company formation luxembourg

   +352 671 533 922


+352 671 533 922
Company Formation Luxembourg



Start a Hedge Fund in Luxembourg

Updated on Tuesday 13th December 2022

Rate this article
5 5 1
based on 8 reviews

Hedge funds are alternative investment vehicles that rely on capital pooled from different investors and have different strategies for investment. They are managed by a professional management firm and these business structures can be used to invest in a large range of markets. Luxembourg is one of the world’s largest investment funds centers in the world, with more than 13,800 funds under management. The country is preferred by foreign investors who want to start a hedge fund because of its economic and fiscal stability and because the country has a good legal and regulatory framework for these types of investments vehicles. Our company formation firm in Luxembourg can help you set up a hedge fund. We can also help you open a company in Luxembourg and provide you with  company management services.

Hedge funds: characteristics and particularities

Hedge funds in Luxembourg are regulated and supervised by the Commission de Surveillance du Secteur Financier (CSSF). Hedge funds were traditionally established as UCIs (undertakings for collective investment) and they can also be created as specialized investment funds (SIF). The choice belongs to the investor and is largely based on the investment strategies and the targeted investor base.
Because hedge funds are regulated in Luxembourg, investors need to choose an appropriate hedge funds supervisor who can offer complete services and management. Fund administrators, depositaries, auditors and lawyers in Luxembourg generally have the appropriate knowledge to help investors manage hedge funds. Our company incorporation agents in Luxembourg can help you start a hedge fund and administer it. You can also explore the following infographic with extra details:
How to open a hedge fund in Luxembourg (1).png

Investing in Luxembourg hedge funds

Hedge funds can be incorporated as a public limited company, a private limited company, limited partnership or other business forms. In Luxembourg, hedge funds can be set up under the following regimes:
  • - SIFs;
  • - UCIs;
  • - UCITS;
  • - SOPARFI.
Hedge funds in Luxembourg have to comply with the provisions of the Alternative Investment Fund Managers Directive and the implementing legislation.

How do I set up a SIF?

SIF is the Specialized Investment Fund in Luxembourg and one of the most important investment tool an entrepreneur can choose for starting a hedge fund. An active portfolio management is the main requirement for establishing a SIF in Luxembourg. Experienced investors with large portfolios often choose this kind of fund, and especially if they are interested in hedge funds. Among the features of SIFs we mention that there are to taxes on capital gains, profits and incomes, there are no special restrictions for sponsors involved, and no harsh requirements in terms of documents.
With a SIF, a businessperson can make investments in any kind of assets, without restrictions in this sense. Common funds and investment companies can suit most the needs of a SIF, meaning that such legal forms can be chosen for such funds. We mention that a hedge fund can be established with the help of SIFs, in respect with the applicable laws.
Looking for an accounting firm in Luxembourg? Our specialists have experience in a wide range of procedures. We can offer payroll services, complete bookkeeping, support for the preparation of annual financial statements, and assistance with tax compliance and registration among other things. Those interested can also request tax minimization methods such as donations, retirement plans, or credit payment plans. Contact us for an evaluation of your company from an accounting point of view.

How can I set up an UCI?

If you want to open a hedge fund you can direct your attention to UCIs or the Undertakings for Collective Investments, the most common types of investment funds chosen by international players in Luxembourg. UCIs are normally controlled by Luxembourg Financial Regulator and are meant to raise money for a big number of investors and to generate more finances for these investors. UCIs can be established as common funds, closed-ended investment companies that have a fixed capital or as open-ended investment companies with a variable capital registered.
It is important to know that UCIs need to be handled and controlled by a management company in Luxembourg or by Alternative Investment Funds. EUR 300,000 represents the minimum capital for opening an UCI in Luxembourg, mentioning that this capital needs to be raised at EUR 1,250,000 within six months. The structure of UCI is not complicated, the same goes for the registration. If you would like to open a hedge fund under the rules of UCIs, we invite you to address to our team of company incorporation agents in Luxembourg.

