LUXEMBOURG Law and Practice Contributed by: Evelyn Maher, Gaston Aguirre Draghi and Djelloul Mansour, BSP
2.3.11 Approach of the Regulator The CSSF takes a practical approach. They can be approached for face-to-face meetings, par - ticularly in relation to a new entry to the market or in relation to new projects. As regards ongo - ing matters, they can be reached by phone or email. The CSSF has also set up an electronic platform to facilitate the exchange of documents and information. 2.4 Operational Requirements See 2.3 Regulatory Environment for further dis- cussion on investment restrictions, borrowing restrictions and risk diversification rules appli - cable to Luxembourg AIFs. AIFs managed by a fully authorised AIFM, and SIFs, SICARs and Part II UCIs that do not have an AIFM, must appoint a depositary acting in the interests of investors and providing services as required by the respective product laws as well as the AIFM Law (ie, safekeeping of assets, cash monitoring and monitoring of compliance with the legal and regulatory framework). Deposi - taries must be credit institutions established in Luxembourg and have a specific licence granted by the CSSF in order to carry out such business or be so-called depositary-lites, which may be appointed for certain types of AIFs that do not hold financial instruments and must be held in custody. AIFs must have an AML policy and comply with the AML Law for their business relationships (including for their investors). Asset valuation of AIFs must be done in accord - ance with the laws applicable to them, as well as in accordance with the AIFM Law where the AIFs are managed by a fully authorised AIFM.
In accordance with CSSF Circular 24/856, AIFs that are regulated entities must have in place policies and procedures to deal with NAV cal - culation errors, investment breaches and other errors. 2.5 Fund Finance Luxembourg AIFs frequently borrow either for bridging finance, working capital purposes or, in the case of some funds, leverage. While there are lenders on the Luxembourg mar - ket, lenders are often from outside Luxembourg. There are no borrowing restrictions applicable to SIFs, SICARs, RAIFs or SLPs, though pursuant to the AIFMD there are rules around disclosing the maximum amount of leverage. Part II UCIs are subject to borrowing restrictions (generally 25% of NAV, though in the case of hedge funds this can be increased). The lender will generally take security. The type of security will depend on the type of borrow - ing and types of assets involved. Security over undrawn commitments and pledges over Lux - embourg bank accounts are often seen. 2.6 Tax Regime Part II UCI, SIF and RAIF-SIF The Part II UCI, SIF and RAIF-SIF are exempt from net wealth tax, municipal business tax and corporate income tax. Luxembourg withholding tax does not apply to distributions made by the SIF to investors. These entities also benefit from a value added tax (VAT) exemption on manage - ment services. A SIF and RAIF-SIF are subject to subscription tax at an annual rate of 0.01% based on their NAV. There are however several categories of exemptions. Part II UCIs are subject to a sub -
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