Structuring investments toward Latin America and tax considerations
Luxembourg remains a world-class choice for structuring multipurpose investments, attracting asset managers from around the world. A founding member of the EU, it is a politically stable and trusted jurisdiction and has spurred the development of regulatory and tax rules for more than 30 years. With more than EUR5.84 trillion in net assets under management,1 Luxembourg is Europe’s largest investment fund center and the second largest worldwide.
While historically Luxembourg has mainly been a bridge for European and North American ventures, the market has seen a surge of investment structures pivoted toward Latin America.23
One of the hallmarks of Luxembourg’s legal system is the variety of investment vehicles the country has developed over the years. This is known as the alternative investment “toolbox”: a range of legal and regulatory possibilities that can be tailored to stakeholders’ unique investment profiles, diversification requirements, assets pursued, investment duration and size, and governance and reporting obligations.
The alternative investment toolbox—Luxembourg tax considerations
The alternative investment toolbox provides multiple legal forms, regulation and tax regimes applicable, with investment funds allowed access to double tax treaties in certain cases.
Regulated options
UCITs,4 UCIs Part II,5 SIFs6 and SICARs7 are vehicles regulated by the Luxembourg Commission de Surveillance du Secteur Financier (CSSF).
UCITs are investment funds that can invest in transferable securities and other liquid assets, and be distributed to retail investors across the EU. They can be set up under various legal forms.
UCIs Part II can invest in liquid transferable securities and non-listed securities, real estate, hedge instruments, private equity and venture capital strategies. They can be marketed to both retail and institutional investors.
SIFs are a staple of the Luxembourg fund market8 due to their operational flexibility and lack of restriction regarding the asset types in which they can invest, ranging from traditional sectors like private equity and real estate to atypical assets like insurance or art. Restricted to non-retail qualifying investors, their diversification requirements are set at 30%.
UCITs, UCIs Part II and SIFs are generally subject to an annual subscription tax calculated quarterly based on the fund’s net asset value. The current standard subscription tax rate is 0.05% for UCITs and UCIs Part II, and 0.01% for SIF. These investment funds do not withhold tax on dividends or proceeds of share redemptions, and there is no tax on speculative capital gains for investors.
SICARs are regulated companies that can only invest in risk capital assets.9 Although the SICAR’s corporate rules are more restrictive than the SIF, there are no diversification restrictions for the assets held, making them operationally more flexible.
Regarding their tax treatment, SICARs are subject to corporate taxes similar to regular Luxembourg companies. However, when complying with the investment policy on risk capital securities, they benefit from a corporate tax exemption on income derived from these securities, and are only subject to the minimum net wealth tax.
Similar to other fund vehicles, SICARs do not withhold tax on dividends or proceeds of share redemptions, and there is no tax on speculative capital gains for investors. While SICARs may be exempt regarding certain income, they remain subject to Luxembourg transfer pricing rules. As they are set up under a corporate form, SICARs are considered tax resident companies; therefore, they may benefit from the Luxembourg double tax treaty network.
Non-regulated options
The CSSF’s detailed regulation and prudential oversight may dissuade investors that seek greater flexibility. To meet this demand, Luxembourg also offers non-regulated options as part of its toolbox.
RAIFs10 are non-regulated funds aimed at institutional investors and are managed by an alternative investment fund manager (AIFM). Generally offering a quicker incorporation period than other vehicles, RAIFs are the most flexible option in the Luxembourg toolbox and can be set up as umbrella funds.
From a tax perspective, RAIFs can adopt the SICAR or SIF regime. Therefore, they are often regarded as the optimal choice within the Luxembourg toolbox, integrating the tax features of a fully regulated fund without the stringent regulation requirements, as they opt for a lighter version through the AIFM.
Other unregulated options include limited partnerships (“SCS”) or simplified limited partnerships (“SCSp”). These are very popular with investors due to their organization and target investment flexibility, the general partner’s control, and the security offered by the AIFM’s oversight.11 As tax-transparent entities, they are not subject to corporate taxes except in certain situations.
Another alternative is SOPARFIs12, plain vanilla companies in corporate form and fully subject to corporate taxes. SOPARFI are widely used as investment vessels in countries with which Luxembourg has signed a double tax treaty, both individually or in tandem with transparent entities like the SCSp.
“One of the hallmarks of Luxembourg’s legal system is the variety of investment vehicles the country has developed over the years. This is known as the alternative investment “toolbox”: a range of legal and regulatory possibilities that can be tailored to stakeholders’ unique investment profiles, diversification requirements, assets pursued, investment duration and size, and governance and reporting obligations.”
ELTIFs
Gaining momentum, the European long-term investment funds (ELTIFs) are vehicles mostly suitable for investing in real assets.
Luxembourg is the Member State with the most ELTIFs launched to date,13 and the revised ELTIF Regulation14 has made it a more attractive product for alternative asset managers. It is marketable to both institutional and retail investors, a key feature for fundraising.
