Obtaining an Asset Management License in Luxembourg: Key Benefits and Requirements

Luxembourg is well-regarded as one of the most prominent financial centers in Europe, especially when it comes to investment funds and asset management. For decades, Luxembourg has been a global hub for financial services, attracting fund managers and investors from around the world due to its business-friendly environment, stability, and highly skilled workforce. An asset management license in Luxembourg provides access to the European market and opens doors for business growth. Below we explore the primary benefits of getting such a permit there, the types of such Luxembourg business licenses available, and the main regulatory normative points to consider.

Key Privileges of an Asset Management License Luxembourg

Getting such permission there offers multiple advantages, making it a strategic choice for asset managers looking to operate within the European Union (EU) and globally. Here are some of the key asset management benefits.

Access to the European Market

1. With an asset management license in Luxembourg, companies can access the entire EEA due to the passporting rights under the European Union’s AIFMD and the Undertakings for UCITS framework.
2. Passporting allows a Luxembourg-based asset manager to operate and distribute funds across all EU member states without needing additional licenses in each country.

Favorable Tax Environment

1. Luxembourg offers a tax-efficient environment, which is particularly attractive for asset managers. The country has a broad network of double taxation treaties, enabling tax optimization for cross-border transactions.
2. Certain types of investment vehicles in Luxembourg are exempt from corporate income tax, and other funds benefit from reduced tax rates on management fees, further lowering operational costs.

Political and Economic Stability

1. Known for its political and economic stability, Luxembourg has a strong legal framework that aligns with EU standards, fostering confidence in investors and asset managers alike.
2. Government is supportive of financial services Luxembourg and frequently updates regulations to accommodate innovation, which includes robust frameworks for alternative investment funds, private equity, and real estate funds.

High-Quality Infrastructure and Expertise

1. Luxembourg is home to a highly developed financial ecosystem that includes leading legal and consulting firms, auditors, and a knowledgeable workforce specialized in asset management.
2. The financial sector in Luxembourg has developed specialized infrastructure to support asset managers, from fund administration and custody services to regulatory compliance support.

Flexibility in Fund Structures

1. Luxembourg offers a wide range of fund structures to cater to various investment strategies and portfolio considerations, from UCITS and SIFs to RAIFs and SICAR.
2. This flexibility allows asset managers to create structures that align with their investment strategies and investor preferences, making Luxembourg a versatile location for diverse investment products.

Types of Asset Management Licenses in Luxembourg

Asset management companies in Luxembourg typically fall under two main regulatory frameworks, depending on their target investors and assets under management. Below are the main types of licenses.

UCITS Management Company License

1. UCITS funds are designed for retail investors, and their strict regulations are intended to protect investor interests. A UCITS management company license allows the fund manager to distribute UCITS-compliant funds across the EU.
2. This license is popular among asset managers targeting a broad range of investors due to its high level of investor protection and cross-border reach within the EU.

AIFM License

1. The AIFM license applies to managers of AIFs, which include private equity funds, hedge funds, real estate funds, and other specialized funds.
2. An AIFM license enables managers to operate under the AIFMD framework, offering access to institutional investors across the EU. This license is particularly attractive for managers who seek more flexibility in investment strategies compared to UCITS.

Self-Managed Investment Company (SMIC)

1. For asset managers looking to establish and manage their own fund, the SMIC option allows them to combine fund management and administration under a single entity.
2. This option is often preferred by large asset management firms with in-house expertise who want full control over their investment management and operational processes.

Regulatory Requirements for Obtaining an Asset Management License in Luxembourg

Luxembourg has rigorous but well-defined normative points for obtaining an asset management license. Here are the key steps and considerations.

Establishing the Legal Entity

1. Asset managers must first create a legal entity in Luxembourg, typically in the form of a public limited company (S.A.) or a private limited company (S.à r.l.). This entity must comply with Luxembourg’s company law, including minimum capital requirements and governance structures.
2. The entity must have its registered office and a physical presence in Luxembourg to demonstrate operational substance.

Capital

1. The initial capital requirement depends on the type of license. For a UCITS management company license, the minimum capital is generally EUR 125,000, while an AIFM license requires a minimum capital of EUR 300,000.
2. For AIFMs managing assets exceeding EUR 250 million, additional capital is required based on 0.02% of assets under management above this threshold.

Organizational and Staffing Points

1. The Luxembourg financial regulator, CSSF, mandates that licensed asset managers have a robust organizational structure with competent staff, including compliance, risk management, and internal audit functions.
2. Key personnel, such as directors and managers, must demonstrate sufficient experience and qualifications in asset management to meet the CSSF’s standards.

Risk Management and Compliance

Licensed asset managers are required to implement a comprehensive risk management framework to identify, monitor, and mitigate risks associated with their investment activities.

A designated compliance officer must ensure that the firm adheres to applicable regulations, including AML/CTF-measures, in accordance with Luxembourg and EU laws.

Application Process and CSSF Authorization

1. To obtain the license, the entity must submit a detailed application to the CSSF, including information on the business plan, organizational structure, risk management framework, and information about key personnel.
2. The CSSF reviews the application for compliance with normative points. Once approved, the asset management company is authorized to commence its operations.

Ongoing Regulatory Obligations

1. Licensed asset managers must adhere to ongoing reporting and compliance obligations, including regular financial reporting, risk assessments, and audits.
2. The CSSF conducts periodic inspections to ensure compliance and may impose penalties in cases of non-compliance.

Key Steps in the Licensing Process

The process to obtain an asset management license in Luxembourg generally involves the following steps.

1. Pre-Application Preparation: prepare necessary documents, including the business plan, financial projections, and organizational charts; appoint qualified directors and establish a compliance framework.
2. Application Submission: submit the application to the CSSF with all required documentation, including proof of capital, risk management frameworks, and key personnel credentials; pay any applicable fees.
3. CSSF Review and Interviews: CSSF may request additional information or clarifications and might conduct interviews with key personnel to assess suitability.
4. Final Approval and Registration: upon meeting all requirements, the CSSF grants the license. The entity must then register with the CSSF and may begin offering asset management services.
5. Ongoing Compliance: ensure continuous compliance with all regulatory obligations, including regular reporting and audits.

Obtaining an asset management license in Luxembourg provides significant strategic advantages, including access to the EU market, tax efficiency, and a supportive regulatory environment. Although the application process is rigorous, Luxembourg’s clear regulatory framework and business-friendly policies make it a premier choice for asset managers. By securing a license in Luxembourg, asset management firms can strengthen their reputation, attract a broader investor base, and position themselves for long-term growth in one of Europe’s most dynamic financial hubs.

Article’s author is Denys Chernyshov – founder and CEO of the leading international law firm Eternity Law International.