Setting up a SOPARFI

SOPARFI is a financial holding company meant for investments and through which a hedge fund can be established. It is good to know that SOPARFI can be incorporated as limited liability companies, partnerships or as public limited companies in Luxembourg, the latter being the preferred legal form. The investment activities are the main reasons for opening a SOPARFI, the structure through which a hedge fund can be established.
Moreover, it is important to know that the legislation allows for investors to have commercial activities under a SOPARFI. In matters of taxation, SOPARFI is subject to a corporate income tax of 29,22%, however, varied tax exemptions can apply, especially with the help of double taxation treaties signed by Luxembourg. Overall, if you would like to set up a SOPARFI for your hedge fund in Luxembourg, it is important to know that the main documents to prepare are the Articles of Association with are accepted by the Trade Register and Companies in Luxembourg. Feel free to talk to our specialists for support and recommendations in this matter.

Why make investments in Luxembourg?

Due to the multitude of business opportunities in any kind of sector and especially in the financial one, Luxembourg easily gained the status of one of the most important international business destination. Here are a few reasons to bear in mind if you would like to make investments and set up companies in Luxembourg:
  1. The stable economy and the good legal framework attract investors in Luxembourg.
  2. The excellent infrastructure and the taxation regime are appealing to foreign business persons.
  3. Investments can be made in Luxembourg taking into consideration the skilled available workforce.
  4. Companies can be registered in excellent sectors like automotive, financial research and development, IT and telecommunication.
  5. The easy incorporation process is another benefit why international entrepreneurs choose Luxembourg for business.
  6. Hedge funds are important investment tools which can be easily established through forms like SIFs, SOPARFI or UCIs.
  7. The Trade Register Companies is the institution that allows investors to easily establish their business presence.
If you are looking for the rules and regulations of a hedge fund in Luxembourg, it is recommended to solicit for support and information from a team of consultants, before the registration of such fund takes place.

Regulatory frameworks for hedge funds in Luxembourg

Foreign investors who want to open a hedge fund in Luxembourg should know that they can choose from three legal structures: Specialized Investment Fund (SIF) structure – under the SIF law, Undertaking for Collective Investment (UCI) structure – under the Part II of the 2010 law and Undertakings for Collective Investments in Transferable Securities (UCITS) structure – under the Part I of the 2010 law.
The legislation in the field specifies the eligible investors for the above mentioned legal structures; as such, a UCI structure will require investors from the institutional and retail sectors; the same are required for a UCITS. All three types of legal structures must be approved by the Commission de Surveillance du Secteur Financier (CSSF) before they start their operations in Luxembourg; our team of financial specialists can provide you with further information on the authorization of a hedge fund

What are the requirements for Luxembourg hedge funds under the SIF Law? 

One of the ways to open a Luxembourg fund as a hedge fund is to incorporate the vehicle under the SIF Law. For a more comprehensive presentation regarding the registration of a hedge fund under this law, we recommend investors to address to our financial specialists, who can offer extensive information on the below mentioned aspects: 
  • - the hedge fund registered under the SIF Law is addressed to well-informed investors;
  • - the fund must obtain an approval from the CSSF prior to starting its operations on the local market;
  • - there are no restrictions when referring to the eligible assets in which the fund can invest;
  • - as a general rule, there are no investment restrictions, but the fund must invest a maximum of 30% of its assets in securities;
  • - the fund’s representatives have to ensure appropriate risk management procedures;
  • - the central administration of the hedge fund must be located in Luxembourg;
  • - -there are also no restrictions in relation with the residency of the fund’s directors and managers. 
Under this law, the hedge fund can operate as a SICAV in Luxembourg, in which case, there are numerous options with regards to the legal entity under which the fund will operate. Thus, investors can set up a company registered as one of the following: public limited company, private limited company, cooperative company registered as a public limited company, partnership limited by shares or limited partnership. 
The decision in choosing one of the above mentioned legal entity should be based on the required minimum capital and on the rights and obligations the investors will have and our team of financial representatives can provide an extensive presentation on the advantages of each of these structures.  
The SIF Law also stipulates that a fund can take the form of a SICAF in Luxembourg, which also provide several options in selecting a legal entity. The SICAF in Luxembourg can be registered as a public limited company or as partnership limited by shares, to mention a few. 

