This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/debt-funds-in-luxembourg
Why set up a debt fund in Luxembourg?
Luxembourg is a leading jurisdiction for investment funds and the second largest investment fund centre in the world after the United States. It is the largest fund jurisdiction in the European Union, with more than Euro five trillion of assets under management.
The country is a politically and financially stable EU country with a AAA-Rating. As a jurisdiction within the European Union, debt funds established in Luxembourg can be more easily distributed within the EU on the basis of existing passporting rights for EU funds.
What are the key advantages of setting up debt funds in Luxembourg?
1. The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, hedge funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
2. A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.
3. Distribution options are the next major advantage. A Luxembourg fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.
(i.)Then there are the tax benefits.
a.There is a choice of tax treatment according to the choice of investment vehicle. Debt funds can be fully taxable and have access to Luxembourg’s double tax avoidance treaties network, or can choose to be tax exempt, but with very limited access to double tax treaties.
b. Debt funds can also be tax neutral with either legal or no legal personality. In this event, the partners of the fund will become taxable, and not the debt fund itself.
