🇱🇺Luxembourg: funds, holding companies and fintech licences

Luxembourg occupies a position in European private capital that the word "offshore" describes badly. The rates are ordinary European ones: the aggregate corporate tax burden in the capital is 23.87% for tax year 2025 onwards. The Grand Duchy's value rests elsewhere — on a single financial regulator (the CSSF), the depth of its fund-servicing industry, and the recognition its structures get from correspondent banks, depositaries and institutional investors. Banking secrecy left with automatic exchange of information; the infrastructure stayed and grew.

For private capital, four load-bearing lines converge here: the investment fund, the holding company, the insurance wrapper, and custody with private banking. Each is served by a locally licensed provider under local supervision, and the result works across the EEA through the passporting mechanisms of the directives. A fifth line — payment and crypto licences — serves operating businesses rather than capital as such.

Concept

Luxembourg sells regulatory predictability and counterparty recognition. That is measurable: according to the CSSF, net assets of regulated UCIs stood at EUR 6,731.325 billion as at 30 June 2026, across 2,968 undertakings and 13,268 active fund units. The country is the world's second fund domicile after the United States and the first in Europe.

The practical consequence is straightforward: structures here are rarely built for the rate. Sponsors come when they need a wrapper that a depositary, an insurer, a correspondent bank or an institutional co-investor will accept without argument — and when they are prepared to pay for it in substance and supervision costs.

What follows takes the lines in turn; the answer to a single question is faster to take from the cluster map.

The fund line: RAIF, SIF, SCSp

The choice of vehicle turns on where regulation attaches — to the product or to the manager. The SIF (Law of 13 February 2007) and the SICAR (Law of 15 June 2004) are authorised and supervised by the CSSF itself. The RAIF (Law of 23 July 2016) undergoes no product-level approval: it must appoint an authorised AIFM, and supervision arrives through that manager. The difference in launch timing is measured in months; the difference in the volume of obligations is close to nil.

The working mechanics for private capital are set out in the write-ups on Luxembourg funds and the SCSp. The SCSp is Luxembourg's answer to the English limited partnership — tax transparent, and therefore the base form for PE and VC; RAIFs and SIFs more often take the SICAV form with variable capital and compartments. The depositary must be located in Luxembourg. Subscription tax (taxe d'abonnement) runs at 0.01% a year of net assets for institutional and money-market funds and 0.05% for others.

How this line compares with alternatives by domicile and by the manager's location is covered in fund domiciles, manager jurisdictions and the thematic funds hub; the Asian alternative is the Singapore private fund.

The ManCo model and AIFMD II

Running an own licensed AIFM for a single fund is almost never economic. The standard answer is a third-party ManCo: the licensed manager takes on portfolio risk management and regulatory reporting, while investment decisions are delegated to an adviser. The requirements on that manager are set by CSSF Circular 18/698 — central administration, own funds, staffing, delegation rules and the AML function.

The rules changed recently and materially. By the Law of 3 March 2026, Luxembourg transposed Directive (EU) 2024/927 (AIFMD II and UCITS VI). Per the CSSF communication, from 16 April 2026 UCITS and authorised AIFMs managing open-ended AIFs must select at least two liquidity management tools from Annex III, points 2–8 of the 2010 Law or Annex V, points 2–8 of the 2013 Law (a money market fund authorised under Regulation (EU) 2017/1131 may select only one), record the selection in the fund rules and notify the CSSF; that selection cannot consist only of swing pricing and dual pricing.

For a capital holder this means the terms of exit from a fund have stopped being a purely commercial understanding with the manager. The set of suspension and dilution tools is now fixed in the fund documents and known to the regulator in advance.

The holding company: SOPARFI and the participation exemption

A SOPARFI is an ordinary S.à r.l. or S.A. acting as a holding vehicle; no separate regime or licence sits behind the acronym. Incorporation detail is in the Luxembourg company write-up, a comparison of venues in holding structures, and payment routes in holding dividend flows.

The participation exemption (art. 166 LIR) does not arise automatically. As at 2026-08-30 the conditions are these: both parent and subsidiary must fall within the eligible categories; a foreign subsidiary must bear a tax comparable to Luxembourg CIT — from tax year 2025 the threshold is 8%, against 8.5% before; the holding must represent at least 10% of capital or carry an acquisition price of at least EUR 1.2 million for dividends and EUR 6 million for capital gains; and the uninterrupted holding period is 12 months, or a commitment to complete it.

