Setting Up an Luxembourg digital asset fund setup

Luxembourg digital asset fund setup is a global leader in investment funds, managing over EUR 5 trillion in assets and serving as the premier hub for cross-border fund distribution. Its flexible structures, tax efficiency, and robust regulatory framework make it ideal for funds targeting equities, bonds, private equity, real estate, or alternative assets like digital currencies. This guide outlines the essential steps, fund types, costs, and considerations for establishing an investment fund in Luxembourg.

Why Luxembourg?

• Global Reach: Funds are distributed in over 70 countries, with UCITS and AIFMD passports enabling EU and global marketing.
• Flexible Vehicles: Options include regulated UCITS and SIFs, lightly regulated RAIFs, and unregulated SCSps.
• Tax Benefits: Exemptions on capital gains and income taxes, with a low subscription tax (0.01%–0.05% of AUM).
• Regulatory Clarity: The CSSF ensures investor protection while fostering innovation.
• Expert Ecosystem: Access to multilingual lawyers, auditors, and fund administrators.

Fund Structures

Luxembourg offers tailored fund vehicles for various strategies and investor types:

1. UCITS:
   • Regulated fund for retail investors, focusing on liquid assets (e.g., stocks, bonds).
   • CSSF approval required (2–3 months). Structured as SICAV or FCP.
   • EU marketing passport via UCITS Directive. Requires depositary and audits.
   • Best for retail funds with broad distribution goals.
2. Special Limited Partnership (SCSp):
   • Unregulated, tax-transparent partnership for alternative investments.
   • Setup in 1–2 weeks, no CSSF approval. Requires one GP and one LP.
   • AIFM needed if AUM > EUR 100 million. No diversification rules.
   • Ideal for private equity, real estate, or digital assets.
3. Reserved Alternative Investment Fund (RAIF):
   • Lightly regulated fund for professional investors, managed by an AIFM.
   • Setup in 2–4 months. Structured as SICAV, FCP, or SCSp, often with sub-funds.
   • AIFMD passport for EU distribution. 0.01% subscription tax.
   • Suits alternative assets like hedge funds or tokenized securities.
4. Specialized Investment Fund (SIF):
   • Regulated fund for qualified investors, covering diverse assets.
   • CSSF approval (1–2 months). SICAV, SICAF, or FCP, with diversification (no asset >30% AUM).
   • 0.01% subscription tax. Requires depositary.
   • Fits institutional investors seeking regulation.
5. Investment Company in Risk Capital (SICAR):
   • Regulated vehicle for venture capital or private equity.
   • CSSF approval (1–2 months). No diversification requirements.
   • No subscription tax for high-risk investments.
   • Best for high-risk, high-reward strategies.

Setup Process

1. Define Strategy:
   • Specify asset class (e.g., equities, digital assets) and investor type (retail, professional).
   • Choose structure: UCITS for retail, RAIF/SCSp for alternatives, SIF for regulated flexibility.
2. Select Legal Form:
   • SICAV: Variable capital, corporate governance.
   • SICAF: Fixed capital, less common.
   • Parcelable: Contractual fund, cost-effective.
   • SCSp: Tax-transparent partnership.
3. Appoint Service Providers:
   • AIFM: For RAIFs or AUM > EUR 100 million (EUR 10,000–20,000/year).
   • Depositary: Mandatory for UCITS/SIFs, safekeeps assets.
   • Administrator: Manages NAV, investor onboarding, reporting.
   • Legal Counsel: Drafts prospectus or LPA.
   • Auditor: Ensures financial compliance for regulated funds.
4. Ensure Compliance:
   • Register with CSSF for UCITS, SIFs, or SICARs.
   • Comply with AIFMD for alternative funds (risk management, Annex IV reporting).
   • Implement AML/KYC processes and GDPR for investor data.
   • Adhere to SFDR for ESG-focused funds.
5. Incorporate Fund:
   • For SICAV/SICAF, notarize incorporation and deposit capital (e.g., EUR 1.25 million for UCITS).
   • For SCSp, file LPA with the Luxembourg Trade Register. No minimum capital.
   • Open a bank account (2–4 weeks).
6. Launch and Market:
   • Onboard investors with AML/KYC checks.
   • Distribute via UCITS/AIFMD passports or private placement.
   • Maintain ongoing compliance (CSSF reporting, audits).

Costs and Timelines

• Setup Costs:
  • SCSp: EUR 25,000+ (legal, incorporation).
  • RAIF: EUR 50,000–100,000 (AIFM, legal).
  • SIF/SICAR/UCITS: EUR 100,000+ (CSSF, compliance).
• Annual Costs:
  • AIFM: EUR 10,000–20,000.
  • Depositary/admin: Varies by AUM.
  • Subscription tax: 0.01%–0.05% AUM (exempt for some SICARs).
• Timelines:
  • SCSp: 1–2 weeks.
  • RAIF: 2–4 months.
  • SIF/SICAR/UCITS: 2–6 months.

Key Considerations

• Cost Trade-Off: Higher costs than offshore jurisdictions (e.g., Cayman Islands) but offset by EU access and credibility.
• Regulatory Rigor: CSSF oversight for regulated funds requires robust compliance.
• Provider Expertise: Select experienced AIFMs and administrators to streamline setup.
• Investor Appeal: Luxembourg’s reputation attracts institutional capital but demands high governance.

Conclusion

Luxembourg’s flexible fund structures, tax advantages, and global distribution make it a top choice for investment funds. From retail UCITS to alternative RAIFs and SCSps, fund managers can tailor solutions to their strategies. By engaging expert providers and navigating CSSF and EU regulations, you can establish a fund that leverages Luxembourg’s position as Europe’s fund capital