in the capital requirements and the ability of the investors to raise the required capital following the applicable method for the selected entity, and the type of investors that can invest in a particular type of fund.
There are three basic categories – institutional investors, professional investors and private investors. The tax aspects applicable to a structure are also important, as well as other relevant matters, which can be presented by our team of financial representatives.
Those who want to register a real estate fund can open a SICAV in Luxembourg (which refers to an investment company with variable capital) or a SICAF (an investment company with fixed capital). This type of vehicle can take the form of a common fond as well. Investors also have the possibility or registering a SIF in Luxembourg or a SICAR (a risk capital investment company).
For entities that are included in the non-regulated structures, investors have the possibility of incorporating the company as a private limited company or as a public limited company. Other legal entities are available and you may find out more information on how to register any of the business forms available for real estate funds in Luxembourg from our team of financial experts.
What is the level of investments in real estate funds in Luxembourg?
Being one of the key players of the financial sector at a global level, Luxembourg also stands out as one of the most competitive markets regarding the investments concluded by real estate funds. Those who want to register an investment fund in Luxembourg as a real estate fund should know that the results of such funds incorporated as reserved alternative investment funds (RAIFs) increased at a rapid pace, as follows:
- RAIFs incorporated in Luxembourg that make their investments in real estate projects increased from 27 funds in 2018 to 63 funds in 2019, marking an increase of 133%;
- the assets under management of real estate funds in Luxembourg accounted for EUR 82.2 billion in the 3rd quarter of 2019 (this refers to regulated structures, which fall under the supervision of the CSSF);
- compared to the 3rd quarter of 2018, this marked an increase of EUR 12.4 billion, when the value of assets under management was of EUR 69.84 billion;
- the RAIF was introduced in Luxembourg in 2016 and, since then, it became increasingly attractive to foreign investors;
- currently, approximately 18% of the investors opening a Luxembourg fund as a real estate fund prefer this structure.
It must be noted that investments in real estate funds have been constantly increasing in Luxembourg in the last years, as it is shown in a study carried out by the Association of the Luxembourg Fund Industry (ALFI).
ALFI carries out yearly surveys with the representatives of real estate investment funds (REIFs) operating in this country. In 2023, a total of 85 new REIFs were added to the panel, reaching an overall number of participants to 706 entities.
The study carried out in 2023 revealed that the usage of the RAIF in Luxembourg for real estate investments is gradually increasing (for instance, from the total number of funds, 215 were incorporated as RAIFs, compared to 2018, when there were only 27 such funds and compared to 2016, the year when this type of fund was created, when there was just 1 fund).
Please know that REIFs are different from a REIT in Luxembourg (real estate investment trust). Currently, Luxembourg does not provide for a specific legislation regulating the existence of REITs, therefore investors have to explore the other options presented in this article.
The purpose of a REIT is to regulate the manner in which real estate investments can be made on domestic on foreign markets, while establishing certain rules concerning the taxation of this type of activity.
Although the REIT regime exists in other countries, foreign investors seeking to expand their current REIT in Luxembourg (real estate investment trust) must seek for suitable alternatives, and the Luxembourg law provides for many options in this sense.
A foreign REIT in Luxembourg can opt to set up a specialized investment fund for the purpose of holding real estate property. The SIF in Luxembourg is a structure that needs approval from the CSSF, and the approval is, in general, a process that can take a lot of time to complete.
Therefore, investors have the possibility to launch a RAIF in Luxembourg that will act similarly to a real estate investment trust and which does not need an approval from CSSF. Please know that investors have the possibility to change the RAIF into a SIF at a later point in time, when the fund’s activities expand.
Therefore, investors who want to expand an investment activity involving a foreign REIT in Luxembourg can use these structures, along with the local legislation and the double tax treaty network available in this country. We invite you to watch the following video presenting how to open a real estate fund in Luxembourg:
Luxembourg – UK double tax treaty
Please mind that Luxembourg has recently signed a treaty for the avoidance of double taxation with the United Kingdon (UK), a document that has partially entered into force starting with 1 January 2024 for the income withheld at source.
Starting with April 2024, other provisions of the treaty will enter into force (capital gains taxation matters). This document is important as investors who want to develop real estate activities through their foreign REIT in Luxembourg (the REIT regime exists in the UK) will have certain tax obligations.
For instance, in this particular case, UK investors can be liable for the payment of a 15% withholding tax on their real estate investments. Our team of financial advisors can offer further information concerning other stipulations arising from the new double tax treaty.
Therefore, those who want to open investment funds in Luxembourg may need to comply with new tax regulations appearing from these tax agreements, provided that the funds are entitled to the provisions of such treaties.
How long does it take to register a real estate fund in Luxembourg?
The process of opening an investment fund in Luxembourg depends on the nature of the fund, the type of licenses it needs and numerous other legal aspects. When we refer to real estate funds that are incorporated as non-regulated entities, meaning that they are registered as commercial companies, the registration procedure can last approximately two weeks.
If the investors opt to open a Luxembourg fund as a regulated vehicle, which is supervised by the CSSF, the registration can last up to four weeks, as different types of documents have to be prepared and approved by the institution.
For an extensive presentation on how to register a real estate fund in Luxembourg, we invite you to address to our team of financial experts, who can help you select a suitable business form that is tailored to your investment plans. Foreign investors can set up a RAIF in Luxembourg when investing in this field, as the RAIF can establish its investments in all types of assets.
The fund must be incorporated by investors who have an in-depth knowledge of financial markets and understand the risks associated with a particular investment. They must also raise the necessary capital and pay the subscription tax on yearly basis.
We invite you to contact us if you want to register other types of funds, such as the SOPARFI in Luxembourg or the SICAR in Luxembourg – you can obtain professional incorporation services and tax assistance.