Hedge funds in Luxembourg – requirements under the Part II UCI Law 

When opening an investment fund in Luxembourg as a hedge fund different requirements will apply if the fund is registered under the Part II UCI Law. In this case, the hedge fund in Luxembourg is available for a larger category of investors – retail investors, professional investors and institutional investors. 
Just like in the case of hedge funds operating under the SIF Law, the fund must be approved by the CSSF and it also benefits from no restrictions with regards to the fund’s eligible assets. In the case of this type of fund, however, there are specific restrictions to the types of investments that can be concluded, which are stipulated under the CSSF Circular 02/08 and the CSSF Circular 08/356
When referring to the fund’s risk management strategies, there is no statutory legislation which specifically request certain procedures, but the CSSF will require the fund’s representatives to take certain risk management strategies. Businessmen who want to open an investment fund in Luxembourg operating under the Part II UCI Law should also know that in this case, the promoter of the fund has to be approved by the local institutions and the approval will be determined based on the experience the promoter has, his or her financial resources and other similar matters. 
When opening a Luxembourg fund under this law, the investors should know that the fund’s central administration must also be located in this country; this requirement is not valid in the case of a hedge fund operating under the Part I UCITS Law, as its administration can be located anywhere in the European Union or the European Economic Area. 

What are the tax considerations for a hedge fund in Luxembourg?

Investors opening a hedge fund should know that the legislation applicable in Luxembourg doesn’t impose any corporate income tax on the income of such entities. The hedge fund is not the subjected to the municipal business tax or the withholding tax on dividends. It can be taxed with the withholding tax on dividends only if the European Union’s savings directive applies; our financial consultants can offer you more details in this sense. With regards to taxes and costs for starting a hedge funds, the following apply: 
  • - the  minimum capital of the fund must be of EUR 1,250,000, regardless of the type of fund selected;
  • - in the case of hedge fund operating under the SIF Law, the capital much be reached in a period of 12 months since the fund was set up;
  • - in the case of hedge funds registered under the other available legislations, the capital has to be reached in a period of 6 months;
  • - the investors have to pay a small registration fee, of EUR 75, upon the incorporation of the fund;
  • - the fund is liable to a subscription tax of 0.01% of the funds net assets, but only when it operates under the SIF Law; 
  • - hedge funds registered under the Part II UCI Law and the Part I UCITS Law are required to pay a subscription tax of 0.05% on the net assets. 

Requirements to open a hedge fund in Luxembourg

Depending on the type of structure used to establish the hedge fund, investors is subject to certain capital and shareholding requirements imposed by the law. The minimum capital required to open a hedge fund in Luxembourg is:


  • -  12,500 euros for a private limited liability company;
  • -   31,000 euros for a public company and corporate limited liability partnership.


FCPs have no minimum share capital requirements. All types of companies must have at least one shareholder.

Taxation applicable to regulated hedge funds in Luxembourg  

According to the applicable legal framework, regulated hedge funds in Luxembourg are the following: hedge funds under the Part I Law on UCITS and hedge funds under the Part II Law on UCIs and SIFs. In the case of the above mentioned legal forms, the taxation system is comprised of the following taxes: the registration duty and the annual subscription tax
As a general rule, these types of funds are exempted from other taxes, such as the income tax on profits or the net wealth tax. In the case of hedge funds established as SICAVs (investment companies with variable capital) or SICAFs (investment companies with fixed capital), the tax regulations stipulate that they can qualify for the tax exemptions and deductions prescribed under the double tax treaties signed by the local authorities. 
Also, it is important to know that hedge funds in Luxembourg can be set up as FCP (common fund), in which case the provisions of the double tax treaties may not apply. However, there are certain exemptions, which can be detailed by our team of financial representatives. Those interested in setting up a SICAR in Luxembourg should know that the business structure can be established as a hedge fund as well. 

