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Alternative Investment Funds

Luxembourg legal entities and vehicles
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Alternative Investment Funds (AIFs)

Alternative Investment Funds (AIFs) are investment vehicles that pool funds from investors to invest in assets beyond traditional options like stocks, bonds, or cash. These funds typically include private equity, hedge funds, real estate, venture capital, and other non-traditional investments. AIFs are often favoured by high-net-worth individuals and institutional investors seeking diversification, higher returns, or exposure to niche markets. They are subject to specific regulations and may involve higher risks than conventional investments, making them suitable for well-informed and professional investors with an increased willingness to take risks.

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Other Luxembourg fund options
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Luxembourg continues to be unparalleled in offering sophisticated, flexible, and globally recognised fund structures. Whatever your investment strategy, Luxembourg provides the flexibility, security, and credibility to support your ambitions.

Luxembourg offers a range of flexible investment fund structures designed to establish Alternative Investment Funds (AIFs) efficiently. The following investment fund structures are often used to establish AIFs.

Funds regulated and authorised by the CSSF

Part II Funds

Part II Undertakings for Collective Investment (UCIs) are regulated investment fund vehicles under Part II of the Luxembourg Law of 17 December 2010 (funds governed by Part I of the same law are UCITS, see below). They are primarily intended for offering to non-retail and retail investors on a cross-border basis (subject to local rules where retail investors are targeted). These funds provide a broad investment scope while subject to diversification requirements, regulatory supervision by the CSSF.

Investment options

Part II Funds can invest in a wide array of asset classes, including transferable securities, money market instruments, real estate, private equity, infrastructure, derivatives, and other alternative assets, depending on their strategy and offering documentation.

Flexibility

While subject to more prescriptive diversification requirements than SIFs, Part II Funds offer structural flexibility, including the possibility of open-ended or closed-ended formats, umbrella structures with multiple sub-funds, and tailored investment strategies.

Management

Part II Funds are generally considered alternative investment funds (AIFs) within the meaning of the AIFMD and must therefore be managed by an authorised or registered AIFM. They may be self-managed or managed by a third-party management company authorised under Chapter 15 of the 2010 Law, provided such entity also fulfils the requirements of the AIFMD. In practice, the appointment of a fully authorised AIFM is generally preferred, particularly where cross-border distribution is envisaged.

Marketing

Part II Funds offer an attractive distribution profile, as they may be made available to retail investors in Luxembourg and in a number of other jurisdictions, subject to applicable local regulatory requirements. While they do not benefit from a harmonised EU passport for retail distribution, Part II Funds managed by a fully authorised AIFM may benefit from the AIFMD marketing passport when marketed to professional investors across the European Union.

Taxation

A Part II is exempt from corporate income tax and net wealth tax in Luxembourg. However, it is subject to an annual subscription tax (taxe d’abonnement) at a rate of 0.05% (which can be reduced in certain circumstances to 0.01%) on its net asset value, calculated quarterly. Certain investments, such as holdings in other Luxembourg funds or money market instruments, may be exempt from this tax. There is no withholding tax on distributions made by to investors, regardless of their residency. In addition, management services provided to the fund are typically exempt from VAT.

Specialised Investment Funds

Specialised Investment Funds (SIFs) are a type of investment fund designed for well-informed investors. They offer flexibility in investment strategies and tax benefits. SIFs are primarily targeted at "well-informed investors" who can assess the risks involved in such investments. SIFs are unrestricted as to the assets in which they can invest and, as a principle, have to comply with certain principle-based diversification requirements.

Investment options

They can invest in a wide range of investment opportunities.

Regulation

SIFs are regulated by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg financial sector supervisory authority and are subject to the Luxembourg law of 13 February 2007 (SIF law). Under the SIF Law, the structure is divided into Part I and Part II, offering tailored solutions for various investor profiles and regulatory needs.

Part I SIFs are ideal for family funds, discretionary managed accounts, or funds managed by sub-threshold/registered AIFMs. These structures are not subject to the full scope of AIFMD, offering an efficient and discreet setup for well-informed investors who value control and simplicity.

Part II SIFs are for managers aiming to scale across Europe and beyond. They offer a fully AIFMD-compliant solution. These funds must be managed by a fully authorised Alternative Investment Fund Manager (AIFM) and adhere to all the operational, risk management, and transparency standards required under European law.

Part II SIFs provide investor confidence through enhanced governance, oversight, and reporting while granting passporting rights. These rights enable managers to market their funds across the European Economic Area (EEA) without needing separate regulatory approval in each country.

