What is FIAR?
The FIAR is a subtype of AIF (Alternative Investment Fund), as are SIFs (Specialized Investment Funds), SICARs (Venture Capital Investment Companies), and FCPs (Mutual Funds). All these funds are part of the universe of Alternative Investment Funds in Luxembourg, which encompass investment vehicles not intended for the general public.
The main characteristics of FIARs in Luxembourg are presented below:
1. 🎯 Exclusive access for professional investors:
This type of fund can only be subscribed to by professional investors, which excludes retail investors and small savers. This includes professional and institutional investors such as banks, insurance companies, and other investors who can confirm in writing that they meet the condition of being an expert investor and who invest at least 125,000 euros in the FIAR or who have an estimate made by a credit institution, an investment company, or a management company certifying their experience, knowledge, and expertise in the proper assessment of an investment in the FIAR. This limitation protects less sophisticated investors and allows for a more flexible and less regulated structure.
2. 🤝 No prior authorization from the CSFF required:
FIARs are not subject to prior authorization and supervision by the CSSF (Commission de Surveillance du Secteur Financier), which allows for rapid, efficient launch without regulatory delays.
3. 🏛️ Mandatory management by an authorized AIFM:
Although FIARs do not require authorization from the CSFF, this does not mean that they are not regulated. All FIARs must be managed by a fully authorized external alternative investment fund manager (AIFM) in Luxembourg or another European Union member state. This manager is responsible for ensuring that the fund complies with the requirements of the AIFMD Directive.
4. 🔀 Flexibility in assets and investment strategies:
FIARs allow investment in a wide range of alternative and illiquid assets such as private equity, real estate, private debt, infrastructure, derivatives, cryptocurrencies, and others. Furthermore, there are no strict legal restrictions on risk concentration or minimum liquidity ratios, which facilitates specialized and sophisticated strategies.
5. 🌌 Freedom to adopt different legal forms:
An FIAR can be set up as a collective investment fund (FCP), an open-ended investment company (SICAV), or a closed-ended investment company (SICAF). In addition, these companies may take the legal form of a limited partnership, a special limited partnership, a joint-stock limited partnership, a cooperative organized as a corporation, a limited liability company, or a corporation.
6. ☂️ Possibility of structuring as an umbrella fund:
It may operate as an umbrella fund composed of multiple separate legal compartments, each with its own investment policy, assets, liabilities and management rules.
7. 📊 Attractive taxation:
The law provides for two types of tax regimes for Luxembourg FIARs. The first option is to opt for the normal tax regime and benefit from Luxembourg's double taxation agreements, and the second is to opt to pay the 0.01% subscription tax calculated on the value of its net assets and be exempt from paying corporate tax and municipal tax.
FIAR vs SIF
As seen in the previous section, alternative investment funds in Luxembourg can be structured through different legal regimes, each with its own particularities in terms of flexibility, taxation, regulatory requirements, and operating costs. Among the most commonly used forms are FIARs, SIFs (Fonds d'Investissement Spécialisé), SICARs (Sociétés d'Investissement en Capital à Risque) and mutual funds such as FCPs (Fonds Commun de Placement).
The first two (FIAR and SIF) have many similarities. FIARs enjoy the same level of structural flexibility as specialized investment funds, but they also have significant differences in terms of supervision, speed of incorporation, authorized manager requirements, and level of formal regulation. To provide a better overview of when to choose one or the other, the following table summarizes the main differences between the two:
| Characteristic | FIAR | SIF |
| Legal basis | Law of July 23, 2016 | Law of 13 February 2007 |
| CSSF supervision | No approval or ongoing supervision | Yes, prior approval and ongoing supervision by the CSSF |
| Time to launch | Fast | Longer (requires CSSF authorization) |
| Investor eligibility | Professional investors only | Well-informed investors, including professionals |
| AIFM requirement | Yes: must appoint an authorized external AIFM | Yes: must appoint an authorized external AIFM |
| Investment flexibility | Very high, no legal diversification rules | High, subject to diversification principles |
| Legal forms available | SCSp, SCS, SA, SARL, FCP, SICAV | Same: SCSp, SCS, SA, SARL, FCP, SICAV |
| Luxembourg tax treatment | Exempt from corporate income tax and capital gains; only subject to 0.01% subscription tax | Same: full tax exemption and 0.01% annual subscription tax |
| Regulatory transparency | More internal flexibility; no regulator approval needed for changes | CSSF must approve structural or key changes |
| Regulatory and operational costs | Lower setup and maintenance costs | Higher costs due to CSSF oversight |
How to set up a FIAR in Luxembourg
Before concluding, we will provide a general overview of the process for creating a FIAR in Luxembourg through five main stages:
1. Step 1 - defining the project and choosing the legal form
The first step is to thoroughly define the fund project. At this point, the investment strategy, the types of assets to be managed, the profile of the investors for whom the fund is intended, and the economic and financial objectives to be pursued are decided. In addition, the most appropriate legal form must also be selected from among those mentioned in the previous section, in accordance with the needs of the project.
2. Step 2 - selection of key partners
Once the project has been defined, it is necessary to choose some partners who are essential for the operation of the fund, such as an authorized alternative investment fund manager (AIFM) based in Luxembourg or another EU country, a duly authorized depositary who will be responsible for the custody and supervision of the fund's assets, and an external auditor who will be responsible for the annual review of the accounts.
3. Step 3 - preparation of legal documentation
The third step consists of preparing all the necessary legal documentation. This includes the fund prospectus detailing the strategy, administration, risks, and operating rules, as well as the management regulations if it is an FCP or the articles of association if it is a company. In addition, all the documentation required to register the fund with the Luxembourg Business Register (LBR) must also be gathered.
4. Step 4 - incorporation and registration of the fund
Subsequently, it is necessary to carry out the incorporation and legal registration of the fund. For companies, this involves signing the articles of association before a notary and filing the articles of association together with the appointment of the AIFM with the Trade Register. In addition, the incorporation must then be published in the electronic Official Gazette (RESA).
5. Step 5 - launch and marketing
Finally, the fund must be marketed. To do this, marketing materials must be prepared along with the Key Investor Information Document (KIID), and a distribution strategy must be developed. FIAR funds require a minimum of 1,250,000 euros to be reached within a maximum period of one year from their creation.
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The FIAR represents a significant innovation within the Luxembourg alternative investment fund ecosystem. This type of fund offers a modern and highly competitive solution for promoters, managers, and international structures seeking to launch investment vehicles aimed at a professional audience.
This article has presented its main characteristics, the differences with the similar SIF, and has outlined how to set one up. However, the subject of alternative investment funds such as the FIAR is broad and complex, so it is natural that you may still have questions after reading this article or having read multiple articles on the subject. If this is the case and you are involved in this topic, either because you want to set up a fund of this type or for any other reason, remember that EasyBiz is here to make your life easier. Don't hesitate to contact us.
