LUXEMBOURG Law and Practice Contributed by: Claudia Hoffmann, Daniel Krauspenhaar, Stefanie Samosny and Sascha Wiemann, Luther
compatible with its investment strategy and redemp - tion policy. This offers managers flexibility in tailoring their fund structures to investor needs while demon - strating robust risk management. The regulatory tech - nical standards (RTS) from the European Securities and Markets Authority (ESMA) published on 21 Octo - ber 2025 (which are still subject to endorsement by the European Commission) provide additional detail on the operational requirements for maintaining an open-ended structure, which further enhances pre - dictability for market participants. AIFMD II must be implemented into Luxembourg law by 16 April 2026. Based on the recently published Draft Bill No 8628, Luxembourg is expected to imple - ment the new regime without gold-plating, thereby ensuring that sponsors can benefit from the full range of structuring opportunities made available under AIFMD II. Revival of Regulated Fund Structures A trend towards regulated vehicles is observable (ie, vehicles that are authorised and supervised by the CSSF), as is the opening of alternative strategies to retail investors, a development that is supported by the revised ELTIF framework. This development has been further enhanced by the CSSF through its new “e-Identification” system (applicable as of April 2025) replacing the existing VISA procedure for offering documents of regulated funds, and featuring a new unique identification number and e-identification date. The new system establishes a catalogue of amend - ments that do not legally require authorisation and prior review by the CSSF, and is expected to signifi - cantly reduce approval timelines through streamlined and more efficient administrative procedures. Sustainability Sustainability remains a focus, both for sponsors and for investors. With Circular 24/863, the CSSF con - firmed the application of ESMA’s guidelines on funds’ names using ESG or sustainability-related terms. These guidelines bring additional clarity by intro - ducing quantitative thresholds for the use of such terms, tying them to the proportion of investments used to meet environmental or social characteristic or sustainable investment objectives, and by defin - ing certain excluded investments depending on the
terminology employed. This provides fund managers and investors with greater transparency and legal cer - tainty when using ESG references. On a more global scale, the contemplated revision of the Sustainable Finance Disclosure Regulation (SFDR) in the context of the sustainability “Omnibus”, once finalised, aims at simplifying and harmonising sustainability reporting requirements across the EU, and could reduce com - plexity and enhance legal certainty for fund managers and investors alike. Carried Interest As part of its ongoing efforts to enhance its attractive - ness for fund managers and sponsors and to address gaps in the previous regime, Luxembourg’s govern - ment recently published a new bill of law to modernise its carried interest tax regime. The new rules, which would apply from tax year 2026 if adopted, foresee that contractual carried interest will be taxed at just a quarter of the standard progressive income tax rate, while participation-linked carried interest may be fully exempt from taxation. Additionally, the bill amends the scope of eligible beneficiaries of the current regime, which, going forward, may include both employees and non-employees, providing managers and spon - sors with a more predictable and favourable frame - work for structuring carried interest. 2. Funds 2.1 Types of Alternative Funds and Structures Luxembourg offers one of the most comprehensive and flexible investment funds toolboxes in Europe for the establishment of AIFs, making it a go-to jurisdic - tion for such vehicles globally. Luxembourg AIFs may be set-up as regulated or unregulated vehicles, open-ended or closed-ended funds, purely contractual vehicles (so-called fonds commun de placement FCP) or other structures (eg, in corporate form or as a partnership). Most Luxembourg AIFs can be established as umbrella funds with multiple segregated sub-funds or as stan - dalone vehicles. The choice between corporate forms (such as public limited liability companies (SAs) or cor - porate partnerships limited by shares (SCAs)), part -
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