Subscription tax in Luxembourg  

For most of the investment funds in Luxembourg, the annual subscription tax is imposed at the rate of 0.05% on the fund’s net assets, but a special category of hedge funds can benefit from a subscription tax applicable at the rate of 0.01%. 
The following types of funds are imposed with the lower subscription tax: funds performing investments in money market instruments, investments carried out in bank deposits, hedge funds regulated by the SIF Law, umbrella funds created under an UCI structure and the shares of UCIs. 
The obligation to pay the subscription tax is not imposed in specific cases, which means that certain types of hedge funds can benefit from a full exemption on this type of tax. This is the case of pension funds, funds registered as SIFs or RAIFs that invest in microfinance activities. 

What are the main taxes for SIFs and RAIFs in Luxembourg? 

Hedge funds in Luxembourg are taxed in accordance with the legal framework applicable to the specific type of vehicle chosen for registration. Thus, in the case of Luxembourg hedge funds registered as SIFs and RAIFs, the tax legislation is slightly different than in the case of other types of hedge funds. Below, we present the tax structure available for this types of funds: 
Subscription tax  Imposed at a rate of 0.01% of the fund’s net assets, calculated on a quarterly basis
Registration tax  A standard fee of EUR 75 is paid upon incorporation, but the same tax is available when performing amendments to the fund’s statutory documents
Direct taxes  Such taxes are not applicable, with the exception of hedge funds registered as RAIFs investing in risk capital, which benefits from a different tax system
Value added tax (VAT)   Hedge funds in Luxembourg are considered entities that must be registered for the payment of VAT, but some exemptions can be granted
As mentioned above, the risk capital RAIF in Luxembourg has to be registered for the payment of certain direct taxes. The direct taxes to which this structure is liable to are the corporate income tax and the municipal business tax, but the fund can benefit from an exemption on the payment of the net wealth tax
When referring to the VAT, those who want to open a Luxembourg fund must know that the obligation to register and pay this tax as an investment vehicle is prescribed under the Circular no. 723 of 29th of December 2006. The VAT is also charged to hedge funds registered as FCPs, but the tax will be applied to the management company that manages the fund, as the vehicle itself does not have a legal personality. 
According to the Luxembourg tax legislation, an exemption on charging the VAT to an investment fund is available, as per Article 44 (1) (d) of the VAT Law. In this case, the VAT is not charged when performing specific services, such as portfolio management services, investment advisory services or administrative services. 

What is the tax structure for a Luxembourg SICAV? 

In the case of a SICAV in Luxembourg numerous tax exemptions are applicable. This type of fund is not liable to paying the corporate tax, nor is it required to pay the net wealth tax, the withholding tax on the distribution of dividends and it may also benefit from an exemption on the payment of the VAT. The latter is applicable as long as we refer to the provision of fund management services. Any other types of VAT related activities are liable to the payment of the tax

What are the taxes applicable to Luxembourg SICARs? 

In the case of a SICAR in Luxembourg, the investors will be required to pay the corporate tax at a rate of 29.22%. However, this type of fund benefits from several tax exemptions, applicable to taxes such as: the net wealth tax, the withholding tax on the distribution of dividends, the subscription tax, and it can also be exempted from paying the VAT, in special conditions.
You can contact our Luxembourg company formation agents for more information about the requirements for hedge funds and how they can be incorporated.

Meet us in Luxembourg

Contact our specialists in company formation in Luxembourg, who have a large experience in finance and international business. 

Set up an appointment with us at +352 671 533 922. Alternatively you can incorporate your company without traveling to Luxembourg.

Contact us



As a BridgeWest partner for many years, is for sure a great choice when wanting to start a business in this important financial hub. International entrepreneurs can rely on the professionalism of this team.

Vlad Cuc, Director of BridgeWest

Read more testimonials