Cost of Setting Up a Fund in Luxembourg: Key Factors and Estimates

Setting up a fund in Luxembourg is a popular choice for investors due to its favorable regulatory environment, robust infrastructure, and tax advantages. Luxembourg offers a variety of fund structures, such as UCITS, SIFs, RAIFs, and SICAVs, each with distinct requirements and costs. Below is a breakdown of the key costs involved in setting up a fund in Luxembourg.

 

1. Legal and Regulatory Costs

  • Legal Structuring and Documentation: Legal costs for drafting the fund's constitutive documents (prospectus, articles of incorporation, management agreements, etc.) can range between €50,000 to €150,000. The cost depends on the complexity of the fund and the fund type.
  • Regulatory Fees: The Commission de Surveillance du Secteur Financier (CSSF), Luxembourg's financial regulatory authority, charges authorization and supervisory fees. These fees vary by fund type:
    • For UCITS and SIFs: Expect regulatory fees of approximately €3,000 to €10,000 for registration and ongoing annual fees of around €2,500 to €5,000.
    • For RAIFs (Reserved Alternative Investment Funds): Since RAIFs are not directly supervised by the CSSF, regulatory costs may be lower but still require an authorized Alternative Investment Fund Manager (AIFM).

2. Fund Administration and Management Costs

  • Fund Administration: This includes accounting, reporting, and compliance services and usually ranges from €20,000 to €50,000 annually, depending on fund complexity, transaction volume, and asset size.
  • Fund Management and Advisory Fees: Management fees are negotiated with the AIFM or management company, generally 1-2% of assets under management (AUM). Advisory costs can be additional, particularly for funds requiring specialized investment strategies.

3. Depositary and Custodian Fees

  • A Luxembourg fund is required to appoint a depositary to safeguard its assets. Depositary fees are usually 0.01% to 0.10% of AUM per year, with minimum annual fees ranging from €15,000 to €30,000.

4. Audit and Reporting Costs

  • Funds in Luxembourg are required to undergo regular audits. Audit fees range between €10,000 and €25,000 per year, based on the fund's complexity and assets. Regular reporting to regulators, investors, and other stakeholders is also required, with additional costs for specialized reports.

5. Directorship and Governance Costs

  • Luxembourg fund structures require a board of directors or managers, usually with at least one local director. Costs for directorship services range from €15,000 to €40,000 per director annually.

6. Tax and Regulatory Compliance

  • Luxembourg offers favorable tax conditions, but funds must still comply with regulatory reporting and tax filings. Annual compliance and tax advisory costs generally range from €10,000 to €30,000.

7. Setup and Launch Fees

  • Initial setup costs, which may include initial AIFM fees, registration, and listing fees, can add an additional €10,000 to €30,000 to the budget.

Total Estimated Cost for Setting Up a Fund in Luxembourg

  • For a basic structure like a RAIF with straightforward investment strategies, initial setup costs typically range from €100,000 to €200,000. For more complex structures like UCITS or SIFs with higher regulatory oversight, expect a range of €200,000 to €500,000.
  • Ongoing operational costs are typically €75,000 to €200,000 per year, depending on fund complexity, services required, and size of assets under management.

Conclusion

Luxembourg offers flexible fund structures with a variety of costs based on complexity and compliance needs. Consulting with local experts, legal advisors, and regulatory consultants can help tailor a setup that balances cost-efficiency with regulatory compliance and aligns with the fund’s investment goals.