LUXEMBOURG Law and Practice Contributed by: Claudia Hoffmann, Daniel Krauspenhaar, Stefanie Samosny and Sascha Wiemann, Luther
4.11 Anti-Money Laundering (AML) and Know Your Customer (KYC) Regime Luxembourg’s AML/CTF regime is primarily set out in the 2004 Law, which implements successive EU AML Directives. It is complemented by CSSF Regulation No 12-02, Circular CSSF 18/698 and other sector-specific guidance. The regime applies to a broad range of pro - fessionals, including regulated AIFs and AIFMs. Key features include the following. • Customer due diligence (CDD): identification and verification of the identity of clients when establish - ing a business relationship, with enhanced custom - er due diligence required in situations presenting a higher risk of AML/CTF (eg, when dealing with politically exposed persons or clients from high- risk countries). Ongoing monitoring of business relationships and transactions is mandatory. • Beneficial ownership: identification and verification of the ultimate beneficial owners and their publica - tion in Luxembourg’s central register of beneficial owners. • Internal controls: implementation of robust internal controls, among others, through the appointment of responsible persons regarding compliance (see 2.9 Rules Concerning Service Providers ), and by ensuring that members of governing bodies partici - pate in specific ongoing training programmes and by providing/offering such programmes to employ - ees. • Risk-based approach: professionals are required to assess the AML/CTF risks associated with their activities, clients, services or geographic areas. Policies and procedures must be tailored accord - ingly. • Suspicious activity reporting: all professionals must report suspicious transactions or activities. This obligation covers both completed and attempted transactions regardless of the amount. • Sanctions: non-compliance can result in admin - istrative sanctions or criminal penalties, including fines of up to EUR5 million or the withdrawal of licences/authorisations. 4.12 Data Security and Privacy for Investors AIFMs and AIFs in Luxembourg must comply with the GDPR and with the Luxembourg law of 1 August 2018
For resident investors, taxation of income and gains from AIF investments depends on the investor’s indi - vidual circumstances and tax status. 4.9 Double Tax Treaties Luxembourg AIFs may benefit from double tax trea - ties, but access depends on the fund’s legal form and tax status. AIFs established as corporate entities may access Luxembourg’s extensive double tax treaty net - work (certain limitations or applicability requirements may apply). The Luxembourg tax administration has issued guidance (Circular LG-A No 61 of 8 December 2017) clarifying which AIFs may benefit from treaty access, and some treaties specifically list eligible Lux - embourg fund vehicles. In addition, AIFs established under the SICAR (or RAIF-SICAR-like) regime as fully taxable companies should generally qualify for ben - efits under double tax treaties. By contrast, AIFs structured as tax-transparent enti - ties – such as SCSs or SCSps – do not generally qual - ify for double tax treaty benefits in their own right, as they are not regarded as taxpayers under Luxembourg law. In these cases, treaty access generally depends on the status and residence of the investor rather than the AIF itself. 4.10 Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) Compliance Regime Luxembourg has implemented both the Foreign Account Tax Compliance Act (FATCA) and the Com - mon Reporting Standard (CRS) into domestic law. In practice, most Luxembourg AIFs qualify as reporting (foreign) financial institutions, and must therefore reg - ister with the Internal Revenue Service (IRS) for FATCA purposes and comply with reporting and disclosure obligations under both FATCA and the CRS vis-à-vis the Luxembourg tax authorities. The Luxembourg tax authorities then exchange the reported information with the IRS (for FATCA) or with other participating jurisdictions (for the CRS). Non-compliance may trigger administrative penalties and, in the case of FATCA, may additionally result in a 30% withholding tax on certain US-source income.
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