Regulatory changes affecting funds in Luxembourg



FW moderates a discussion on regulatory changes affecting funds in Luxembourg between managing partner Alexandrine Armstrong-Cerfontaine, funds partner Rodrigo Delcourt, and counsel Elona Ajdari, at King & Wood Mallesons.

FW: Could you provide a general background on fund-related activity, including fund formation, in Luxembourg in recent years?

Armstrong-Cerfontaine: 2014 and 2015 were good years for deals. The first half of 2015 was as strong as 2014, and it demonstrated an improved confidence in the Eurozone. Equally the early part of 2016 was positive; however, Brexit triggered a challenging environment for investors that will last for some time, particularly for sterling denominated funds. This will not be an issue for investments in the UK only however, as the impact of the UK’s decision to leave the EU has, and will continue to have in the short to medium term, an impact on existing portfolio companies and pending deals, although there will also be opportunities stemming from Brexit.

Delcourt: We have seen some impact of Brexit on current fundraising, both in terms of the amount of transactions and the structuring, or restructuring, of the target portfolio pending and following the vote. While 2015 was a good year for fund formation in Luxembourg, with a few new players on the market set up by initiators spinning out of well-known houses to establish their fund, the number of funds closed last year was down slightly from 2014. Net assets under management in Luxembourg funds were at an unprecedented level at the close of December 2015 – more than €3.5 trillion. Statistics from the Association of the Luxembourg Fund Industry (ALFI) show that this is an increase of 13.29 percent from 1 January 2015.

FW: In broad terms, what are the latest regulatory changes that will impact the country’s alternative investment fund (AIF) landscape?

Armstrong-Cerfontaine: July was a great month, with two major reforms. The law of 14 July 2016 on the reserved alternative investment fund, commonly referred to as RAIF, is an important and much needed reform as it tackles the over-layering of supervision that came into existence with the law of 12 July 2013 on alternative investment funds managers. It also facilitates processes to establish regulated funds – SIFs, SICARs and FCPs – as this will be done without the regulatory licensing or oversight of the CSSF and provides favourable tax and legal regimes.

Delcourt: The law 13 July 2016 is also important because it improves the law on commercial companies of 10 August 1915 and modifies the Civil Code confirming practices which were used with a health warning due to the uncertainty of the law on these questions. Since 13 July 2016, the board or the general partner can suspend the voting rights of shareholders failing to comply with their obligations. A company may also issue tracking shares, and clauses providing for restrictions on transferability of shares are now formally recognised. In addition, a new form of company, the simplified public limited company, has also been introduced into the Luxembourg legal system and it offers far more flexibility to its shareholders and managers than the public limited company.

Net assets under management in Luxembourg funds were at an unprecedented level at the close of December 2015 – more than €3.5 trillion.
— Rodrigo Delcourt

FW: Could you explain the reasons behind the introduction of a new type of Luxembourg investment fund: the reserved alternative investment fund (RAIF)? What are the practical implications?

Delcourt: Both UCITS and regulated alternative investments funds have regulations based on the type of fund and the authorisation and the supervision of the CSSF for that type of fund. Until recently, regulation was based around the product, not its management, and this changed with the implementation of the alternative investments funds directive implemented in Luxembourg on 12 July 2013, thus creating a double level of supervision – one for the regulated fund and one through the authorised manager, itself supervised by the CSSF. The RAIF law addresses this.

Armstrong-Cerfontaine: This is an additional option available to funds that is straightforward. The RAIF provides additional structuring solutions for AIFs in Luxembourg, with a supervision that will be done through the AIFM. Furthermore, no legal constraints apply to the statutory reserve for funds set up with a corporate form. There is no restriction either on dividend distributions and the redemption of shares. Those funds will not be required to consolidate the intermediary holding companies with the funds. As for tax, the general regime is similar to the tax regime applicable to SIFs but RAIFs that invest in risk capital will benefit from a special tax regime similar to the one applicable to SICARs. The RAIF should be a preferred option for those sponsors, managers and initiators seeking contractual flexibility and protection, swift time-to-market, tax optimisation and marketability in the same structure.

FW: In your opinion, what are the most significant components of Bill 6972, which concerns the “automatic exchange of information with respect to tax rulings and advance pricing agreements” – submitted by the Luxembourg Parliament?

Ajdari: On 13 July 2016, the law on mandatory automatic exchange of information in the field of taxation was voted in. It implements EU Council Directive 2015/2376 and extends the scope of mandatory exchange of information on cross-border advanced tax confirmations and advance pricing agreements granted, amended or renewed as from the 1 January 2012 – if still valid on 1 January 2014. Excluded from the scope of the reform are tax confirmations and advance pricing agreements granted to exclusively natural persons or persons with a low turnover – €40m during the tax year preceding issue of advanced tax confirmations and advance pricing agreements at a group level, unless such persons carry out mainly financial or investment activities. Luxembourg will exchange information on cross-border advanced tax confirmations and advance pricing agreements in the scope described above from 1 January 2017.

FW: How do you foresee the relationship between Luxembourg tax authorities and the tax authorities of other EU Member States in light of the new measures? Do you anticipate be difficulties in synchronising the new regime with the Alternative Investment Fund Managers Directive (AIFMD)?

Ajdari: No, we do not anticipate difficulties. Luxembourg tax authorities had already released, in advance of the reform of law of 13 July 2016, a standardised form 777E with the information to be gathered and exchanged with other jurisdictions in anticipation of the European requirements and based on the Action 5 of the OECD action plan on Base Erosion and Profit Shifting which also proposes an exchange of information of advance tax rulings, and they have started to gather the necessary information on past cross-border advanced tax confirmations and advance pricing agreements. We understand that the Luxembourg tax authorities expect to finalise their communication by the end of 2016.

