Luxembourg ELTIFs are usually structured as a Luxembourg public limited liability company (SA) or partnership limited by shares (SCA) paired with a fund regime that secures tax neutrality in Luxembourg. Luxembourg ELTIFs can deliver notable local tax advantages to EU retail investors, depending on their country of residence.

EU retail investors are generally taxed on income and capital gains derived from their investment portfolio. Certain investment products, such as real estate investment trust regimes available in certain EU jurisdictions (REITs), are subject to a mandatory distribution obligation, which triggers an immediate tax charge in the hands of the EU investors. Luxembourg ELTIFs are not subject to such obligation, allowing ELTIFs to reinvest proceeds and enabling EU retail investors to defer taxation. Moreover, due to the lack of a distribution obligation and the possibility to thus accumulate and reinvest investment returns, ELTIFs are more oriented towards capital gains, which may be taxed more favorably than ordinary income in the hands of certain EU retail investors.

To encourage personal savings, several EU jurisdictions offer tax-advantaged insurance products and pension/savings plans. Investments in a Luxembourg ELTIFs often qualify for such products. This makes ELTIFs very appealing for sponsors wishing to tap into the EU insurance and pension/savings markets. Some examples:

  • Italy: Luxembourg ELTIFs having an Italian investment strategy qualify for the Italian Individual Savings Plan (Piani Individuali di Risparmio, PIR), granting a full exemption on income and gains if certain portfolio and holding requirements are met.
  • France: Luxembourg ELTIFs are eligible for the Plan d'Épargne en Actions (PEA) stock savings plan, offering a full income tax exemption on dividends and capital gains under certain conditions (e.g., minimum 5-year holding period). Following recent clarifications from the European Securities and Markets Authority, Luxembourg ELTIFs should also be eligible for the French life insurance and PER (retirement plan) wrappers, but it remains to be seen when the French life insurance and PER market opens up for Luxembourg ELTIFs.
  • Germany: Luxembourg ELTIFs investing at least 51% of their capital in (German or non-German) real estate assets provide German retail investors with a partial tax exemption (60%, and up to 80% for certain non-German real estate assets) on dividends and capital gains.

Luxembourg ELTIFs stand out for their tax advantages, which makes them the ideal product for US alternative fund managers looking to expand their offerings to EU retail investors.

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