Available under corporate and transparent legal forms, the ELTIF is a flexible fund vehicle that can be created in Luxembourg as a UCI Part II for retail investors, or as a SIF, RAIF or SICAR for institutional investors. It offers a broad scope of eligible assets, with the possibility of investing in one single asset for institutional investors only.
The Latin American target
Alternative asset managers seeking opportunities in Latin America could make use of the widely varied Luxembourg fund toolbox. However, they should also take certain tax factors into account, including anticipating cash repatriation requirements, relevant exit strategies and the potential access to double tax treaties. These should always be analyzed on a case-by-case basis.
Currently, Luxembourg has an extensive network of double tax treaties, including countries in Latin America.15
The Luxembourg-Argentina and Luxembourg-Colombia double tax treaties grant collective investment vehicles—which are treated as a body corporate for tax purposes—access to the treaty’s tax allocation rules. This is because the fund vehicles are considered as resident entities and beneficial owners of the income they receive. This setup encourages direct investment in these jurisdictions via Luxembourg opaque funds into different types of assets, such as shares and participations in other companies, real estate, infrastructure, or commodities (in the case of UCIs).
The treaties signed between Luxembourg and Brazil16 and between Luxembourg and Mexico17 do not apply to collective investment schemes. In this scenario, alternative asset managers may consider unregulated partnerships, or companies that could enjoy the full benefit of double tax treaties, as well as RAIF-SICARs or the fully regulated SICAR for venture capital and private equity investments, to market the fund vehicles to targeted investors in the EU under the European passport.
The treaty between Luxembourg and Panama is silent about whether it covers investment funds, although Luxembourg’s view is that this treaty applies to collective investment schemes under a corporate form.18 A conservative approach would be to seek confirmation from the Panama tax office on whether the treaty would apply on a case-by-case basis. Still, asset managers could pursue investments in the country—a financial hub in Latin America—via unregulated entities, RAIF-SICARs or SICARs.
Last but not least, the double tax treaty between Luxembourg and Uruguay19 extends the tax advantages to collective investment vehicles in both corporate and transparent forms, such as contractual funds or partnerships. This makes Uruguay a more competitive route into Latin America compared to other countries, given the scope of this treaty is more ample.
“Alternative asset managers seeking opportunities in Latin America could make use of the widely varied Luxembourg fund toolbox. However, they should also take certain tax factors into account, including anticipating cash repatriation requirements, relevant exit strategies and the potential access to double tax treaties. These should always be analyzed on a case-by-case basis.”
Conclusion
Luxembourg offers a wide and flexible product range, with neutral tax regimes and potential access to double tax treaties. Asset managers should remain confident in using the Luxembourg fund platform as a gateway for European and international strategies to pursue commercial ventures in Latin America.
1 ALFI, “Industry statistics – Luxembourg,” accessed 21 February 2025.
2 Preqin, Preqin markets in focus: Latin America’s growing appetite for alternative assets, March 2021.
3 Amongst the alternative asset classes, natural capital has seen a compound annual growth rate of c.38% in the past years (Preqin data, LatAm investors’ allocations to alternatives, 2016 – 2022).
4 UCITs: undertakings for collective investments in transferable securities.
5 UCIs Part II: funds set up under Part II of the Luxembourg Law of 17 December 2010 on undertakings for collective investment (UCIs).
6 SIFs: specialized investment funds.
7 SICARs: investment companies in risk capital.
8 By 2020, Luxembourg fostered 1,448 SIFs managing net assets close to EUR596 billion. Patrick Jacquemot, “Quand le FIS passera à la caisse,” Virgule, 9 September 2020.
9 CSSF Directive 06/241 defines the criteria for an investment to be classified as risk capital. One example of a risk capital security is shares or interest in another company.
10 RAIFs: reserved alternative investment funds subject to the Luxembourg Law of 23 July 2016, and the Law of 12 July 2013 on AIFMs (“AIFM Law”).
11 A special limited partnership (SCSp) can qualify as an AIF if it fulfills the conditions of Article 1(39) of the AIFM Law.
12 SOPARFI: SOciété de PARticipations FInanciéres.
13 ESMA, “Register of authorised European long-term investment funds (ELTIFs),” accessed 21 February 2025.
14 Regulation (EU) 2023/606 of the European Parliament and of the Council of 15 March 2023 amending Regulation (EU) 2015/760 as regards the requirements pertaining to the investment policies and operating conditions of European long-term investment funds and the scope of eligible investment assets, the portfolio composition and diversification requirements and the borrowing of cash and other fund rules.
15 Argentina, Brazil, Colombia, Panama and Uruguay.
16 By virtue of an express agreement between Luxembourg and Brazil.
17 Based on Article 29 of the double tax treaty.
18 According to Circulaire du directeur des contributions L.G. – A. n° 61 of 24 December 2024.
19 Cfr. Article 3 and Protocol of the treaty. Available online: https://impotsdirects.public.lu/dam-assets/fr/conventions/conv-neg/convention-luxembourg-uruguay-signee-a-bruxelles-le-10-mars-2015.pdf
Authors
Samara Brey
Tax Director
Deloitte Luxembourg
