One of the key factors in favor of private equity or venture capital operations in Luxembourg remains its favorable tax environment. A stable tax framework, a highly competitive social security system (for companies, employers and employees) and the lowest VAT rate in Europe greatly contribute to making Luxembourg one of Europe’s most attractive jurisdictions for private equity or venture capital operations and investments. Of key importance remains, however, the double tax treaty network that Luxembourg has built up over many years. The Luxembourg tax environment is extremely beneficial for private equity or venture capital investment vehicles, both regulated and unregulated.
The SICAR, organized in the form of an SCS or SCSp, is tax transparent and thus not subject to corporate, municipal business and net wealth tax. Income and gains received or realized are thus not subject to tax in the hands of the SICAR. Income and gains may furthermore be paid to investors without any Luxembourg source taxation. SICARs in the corporate form organized as an SA or an SCA, are fully taxable companies. The income from transferable securities as well as any capital gains on the disposal of such securities are however exempt under specific conditions.
The SICAR in the corporate form will equally not be subject to net wealth tax (except for the minimum net wealth tax). Dividend distributions are also not subject to any Luxembourg taxation at source.
Luxembourg has bilateral tax treaties in force with all EU Member States and with a number of other countries (including almost all OECD Member States).
This network of tax treaties is constantly being expanded. SICARs and RAIFs which invest in risk capital, and SOPARFIs as Luxembourg taxable companies, are, from a Luxembourg perspective, entitled to treaty benefits and therefore benefit from double tax treaties concluded between Luxembourg and third countries.
The application of tax treaties to SIFs and RAIFs taking the corporate form is to be assessed on a case-by-case basis depending on the wording of the treaty provisions and their interpretation by the relevant foreign authorities.
Fiscally transparent SIFs and RAIFs themselves may generally not benefit from treaty provisions due to their tax transparency.