Update of Luxembourg Investment Law

The law of July 21, 2023, amending various investment fund laws, has been adopted, promulgated, and is in effect since July 28, 2023.

The reform law updating Luxembourg’s investment law, which was voted on by the Luxembourg Parliament at the beginning of the month, is now in effect after being promulgated and published in the local official journal (Mémorial A).

Shortly before the summer break, the Luxembourg Parliament (Chamber of Deputies) passed the law for the modernization of Luxembourg’s investment law, introduced in March of this year under bill number 8183. Thus, the long-awaited reform of the “Fund Toolbox” is now “decided and promulgated,” with execution and publication in the Official Journal (Mémorial A, cf. N° 442/2023) on July 24, 2023.

The law provides - similarly to a German article law - significant changes in various special laws and product laws that currently regulate the different types and forms of Luxembourg investment funds as well as their management companies, custodian banks, and other financial service providers in Luxembourg.

The legislative changes adopted concern, in particular, the law of June 15, 2004, on risk capital investment companies (hereinafter the “SICAR Law”), the law of February 13, 2007, on specialized investment funds (**the “SIF Law”*), the law of December 17, 2010, on collective investment undertakings (hereinafter the “UCI Law”), the law of December 17, 2010, on investment funds (the “IF Law”), the law of July 12, 2013, on alternative investment fund managers (the “AIFM Law”), and - last but not least - the law of July 23, 2016, on reserved alternative investment funds (hereinafter the “RAIF Law”).

Key points and highlights of this reform law will be briefly discussed below:

• First, the law amends and updates the definition of “savvy investors” as included in the SICAR Law, the SIF Law, and the RAIF Law. To ensure consistency and align national provisions with certain European standards, the current minimum investment amount has been reduced from 125,000 euros to 100,000 euros.
• Additionally, the law extends the period during which the minimum capital must be reached for SICARs, SIFs, and RAIFs (i.e., doubling the current period from twelve months to twenty-four months) and for part II funds of the UCI Law (doubling the period from six to twelve months) to adapt these laws to market needs and allow more time for fundraising and investor acquisition.
• The law also introduces some changes to the UCI Law. It allows investment companies (variable capital investment companies, or SICAVs) governed by part II of the UCI Law (“part II - UCIs”) to take the legal form of a partnership limited by shares in addition to the form of a joint-stock company, or to be incorporated as a limited liability company, simple or special limited partnership, or cooperative organized as a joint-stock company.
• Furthermore, the law enables alternative investment fund managers (AIFMs) to use the placement and distribution services of “tied agents.” Previously, this possibility was only available to UCITS management companies.
• Specific changes are also made to the AIFM Law to clarify the relationship between AIFMs and other legislation regarding the marketing of alternative investment funds in Luxembourg; the law also incorporates certain definitions from the AIFM Law.
• Moreover, the law extends the regulation on voluntary liquidation (liquidation non judiciaire), currently applicable only to UCIs governed by the UCI Law, to management companies and AIFMs, and reforms the regulation of the “Commissaire de surveillance” in case of removal of a supervised entity from the official list by the CSSF.
• Finally, the law also addresses the subscription tax (Taxe d’abonnement) and its exemptions. On the one hand, to qualify for the exemption for money market funds, reference is now made to the (uniform and EU-wide) definition according to Regulation (EU) 2017/1131 of June 14, 2017, on money market funds. European Long-Term Investment Funds, better known as ELTIFs, also benefit from the tax exemption, regardless of the chosen legal form or the relevant product law; ELTIF-SIFs, ELTIF-RAIFs, and ELTIF-Part II UCIs are thus equally exempt from the subscription tax.
• Lastly, the separate notarial deed called “Constat de constitution” will no longer be necessary for RAIF formations where the fund’s incorporation itself requires authentication (i.e., when setting up SICAVs in the legal form of a joint-stock company, partnership limited by shares, cooperative organized as a joint-stock company, or limited liability company).