From tax year 2025 an opt-out exists: where entitlement rests solely on the acquisition-price threshold, the taxpayer may waive the exemption annually and per shareholding. The tool matters where the exemption obstructs loss utilisation or worsens the effective-rate computation under Pillar Two.

The aggregate tax burden on a holding company is built from several charges, each relieved by its own mechanism.

The minimum NWT is the charge that makes an empty structure pointless: it tracks the balance sheet total, and with no CIT for the preceding year there is nothing to set against it.

One persistent misconception is worth dispelling: Luxembourg has no notional interest deduction and never introduced one — that is a Belgian, Cypriot and Maltese instrument. Debt financing of a holding company is constrained by the ATAD rule on exceeding borrowing costs: these are deductible up to the higher of 30% of EBITDA or EUR 3 million, with the non-deducted balance carried forward without time limit. CFC mechanics and the directive's other consequences are covered in ATAD and CFC in the EU.

The insurance wrapper and the triangle of security

Luxembourg dominates PPLI for reasons other than tax: the policy itself is tax neutral and is taxed under the rules of the policyholder's country of residence. The reason is the asset-protection regime known as the triangle of security.

The construct has three participants: the insurer, a custodian bank and the Commissariat aux Assurances. Assets representing insurance liabilities are held separately from the insurer's own assets and deposited with the custodian under an agreement the CAA approves before any deposit is made. Insurance claims carry a super-privilege: the policyholder is satisfied first — ahead of the State, social security institutions, employees and shareholders. The basis is the Law of 7 December 2015 on the insurance sector, clarified by the Law of 10 August 2018.

The investment perimeter inside the policy is set by CAA Circular Letter 15/3 of 24 March 2015, as amended. Policyholders fall into five categories by premium size and declared securities wealth, and the category determines the permitted asset universe of the internal fund.

This is why families with a large portfolio end up in category D: it alone removes the composition limits on the internal fund. The form of the fund matters too — in a FID an appointed manager runs the mandate, while in a FAS the policyholder selects each asset personally, and that detail regularly turns into a dispute with the tax authority of the residence country over whether the wrapper retains its tax character. The succession side is covered in life insurance in succession planning.

Banks, custody and the settlement layer

The banking side is treated separately in Luxembourg banks. For a private client there are three distinct tracks — an operating account for the holding company, a depositary for the fund, and portfolio servicing — and the bank is chosen separately for each. Securities holding and settlement rest on local custody infrastructure and the international central securities depositary Clearstream, whose mechanics are described in Euroclear and Clearstream.

Deposit protection runs through the Fonds de garantie des dépôts Luxembourg: under articles 170–171 of the Law of 18 December 2015, all eligible deposits of one depositor at a bank are covered up to EUR 100,000, irrespective of nationality or residence, with payment within seven working days. The mechanism is not theoretical: the FGDL has paid out on the liquidations of Fortuna Banque (October 2023) and East-West United Bank (February 2024).

The payments and crypto perimeter is closed by CSSF licences — EMI and payment institution with an EEA passport, plus CASP status under MiCA; detail sits in the Luxembourg EMI licence write-up.

The individual: residence, tax, succession

Residence arises through domicile or habitual abode. The progressive income tax scale reaches 42% on income above EUR 234,870, with a solidarity surtax of 7% on the tax amount (9% above EUR 150,000 in classes 1 and 1a, or above EUR 300,000 in class 2), giving a top marginal rate of roughly 45.8% as at 2026-08-30.

Incoming specialists have the impatriate regime. Under the official guidance, from 1 January 2025 it exempts 50% of gross annual remuneration with the base capped at EUR 400,000 — a maximum of EUR 200,000 of exempt income. Conditions: a fixed annual salary from EUR 75,000, Luxembourg tax residence, and recruitment abroad or secondment within a group, where one company holds directly or indirectly at least 25% of the share capital or of the voting rights of the other. Moving from the old regime to the new one is irreversible.

Inheritance duty is computed on each heir's net share, with the rate turning on the degree of kinship and on whether the share falls within the legal portion or beyond it. Per guichet.lu guidance the rates fall out as follows.

Between all other persons the rate is 15%. Base rates are increased on a scale where the net share exceeds EUR 10,000. Foreign immovable property falls outside the base; the heirs' country of residence has no bearing on the Luxembourg computation.

Recurring combinations

The same combinations recur from client to client. A family office with several co-investors assembles an SCSp or RAIF under a third-party ManCo with a local depositary and administrator. A holder of a concentrated portfolio closes the task with a category D PPLI policy and no fund structure at all. A group with operating subsidiaries places a SOPARFI under a foreign trust or foundation and lives on the participation exemption.

Risks and costs