Marketing

SIFs that have appointed authorised European Union (EU) Alternative Investment Fund Managers (AIFM) can market their shares, units or partnership interests via the AIFMD marketing passport to EU/EEA Professional Investors across the EU.

Risk diversification

SIFs are subject to mandatory risk-spreading requirements, with concentration limits typically allowing exposure of up to 50% of the fund’s assets or commitments to a single investment, or up to 70% in the case of infrastructure investments, subject to the fund’s investor base and any CSSF-approved derogations.

Taxation

A SIF is exempt from corporate income tax and net wealth tax in Luxembourg. However, it is subject to an annual subscription tax (taxe d’abonnement) at a rate of 0.01% on its net asset value, calculated quarterly. Certain investments, such as holdings in other Luxembourg funds or money market instruments, may be exempt from this tax. There is no withholding tax on distributions made by to investors, regardless of their residency. In addition, management services provided to the fund are typically exempt from VAT.

Risk capital investments

A Société d'investissement en capital à risque (SICAR) is specifically designed for investing in risk capital investments, meaning investments that contribute to the launch, development or expansion of target companies. These may include equity, quasi-equity or certain debt instruments, provided they are consistent with a value-creation and exit-driven strategy, as defined under the SICAR Law and clarified by the CSSF). SICARs are typically marketed to "well-informed investors" who understand the risks associated with this type of investment.

Investment options

SICARs are intended for investments in risk capital, meaning they focus on assets with higher risk profiles, such as private equity and venture capital.

Flexibility

SICARs are not subject to strict risk-spreading requirements, which allow them to concentrate investments in a single company or asset.

Regulation

SICARs are regulated investment vehicles in Luxembourg, meaning they are subject to oversight from the Commission de Surveillance du Secteur Financier (CSSF).

Marketing

SICARs that have appointed a European Union (EU) Alternative Investment Fund Managers (AIFM) can market their shares or partnership interests via the AIFMD passport to Professional Investors across the EU.

Taxation

The SICAR investing only in risk capital is fully subject to Luxembourg corporate income tax, municipal business tax, and net wealth tax. However, its structure offers significant tax advantages. Income derived from securities, as well as capital gains realised on the disposal of securities, is fully exempt from corporate income tax. This exemption applies regardless of whether the securities are held in Luxembourg or foreign entities, and no minimum holding period or participation threshold is required to benefit from this exemption.

European Long-Term Investment Fund 2.0

European Long-Term Investment Fund (ELTIF) is EU label and regime which may apply to investment vehicles designed to channel investments into long-term projects like infrastructure, real estate, and private equity. In addition to being subject to any of the above product laws (Part II Fund, SIF or SICAR) the fund can also be authorised by the CSSF to bear the ELTIF label.

Key Features of ELTIF 2.0

  • Wider investment scope: Expanded eligible assets now include listed SMEs, green infrastructure, securitisations, fintech, and more.
  • Flexible retail access: ELTIFs are now open to both professional and retail investors (subject to conditions), with relaxed entry thresholds and simplified disclosures.
  • Liquidity enhancements: New rules allow redemption mechanisms, enabling semi-liquid or evergreen ELTIF structures.
  • Passporting power: Fully AIFMD-compliant, ELTIFs benefit from EU-wide marketing rights, supporting capital raising across the bloc.
  • Regulatory clarity: Streamlined portfolio composition rules reduce constraints on diversification, leverage, and concentration, increasing structuring efficiency.
  • Promotes private capital participation in real assets, innovation, and economic resilience.

Funds not regulated and authorised by the CSSF

Such funds are not subject to prior product authorisation by the CSSF, allowing for a significantly faster time-to-market.

Reserved Alternative Investment Fund

A Fonds d'investissement alternatifs réservé (RAIF) is an investment fund structure designed for professional investors seeking a flexible and efficient way to invest in alternative assets. RAIFs are primarily aimed at institutional, professional, and sophisticated retail investors. RAIFs are unrestricted as to the assets in which they invest and, as a principle, must comply with certain diversification requirements (with certain exceptions).

Investment options

RAIFs can invest in a wide range of asset classes, including real estate, private equity, infrastructure, debt, and listed securities.

Flexibility

They offer flexibility in structuring and are not subject to the same level of direct regulatory supervision as other Luxembourg fund types.

Management

RAIFs must be managed by an authorised Alternative Investment Fund Managers (AIFMs), which is subject to regulatory oversight.

