This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/real-estate-funds-in-luxembourg
Why setup a real estate fund in Luxembourg?
Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.
Luxembourg has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.
Such factors have led to Luxembourg becoming the leading domicile globally, for real estate fund structures.
What are the advantages of setting up a real estate fund in Luxembourg?
There are many!!
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, 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 real-estate fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.
Such funds also have a more advantageous tax treatment, with the choice of tax treatment according to the choice of investment fund. For instance, real estate funds can be fully taxable and have access to Luxembourg’s double tax treaties network. Alternatively, funds can be tax exempt, but with very limited access to double tax treaties. A third course being tax neutral, with either legal or no legal personality. In this case, the partners of the fund are subject to tax, and not the fund itself.
