Luxembourg to introduce ELTIF law

The law will allow retail investors to make investments in private equity and infrastructure funds that benefit from double taxation protection.

Luxembourg plans to implement a common law to complement the existing European Long-term Investment Fund (ELTIF) regulation and supplement it in areas that are lacking, such as taxation, Linklaters partner Freddy Brausch told delegates last week at the ALFI European Alternative Investment Conference.

As a type of alternative investment fund, ELTIFs enable retail investors to make investments in long-term, private equity, infrastructure and other illiquid assets. 

Up until now, investments into these funds have been typically made by institutional investors and have not been accessible to retail investors.

Under the new law, ELTIFs will benefit from a tax regime similar to Luxembourg’s SICAR funds, meaning that long-term funds will also receive protection on pricing when capital is moved in and out of different jurisdictions.

“The law will help to clarify which infrastructures qualify to be an ELTIF and introduce a tax regime that applies specifically to ELTIFs,” said Brausch.

Currently, most Luxembourg investment funds are taxed under the “taxe d’abonnement regime,” which does not allow them to benefit from the country’s double taxation treaties with other Organization for Economic Co-operation and Development (OECD) member countries.

Double taxation protection is critical for infrastructure, real estate and private equity investments, and in particular long-term investment funds, because these funds are structured in a way that requires investor capital to be received, directed and deployed in different countries.

According to Brausch, the tax regime will only apply to newly set-up ELTIFs and is likely to be announced before the summer.

The European Parliament’s ELTIF regulation, which came into effect at the beginning December 2015, requires long-term investment fund managers to be authorised under the Alternative Investment Fund Managers Directive.