Diversification

A RAIF-SIF-like structure refers to a Reserved Alternative Investment Fund that mirrors the characteristics of a Specialised Investment Fund (SIF), focusing on risk-spreading across a diversified portfolio of assets. It is suitable for alternative strategies such as hedge funds, private debt, infrastructure, or real estate, where diversification is key. This type of RAIF must comply with the risk-spreading principles akin to those applicable to SIFs, though it is not directly supervised by the CSSF.

In contrast, a RAIF-SICAR-like structure replicates the features of a Société d’Investissement en Capital à Risque (SICAR), designed specifically for private equity and venture capital investments. It does not require risk diversification, making it ideal for investors targeting single or concentrated investments in unlisted companies or projects. Like all RAIFs, it must be managed by an authorised AIFM, but benefits from greater flexibility regarding investment concentration.

Both structures benefit from the RAIF regime's fast time-to-market and EU marketing passport, while their classification—SIF-like or SICAR-like—determines the applicable investment and diversification rules depending on the fund’s strategy.

Taxation

A RAIF-SIF-like fund is exempt from corporate income tax and net wealth tax in Luxembourg. However, it is subject to an annual subscription tax (taxe d’abonnement) at a rate of 0.01% on its net asset value, calculated quarterly. Certain investments, such as holdings in other Luxembourg funds or money market instruments, may be exempt from this tax. There is no withholding tax on distributions made by the RAIF to investors, regardless of their residency. In addition, management services provided to the fund are typically exempt from VAT.

By contrast, a RAIF-SICAR-like fund is subject to corporate income tax at standard rates (approximately 23.87% in Luxembourg City). However, income and capital gains derived from qualifying private equity investments are exempt from taxation. This means the fund is only taxed on income that does not fall within the scope of eligible private equity activities. The RAIF-SICAR-like structure is not subject to the subscription tax, and like the RAIF-SIF-like, it also benefits from exemptions from net wealth tax and withholding tax on distributions. Management services are likewise VAT-exempt.

In summary, the RAIF-SIF-like offers a lighter overall tax burden through exemptions and a modest subscription tax, while the RAIF-SICAR-like provides favourable treatment for private equity investments by exempting qualifying income and capital gains from taxation altogether, without being subject to the subscription tax.

European Venture Capital Fund

An European Venture Capital Fund (EuVECA) fund refers to a venture capital fund established in Luxembourg that utilises the European Venture Capital Fund label. These are commonly setup as RAIFs or SLP. This label allows managers of qualifying venture capital funds to market their funds across the European Union using a passporting system, while also benefiting from certain exemptions from the more stringent AIFMD rules.

EuVECA Label

The EuVECA label is a voluntary EU-wide marketing passport for qualifying venture capital funds.

Investment options

EuVECA funds primarily invest in small and medium-sized enterprises (SMEs), including startups and early-stage companies.

Regulation

While EuVECA funds benefit from some exemptions from the AIFMD, they still need to be managed by an authorised or registered Alternative Investment Fund Managers (AIFMs).

Marketing

The EuVECA label provides managers with a passport to market their funds to eligible investors across the European Union.

European Social Entrepreneurship Fund

An European Social Entrepreneurship Fund (EuSEF) is a European Union label for investment funds that focus on supporting social businesses and enterprises with a primary objective of achieving measurable social impact. These are also commonly setup as RAIFs or SLPs.

Investment options

EuSEFs are designed to channel investment into businesses that aim to generate positive social outcomes alongside financial returns. They primarily invest in small and medium-sized enterprises (SMEs) that are not listed on a regulated market.

Regulation

Compared to other investment funds, EuSEFs benefit from a more streamlined regulatory framework, making it easier for fund managers to operate and attract investors. Participation in the EuSEF framework is optional for fund managers in the European Economic Area (EEA) who manage funds below a certain size.

Marketing

These funds can be marketed across the European Union and benefit from a lighter regulatory regime compared to some other investment funds.

Boosting Social Entrepreneurship

The EuSEF framework is intended to boost the social investment market and support the growth of social enterprises by facilitating access to finance.

AIF not subject to a product law but with EU Passporting Power, Luxembourg partnerships

A Luxembourg Alternative Investment Fund (AIF) that is not subject to a specific product law—such as the Part II UCI regime, SIF Law, SICAR Law, or RAIF law—offers sponsors the highest degree of flexibility in structuring their investment vehicles. These AIFs are typically structured as a Société en commandite spéciale (SCSp), in English Special Limited Partnership (SLP), are not required to comply with diversification, asset eligibility, or CSSF product-level approval rules. Instead, they rely on the regulatory supervision of their authorised Alternative Investment Fund Manager (AIFM) under the AIFMD.

