The Private Equity Hub That Asset Managers Deserve

In the midst of the current business environment, which is characterised by political changes like Brexit and a frenzy of entrepreneurship, Luxembourg is becoming more and more of a private equity hub. Asset managers formally set up in Britain, though no less others seeking a European base, are tending to find this small, lovely country an ideal location for developing their businesses.

Luxembourg's credentials are numerous, but the most remarkable ones in its toolkit are perhaps its diversity and inclusivity, assets that have featured in the daily lives of Luxembourgers for decades. As a result, Luxembourg is keen to welcome new skills, very often with attractive remuneration packages.

Cut out for asset managers

Asset managers in particular are incentivised through various schemes, with tax treatments that depend on their structures but which can often be quite favourable. For example, capital gains on securities in Luxembourg can be fully tax-exempt, provided that they are held for more than six months and that the shareholding has never exceeded 10% over the five years preceding the sale.

Or, the share of profit derived by an alternative investment fund (AIF) and paid to employees of AIF management companies, also called "carried interest", can, if certain conditions are fulfilled (including becoming tax resident in Luxembourg by the end of 2018), qualify as extraordinary income taxable at a quarter of the global tax rate (around 12.85% in 2017, incl. dependence insurance). Normally, carried interest qualifies as miscellaneous income and is taxable at standard income tax rates (up to 47.18% for 2017, incl. dependence insurance). Currently limited in time, this favourable regime is likely to remain in place, considering Luxembourg's eagerness to enhance its competitiveness as a private equity hub.

Moreover, asset managers may be attracted by other long-term incentive schemes, such as stock option plans.

In order to stay...