Luxembourg’s legislation has had the ambition to be a trendsetter, especially when it comes to the funds sector.
— Elona Ajdari

FW: How have previous attempts to introduce fund-related legislation fared? Can you characterise the history of fund regulation in Luxembourg over the years and the primary issues and challenges that tax authorities in Luxembourg have had to overcome?

Ajdari: Luxembourg’s legislation has had the ambition to be a trendsetter, especially when it comes to the funds sector. The main challenges include adapting tax legislation to the new fund products, responding to the industry’s necessities and keeping in line with the economic reality. Good examples of this have been the extension of the VAT exemption on fund management services with the adoption of the AIFM law, the introduction of a carried interest tax regime and the tax provisions related to RAIF, to name just a few.

FW: Could you explain the role of the Commission de Surveillance du Secteur Financier (CSSF) in terms of fund regulation? How would you describe its recent monitoring and enforcement efforts?

Delcourt: The CSSF regulates and supervises regulated funds, management companies and alternative investment fund managers, thus safeguarding the integrity of the Luxembourg funds market by focusing its regulation of the conduct of funds and managers based in Luxembourg, the distribution of Luxembourg funds, the prudential standards applicable to alternative investment fund managers and the marketing of non-Luxembourg funds in Luxembourg. The CSSF is the first harbour for investors to have their interests preserved in relation to their investments in collective investment schemes. Monitoring is twofold – first, through the review of the reporting by AIFMs and regulated funds, and second, through deeper controls. In this respect, it is worth mentioning the deep knowledge and understanding of the regulator which is drawn from its experience of UCIs, as opposed to other European regulators and its proactive efforts to simplify processes.

Armstrong-Cerfontaine: One recent example of this is Circular 15/633 of 29 December 2015 imposing upon UCITS, UCIs, SIFs and SICARs – or their management companies, alternative investment fund manager or general partners – a harmonised reporting for supervisory purposes and making available on its website a technical guide and a comprehensive description of all the information to be provided to the CSSF. There is a clear control prior to granting a visa to regulated funds or before authorising an AIFM and through the reporting – of lack thereof – made by the regulated entities. While each case is separate and individual, there are regular on site visits, precedents of fines and, in the most serious cases, de-listings of regulated entities.

FW: To what extent do recent regulatory amendments improve the fund environment in Luxembourg?

Armstrong-Cerfontaine: Too much regulation is never good for any industry and most of it reflects the EU’s initiatives, but the CSSF’s recommendations and clarifications through the new regulations and circulars issued since the end of last year give more clarity to the funds industry. A less uncertain regulatory environment is always good for raising funds.

Delcourt: The alternative structures and products that are now available following the reform of the laws of 13 and 14 July 2016 subject to enactment, which is expected to come soon, provide useful solutions to sponsors, alongside traditional fundraising.

The reforms voted in July this year show that Luxembourg is the country that will gain most from Brexit for structuring opportunities for alternative investment funds.
— Alexandrine Armstrong-Cerfontaine

FW: What advice would you offer to fund managers in terms of adjusting to proposed regulatory changes? How should they manage the transition period?

Armstrong-Cerfontaine: Most fund managers adjusted their fundraising prior to the vote of the reforms implemented in July, with the insertion in their funds documents of various alternative restructures to leave headroom to implement the reform while fundraising.

Delcourt: As for those managers who are not currently fundraising, now is the time to consider the changes brought about by the reforms voted on in July. All funds with a corporate form will have to review their Articles of Association in light of the reform of the Companies Act and, as necessary, to amend their Articles of Association to reflect the changes introduced by the reform within 24 months of enactment. Some funds may also benefit from a transformation into a RAIF, subject to consent from investors in accordance with the funds’ constitutive documents.

FW: In your opinion, what long-term effect will recent regulatory amendments have on Luxembourg’s alternative investment fund (AIF) market? Will they be a positive force?

Delcourt: July 2016 is a step towards modernisation that provides more certainty to fund managers on the corporate structures and more options to set-up funds. Recent regulatory amendments are absolutely a positive force.

Armstrong-Cerfontaine: I could not agree more. It is fair to say that while the vote to leave the EU from the UK is deeply regrettable, the reforms voted in July this year show that Luxembourg is the country that will gain most from Brexit for structuring opportunities for alternative investment funds.


Alexandrine Armstrong-Cerfontaine is the managing partner of King & Wood Mallesons’ Luxembourg office. She is listed among the best women in private equity worldwide (Euromoney). Her practice focuses on private equity transactions, banking and finance specifically in LBO and private equity transactions, advising private equity sponsors on their investments, corporate finance, funds finance, syndicated financings (including leveraged financing and restructurings) and fund formation. She can be contacted on +352 27 47 56 3401 or by email:

Rodrigo Delcourt recently joined King & Wood Mallesons’ Luxembourg office as funds partner. He has significant experience in all aspects of setting up and restructuring both regulated and unregulated Luxembourg and UK alternative investment funds, JVs and partnerships, as well as providing regulatory advice to sponsors, fund managers and service providers. He provides strong expertise on structuring and negotiation of acquisitions and disposals, internal and external financing, AIFMD and UCITS structuring. He can be contacted on +352 27 47 56 3402 or by email:

Elona Ajdari is counsel in the tax department of King & Wood Mallesons’ Luxembourg office, specialising in advice to local and international clientele on the VAT aspects of Luxembourg and cross-border transactions, in particular corporate reorganisations, acquisitions and financing structures. She can be contacted on +352 27 47 56 3422 or by email:

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Alexandrine Armstrong-Cerfontaine


Rodrigo Delcourt


Elona Ajdari


King & Wood Mallesons

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