However, unlike RAIFs (and Part II Funds, SIFs SICARs) such partnership structures do not offer the ability to create segregated compartments.

AIFM Marketing Passport – Seamless EU Distribution

Even though the AIF itself is not product-regulated, it benefits from cross-border marketing rights through its authorised EU AIFM. Under the AIFMD marketing passport, the AIFM can market the fund’s shares, units, or interests to professional investors across the EEA via a straightforward notification process.

In addition, pre-marketing is permitted (subject to the AIFMD pre-marketing rules), allowing fund sponsors to engage in early-stage investor discussions and gauge interest before launch.

AIFM Management Passport – Scalable Multi-Domicile Platform

The AIFMD management passport enables authorised AIFMs to manage AIFs domiciled in other EU Member States, allowing non-Luxembourg EU-authorised AIFMs to manage Luxembourg-domiciled AIFs and, conversely, Luxembourg-authorised AIFMs to manage AIFs established in other EU jurisdictions.

European Long-Term Investment Fund 2.0

Although a Reserved Alternative Investment Fund (RAIF) is not subject to direct supervision by the CSSF, it must be authorised by the CSSF if it wishes to operate as an ELTIF.

To qualify as an ELTIF, the RAIF must submit a formal application to the CSSF, which acts as the competent authority in Luxembourg. The application must include key documents such as the RAIF’s constitutional documents, the name of the authorised AIFM, the depositary agreement, and—if the ELTIF is intended to be marketed to retail investors—detailed investor disclosures and complaints-handling procedures.

Each ELTIF, or sub-fund of an umbrella RAIF, must be individually authorised by the CSSF.

In summary, while the RAIF itself is not regulated as a fund product, its status as an ELTIF requires CSSF authorisation. This allows the RAIF to benefit from the ELTIF passport and distribute its units broadly across the European Economic Area.

Legal entities typically used for AIFs

Partnership limited by shares

A Luxembourg Partnership Limited by Shares (SCA) ~ Société en Commandite par Actions ~ is a unique hybrid entity combining features of partnerships and corporations.

It consists of two distinct types of partners:

  • General partners, who manage the entity and bear unlimited liability, and;
  • Limited partners, whose liability is capped to their capital contributions.

This structure offers flexibility, making it particularly attractive for investment funds and private equity vehicles.

The SCA also allows for efficient capital raising, as shares held by limited partners can be freely transferred and, in some cases, publicly traded.

Balancing

...

A Luxembourg Partnership Limited by Shares (SCA) ~ Société en Commandite par Actions ~ is a unique hybrid entity combining features of partnerships and corporations.

It consists of two distinct types of partners:

  • General partners, who manage the entity and bear unlimited liability, and;
  • Limited partners, whose liability is capped to their capital contributions.

This structure offers flexibility, making it particularly attractive for investment funds and private equity vehicles.

The SCA also allows for efficient capital raising, as shares held by limited partners can be freely transferred and, in some cases, publicly traded.

Balancing operational control with limited liability, the SCA is a sophisticated choice for businesses and fund managers seeking functional and financial efficiency.

This entity is generally treated as tax opaque for Luxembourg tax purposes.

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Limited partnerships

A Luxembourg Limited Partnership (SCS) ~ Société en Commandite Simple ~ is a highly flexible and investor-friendly legal structure.

It consists of two types of partners:

  • General partners, who manage the partnership and assume unlimited liability, and;
  • Limited partners, whose liability is restricted to their capital contributions.

Popular among private equity and venture capital firms, the SCS offers considerable contractual freedom, allowing partners to tailor the terms of their partnership to specific needs.

While the SCSp has become the preferred limited partnership vehicle for alternative investment funds, the SCS continues to be

...

A Luxembourg Limited Partnership (SCS) ~ Société en Commandite Simple ~ is a highly flexible and investor-friendly legal structure.

It consists of two types of partners:

  • General partners, who manage the partnership and assume unlimited liability, and;
  • Limited partners, whose liability is restricted to their capital contributions.

Popular among private equity and venture capital firms, the SCS offers considerable contractual freedom, allowing partners to tailor the terms of their partnership to specific needs.

While the SCSp has become the preferred limited partnership vehicle for alternative investment funds, the SCS continues to be used in specific situations where legal personality is desirable, such as for operational or structuring reasons, or where existing, well-established partnership structures are being continued or expanded.

