Setting Up a Digital Asset Fund in Luxembourg

Luxembourg has solidified its position as a global leader in the investment fund industry, managing over EUR 5,000 billion in assets and serving as Europe’s largest fund domicile. Its innovative regulatory framework, political stability, and robust financial ecosystem make it an ideal jurisdiction for setting up digital asset funds, which invest in cryptocurrencies, tokenized assets, and blockchain-based instruments. This article explores the key steps, structures, and considerations for Luxembourg digital asset fund setup a digital asset fund in Luxembourg, leveraging its “toolbox” of flexible fund vehicles and forward-thinking approach to digital finance.

Why Choose Luxembourg for Digital Asset Funds?

Luxembourg’s appeal for digital asset funds stems from several factors:

1. Global Fund Hub: As the world’s largest cross-border fund distribution center, Luxembourg funds are marketed in over 70 countries, providing access to a vast investor base.
2. Flexible Fund Structures: The jurisdiction offers a range of regulated and unregulated fund vehicles, such as the Special Limited Partnership (SCSp) and Reserved Alternative Investment Fund (RAIF), tailored to alternative assets like digital currencies and tokenized securities.
3. Blockchain-Friendly Regulation: Luxembourg has embraced blockchain technology, with clear guidelines for virtual asset service providers (VASPs) and support for tokenization in funds.
4. Tax Advantages: Funds like Specialized Investment Funds (SIFs) and RAIFs benefit from exemptions on capital gains and income taxes, with a low annual subscription tax of 0.01% of net assets.
5. Expert Ecosystem: A network of multilingual lawyers, auditors, fund administrators, and Alternative Investment Fund Managers (AIFMs) supports seamless fund setup and compliance.

Key Fund Structures for Digital Assets

Luxembourg offers several fund structures suitable for digital asset investments, each with distinct regulatory and operational features:

1. Special Limited Partnership (SCSp)

• Overview: An unregulated, tax-transparent vehicle modeled after Anglo-Saxon limited partnerships, ideal for private equity, real estate, and digital assets.
• Setup: Requires one General Partner (GP) and one Limited Partner (LP). No prior authorization from the Commission de Surveillance du Secteur Financier (CSSF) is needed, enabling setup in as little as one to two weeks.
• Regulation: No risk diversification requirements or mandatory custodian/auditor. If assets under management (AUM) exceed EUR 100 million, an AIFM must be appointed.
• Use Case: Suitable for digital asset funds focusing on cryptocurrencies, NFTs, or tokenized real-world assets due to its flexibility and low setup costs (starting at EUR 25,000).

2. Reserved Alternative Investment Fund (RAIF)

• Overview: Introduced in 2016, the RAIF is a lightly regulated fund not directly supervised by the CSSF but managed by an authorized AIFM.
• Setup: Can be structured as a SICAV, FCP, or SCSp, often as an umbrella fund with multiple compartments for different digital asset strategies. Setup takes two to four months, including bank account opening.
• Regulation: Subject to a 0.01% annual subscription tax. The appointed AIFM ensures compliance with the Alternative Investment Fund Managers Directive (AIFMD), granting EU passporting rights for distribution.
• Use Case: Ideal for fund managers targeting tokenized securities or hybrid digital/traditional asset portfolios, leveraging the AIFMD passport for EU-wide marketing.

3. Specialized Investment Fund (SIF)

• Overview: A regulated fund for qualified investors, suitable for a wide range of assets, including digital currencies, private equity, and tokenized real estate.
• Setup: Requires CSSF approval, taking up to two months. Can be structured as a SICAV, SICAF, or FCP, with a minimum diversification requirement (no single asset exceeding 30% of AUM).
• Regulation: Subject to a 0.01% subscription tax and CSSF oversight. Must appoint a Luxembourg depositary for asset safekeeping.
• Use Case: Best for institutional investors seeking a regulated vehicle for digital asset investments with enhanced investor protection.

4. Securitization Vehicles

• Overview: Luxembourg’s flexible securitization framework allows tokenization of assets, creating digital securities backed by underlying assets like cryptocurrencies or real estate.
• Setup: Structured as a Securitization Vehicle (SV), often with compartments (e.g., Quantumrock Securitization S.à.r.l.). Requires legal expertise for compliance with CSSF guidelines.
• Regulation: Subject