The transposition of the AIFMD strengthens Luxembourg's competitiveness and provides asset managers with numerous new business opportunities, says Isabel Hog-Jensen of ALFI.
Luxembourg has once again been among the forerunners to fully transpose the Alternative Investment Fund Managers Directive (AIFMD) into national law. The AIFMD was transposed into national law by the law of 12 July 2013. The Law, which aims to establish robust risk and liquidity management systems and to enhance full transparency for investors, applies to all alternative investment funds.
It thereby covers hedge funds, real estate funds, private equity and venture capital funds. The Law is applicable to managers and will impact not only EU and non-EU alternative investment fund managers, but also EU and non-EU domiciled alternative investment funds.
Luxembourg, building on its long and very positive experience with the UCITS label, saw the AIFMD as an opportunity to create a real brand in the alternative investment sector. In keeping with its tradition of providing asset managers and investors with legal certainty, an up-to-date regulatory environment and a high level of investor protection, the Luxembourg legislature took advantage of the leeway afforded by the Directive to offer alternative investment fund managers (AIFMs) a maximum of flexibility and opportunities to broaden their business.
The legislature adapted several specific laws governing the financial centre, including the law relating to the specialised investment funds (SIFs), a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime chosen by the majority of the Luxembourg-domiciled hedge funds or fund of hedge funds, and the law relating to the investment company in risk capital (SICAR), often used to create dedicated private equity and venture capital investment vehicles. These two laws, however, already met many of the regulatory standards that have now been introduced by the AIFMD.
More importantly, Luxembourg has introduced significant changes to its legal structures by modernising the existing limited partnership regime (société en commandite simple) and the corporate partnership limited by shares (société en commandite par actions) and by creating a new special limited partnership regime (société en commandite speciale – SCSp). The new SLP has no legal personality which makes it similar to the English limited partnership. The SLP is tax transparent and will offer substantial contractual freedom while providing a secure legal framework.
Last but not least, the law has introduced a favourable tax regime for carried interest paid to Luxembourg tax-resident individuals who are employees of the AIFMs. Such gain is taxed at a favourable tax rate under a certain number of conditions.
Isabel Hog-Jensen is senior legal adviser at the Association of the Luxembourg Fund Industry
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