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Special limited partnerships

A Luxembourg Special Limited Partnership (SCSp) ~ Société en Commandite Spéciale or SLP ~ is a highly flexible and tax-transparent legal structure, tailored to meet the needs of private equity and alternative investment funds.

Unlike other entities, the SCSp has no legal personality, simplifying its setup and operational framework.

It comprises general partners, who manage the partnership and bear unlimited liability, and limited partners, whose exposure is limited to their contributions.

The ability to adapt partnership agreements to meet specific objectives, the SCSp is a modern and efficient solution for sophisticated investment stra

...

A Luxembourg Special Limited Partnership (SCSp) ~ Société en Commandite Spéciale or SLP ~ is a highly flexible and tax-transparent legal structure, tailored to meet the needs of private equity and alternative investment funds.

Unlike other entities, the SCSp has no legal personality, simplifying its setup and operational framework.

It comprises general partners, who manage the partnership and bear unlimited liability, and limited partners, whose exposure is limited to their contributions.

The ability to adapt partnership agreements to meet specific objectives, the SCSp is a modern and efficient solution for sophisticated investment strategies, offering an unrivalled balance of simplicity and flexibility.

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SICAV

A Société d'Investissement à Capital Variable (SICAV) is a type of open-ended investment company with variable capital.

A SICAV benefits from variable share capital, enabling it to issue new shares to meet investor demand and redeem shares at the request of investors without requiring a notarial deed.

This provides a significant operational advantage compared to a typical Luxembourg company, where changes to share capital generally require notarial intervention.

...

A Société d'Investissement à Capital Variable (SICAV) is a type of open-ended investment company with variable capital.

A SICAV benefits from variable share capital, enabling it to issue new shares to meet investor demand and redeem shares at the request of investors without requiring a notarial deed.

This provides a significant operational advantage compared to a typical Luxembourg company, where changes to share capital generally require notarial intervention.

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Fonds commun de placement (FCP)

A fund may be established in contractual form as a fonds commun de placement (FCP).

An FCP is a contractual co-ownership of assets without legal personality, managed by a Luxembourg management company on behalf of investors, who hold units rather than shares.

This structure offers operational simplicity and flexibility, avoids corporate formalities, and is often used where a non-corporate fund vehicle is preferred.

While distinct under Luxembourg law, an FCP is functionally similar to other contractual fund structures used internationally, in that investors participate through units representing an interest in the underlying assets, suc

...

A fund may be established in contractual form as a fonds commun de placement (FCP).

An FCP is a contractual co-ownership of assets without legal personality, managed by a Luxembourg management company on behalf of investors, who hold units rather than shares.

This structure offers operational simplicity and flexibility, avoids corporate formalities, and is often used where a non-corporate fund vehicle is preferred.

While distinct under Luxembourg law, an FCP is functionally similar to other contractual fund structures used internationally, in that investors participate through units representing an interest in the underlying assets, such as a unit trust.

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Management Companies – Chapter 16

Chapter 16 Investment Fund Managers (IFMs) are management companies authorised under Chapter 16 of the Law of 17 December 2010 relating to undertakings for collective investment.

The CSSF’s prudential supervision aims to verify that Chapter 16 IFMs subject to its supervision continuously observe all legal, regulatory, and contractual provisions relating to their organisation and operation, with the objective of ensuring investor protection and the stability of the financial system.

...

Chapter 16 Investment Fund Managers (IFMs) are management companies authorised under Chapter 16 of the Law of 17 December 2010 relating to undertakings for collective investment.

The CSSF’s prudential supervision aims to verify that Chapter 16 IFMs subject to its supervision continuously observe all legal, regulatory, and contractual provisions relating to their organisation and operation, with the objective of ensuring investor protection and the stability of the financial system.

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Fund AML Requirements

All funds are within the scope of Luxembourg AIFM Law.

Regulated funds (such as SIFs and Part II UCIs) fall under the direct supervision of the CSSF for AML purposes. Unregulated funds, including RAIFs and non-regulated AIFs, are not directly supervised by the CSSF but are subject to AML/CFT oversight by the Administration de l’Enregistrement, des Domaines et de la TVA (AED).

All Funds must file an annual AML questionnaire and compliance report and maintain up-to-date records of the individuals appointed as the Responsible Person (RR) and the Responsible for Compliance (RC).

The RR ensures overall governance and is the primary contact with the supervising authority. At the same time, the RC is responsible for implementing and monitoring AML/CFT procedures daily.

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Massimiliano della Zonca
Counsel
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