Why has Lux Real Estate Investments SA chosen for Luxembourg?.
With more than EUR 4,500 billion net assets under management in regulated funds, Luxembourg is the largest investment fund center in Europe and the second largest in the world after the USA. It is the largest global distribution center for investment funds, and its funds are offered in more than 70 countries around the world. In June 2020, net assets under management by Luxembourg investment funds had grown by over 9.5 percent in the last 12 months.
Since the COVID-19 crisis hit, the Luxembourg investment fund sector has proved resilient due to the ability to quickly switch to remote working models. Cross-border commuters from France, Belgium and Germany are allowed to work from their home countries without suffering any (additional) social security or personal income tax consequences. And, the smooth and regularly updated communication from the Luxembourg government, the tax administration, and the Financial Sector Supervisory Body (CSSF) helped to maintain efficient business operations.
There is considerable activity in real estate and infrastructure/renewable energy structures, and growth is expected to continue. There is also a large and growing appetite for private debt, venture capital funds and securitization structures. These moves suggest that the flexible tax and regulatory regime in Luxembourg is meeting the needs of the market.
Luxembourg is the site of the European Court of Justice, the European Court of Auditors, the Statistical Office of the European Communities (Eurostat) and other vital EU organs. The Secretariat of the European Parliament is located in Luxembourg.
Luxembourg is one of world's largest on-shore financial centers with best in class governance and compliance regulations, member of the European Union. Luxembourg's stable and high-income market economy features moderate growth, low inflation, and a high level of innovation. According to the IMF, Luxembourg is the second richest country in the world, with a per capita GDP on a purchasing-power parity (PPP) basis of $80,119. Luxembourg is ranked 13th in The Heritage Foundation's Index of Economic Freedom, 26th in the United Nations Human Development Index, and 4th in the Economist Intelligence Unit's quality of life index.
Services, especially banking and finance, account for the majority of economic output. Luxembourg is the world's second largest investment fund centre (after the United States), the most important private banking centre in the Eurozone and Europe's leading centre for reinsurance companies.
Luxembourg has adopted OECD standards on exchange of information on banking secrecy and has subsequently been added into the category of "jurisdictions that have substantially implemented the internationally agreed tax standard". Luxembourg ranks third on the Tax Justice Network's 2011 Financial Secrecy Index of the world's major tax havens, scoring only slightly behind the Cayman Islands.In 2013, Luxembourg is ranked as the 2nd safest tax haven in the world, behind Switzerland.
Luxembourg has been a well-established fund industry center for over 30 years with a reputation for attracting large cross border investment platforms and reputable prominent fund and asset managers. The long-term stability of the country and ecosystem, coupled with a robust regulatory framework, a credible and reputable regulator and a flexible company law regime are among its key features.
Luxembourg has historically catered to the needs of the funds industry spanning from back-office to front office services. And, Luxembourg’s international and multilingual workforce (English is widely spoken) has helped attract local AIFMs (Alternative Investment Fund Managers) and third-party service providers.
A strong business market was built over the past years with Germany, and now many German investors use Luxembourg real estate funds when investing cross-border. Also, many sovereign wealth and large pension funds have established investment platforms, holding companies, and feeder funds in Luxembourg because of the regulatory controls, tax and legal frameworks, and ability of doing business there. High-net-worth individuals and family offices also increasingly utilize Luxembourg for the same reasons.
Luxembourg’s fund “tool box” offers a spectrum of legal, regulatory and structural choice.Luxembourg has a well-established tradition of innovation in the fund industry with a broad range of investment vehicles which combine different legal forms, fund regimes, tax qualifications and regulatory frameworks. While it has historically provided traditional structures, it continually innovates to meet the needs of the market. Recent developments include
* the SCSp (Special Limited Partnership), introduced in 2014, is a popular fund entity for alternative investments, including real estate. Its contractual freedom is similar in flexibility to that of a traditional Anglo-Saxon limited partnership.
* the RAIF (Reserved Alternative Investment Fund), introduced in July 2016, qualifies as alternative investment fund (AIF) and is not itself subject to CSSF product approval. RAIFs must appoint an authorized external AIFM.
* the project to launch a flexible cross border REIT regime, focusing on real estate and infrastructure investments.
Evolving international tax developments, such as the Organisation for Economic Co-operation and Development’s (OCED) Base Erosion and Profit Shifting (BEPS) project, have inspired a trend toward consolidating legal entity and tax structuring for alternative investments in Europe. Some investors and asset managers have seen value in using a Luxembourg-based Fund Manager / AIFM to manage a Luxembourg investment fund and a Luxembourg sub-holding structure to create commercial and administrative efficiencies and to help address requirements outlined in recent European Union (EU) court cases, which have highlighted the need for intermediary holding entities to demonstrate both beneficial ownership of the income (interest/dividends) they receive and commercial/business purpose for their use in cross-border structures.
Luxembourg’s participation exemption regime and extensive double tax treaty network can help reduce tax leakage for investment structures. However, these tax efficiencies can generally only be achieved when the structure has credible substance and business purposes. To that end, KPMG's substance survey highlighted the increasing substance being created in Luxembourg. For example, 65% of the general partners (GP) surveyed planned to increase the middle office and front office staff, including focusing on senior management level recruitment.
