Luxembourg submits draft AIFM bill

In a bid to become the first jurisdiction to become compliant with the Alternative Investment Fund Managers’ (AIFM) Directive, Luxembourg has submitted draft legislation for parliament to vote on before the end of the year.

Market sources expect Parliament to vote on the bill in December, which would provide GPs six months to prepare before the directive’s 22 July go-live date.

The legislation provides buyout firms using Luxembourg SICAR or SIF vehicles, two popular structures for pan-European private equity acquisitions, both an AIFM compliant and non-AIFM compliant option. 

The option allows private equity firms outside the scope of the AIFM directive to more easily domicile funds in Luxembourg, according to Dechert’s Marc Seimetz, managing partner of the law firm’s Luxembourg office.The two regimes are similar, but AIFM compliant funds are subject to higher reporting requirements and must use a depository for the safekeeping of investor documents. To the industry's benefit, the draft allows for non-bank depositories in meeting the AIFM’s custodian requirement.

Funds compliant with AIFM however will benefit from the directive's pan-EU marketing passport giving them the freedom to solicit their funds more seamlessly across borders. 

The bill also modernises the country’s limited partnership law by introducing a structure more similar to the Anglo-Saxon model that comes without legal personality and features full tax transparency. “The new type of partnership that has been created is in essence trying to transpose an English law partnership model,” said Seitmetz. 

Private equity employees, but not GPs, will also receive a tax break under the draft bill. Employees receiving carry paid not as profit on a share or unit in a fund will be taxed under the “miscellaneous income” tax rate which is capped at 10.335 percent, according to a Loyens & Loeff tax lawyer Peter Moons.