The Reserved Alternative Investment Fund (hereinafter “RAIF” or Fonds d’Investissement Alternatif Réservé) has emerged as a cornerstone of Luxembourg’s alternative investment architecture since its introduction in 2016. The structure has gained significant popularity among fund managers and institutional investors, establishing itself as one of the preferred vehicles for private equity funds in Luxembourg. It bears noting that Luxembourg as a jurisdiction accounts for more than fifty percent of the European private equity and venture capital fund market.
The RAIF was developed to enhance Luxembourg’s competitiveness as a fund domicile by offering a streamlined, unregulated alternative to existing structures such as Specialized Investment Funds (Fonds d’Investissement Spécialisé, or “SIF”), Part II funds under the Law of 17 December 2010, and risk capital investment companies (Société d’Investissement en Capital à Risque, or “SICAR”). The structure’s central innovation lies in its avoidance of the dual supervisory layer—oversight of both the alternative investment fund manager and the fund vehicle itself—that characterized previous regulatory frameworks.
This Article provides a comprehensive examination of the RAIF’s legal architecture, operational requirements, taxation regime, and regulatory environment, with particular attention to the practical implications for fund promoters, institutional investors, and their advisors.
I. Regulatory Position and Market Significance
A. The Distinctive Regulatory Status of the RAIF
The RAIF occupies a sui generis position within Luxembourg’s investment fund hierarchy. Unlike regulated funds—SIFs, Part II funds, and SICARs—the RAIF is not subject to direct supervision by the Commission de Surveillance du Secteur Financier (CSSF). This absence of prudential oversight distinguishes the RAIF fundamentally from its regulated counterparts and constitutes its principal competitive advantage in terms of time-to-market and ongoing administrative burden.
However, the RAIF’s unregulated status should not be conflated with regulatory absence. The structure remains indirectly subject to the requirements of the Alternative Investment Fund Managers Directive (AIFMD) through its mandatory appointment of an authorized Alternative Investment Fund Manager (AIFM). This architecture preserves investor protections derived from manager-level regulation while eliminating duplicative fund-level supervision.
The Administration de l’Enregistrement, des Domaines et de la TVA (AED) assumes responsibility for RAIF compliance with anti-money laundering and counter-terrorist financing (AML/CFT) requirements, ensuring that the absence of CSSF oversight does not create a regulatory vacuum for financial crime prevention purposes.
B. Market Position and Competitive Positioning
The RAIF’s growing popularity within Luxembourg’s private equity landscape reflects a compelling value proposition combining regulatory flexibility, favorable taxation, and reduced administrative overhead relative to traditionally regulated alternatives. Luxembourg as a jurisdiction accounts for over half of the European private equity and venture capital fund market, with the RAIF serving as one of the key vehicles deployed in this segment.
II. Legal Structure and Formation
A. Permissible Legal Forms
The RAIF regime affords significant flexibility in the selection of legal form, accommodating diverse fund structures and investor preferences. Permissible forms include the common contractual fund (Fonds Commun de Placement, or “FCP”), the investment company with variable capital (Société d’Investissement à Capital Variable, or “SICAV”), the investment company with fixed capital (Société d’Investissement à Capital Fixe, or “SICAF”), the public limited company (Société Anonyme, or “SA”), the private limited liability company (Société à Responsabilité Limitée, or “SARL”), the ordinary limited partnership (Société en Commandite Simple, or “SCS”), the special limited partnership (Société en Commandite Spéciale, or “SCSp”), and the cooperative company.
The majority of RAIFs are constituted as Luxembourg companies, particularly as SICAVs or limited partnerships, to capitalize upon Luxembourg’s flexible corporate law framework and well-established jurisprudence governing such vehicles.
B. Capital Requirements
The net assets of a RAIF must not fall below EUR 1,250,000, which threshold must be attained within twenty-four months following the entry into force of the management regulations (for RAIF-FCPs) or the date of incorporation (for corporate RAIFs). This extended capitalization period—twice that applicable to SIFs—provides meaningful flexibility for fund promoters during the capital-raising phase.
The capital structure permits subscription with only five percent of each share paid up at the time of subscription, with the remaining seventy-five percent payable through share premiums. This favorable arrangement facilitates rapid deployment of investor commitments and aligns with typical private equity capital call mechanics.
C. Formation Timeline and Process
The establishment of a RAIF follows a comparatively streamlined process, typically requiring two to three months from initial decision to operational status. The principal stages comprise agreement on fund legal documentation with prospective investors, selection of mandatory service providers (AIFM, depositary, bank, administrative agent, and auditor), registration with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés), establishment of a Luxembourg bank account and registered office, satisfaction of minimum substance requirements, and commencement of investment activities.
Critically, unlike regulated funds, RAIFs do not require pre-approval from the CSSF. The fund must, however, be registered immediately upon establishment on the official list of RAIFs maintained by the Luxembourg trade registry. This registration requirement ensures public transparency without imposing the delays inherent in a prior authorization regime.
III. Operational Framework
A. The Mandatory Alternative Investment Fund Manager
The RAIF must appoint an external AIFM satisfying specified criteria: full authorization under the AIFMD, establishment in Luxembourg or another EU member state, and absence of reliance upon the sub-threshold registration exemption provided under the AIFMD for smaller managers.
Critically, sub-threshold AIFMs—those managing assets below EUR 100 million, or below EUR 500 million for non-leveraged funds with lock-up periods of at least five years—are precluded from managing RAIFs. The RAIF requires appointment of a fully authorized AIFM subject to comprehensive regulatory supervision under the AIFMD. This requirement ensures that investor protections flow through manager-level regulation notwithstanding the absence of direct fund-level supervision.
The AIFM bears responsibility for fund governance and operational oversight, risk management and valuation procedures, regulatory compliance and reporting, preparation and certification of the annual report, ongoing due diligence of service providers, supervision of net asset value calculation, and AML/CFT compliance monitoring. This comprehensive mandate ensures that investor protections flow through manager-level supervision notwithstanding the absence of direct fund-level regulation.
B. Additional Mandatory Service Providers
Beyond the AIFM, RAIFs must appoint several mandatory service providers, each subject to specific regulatory requirements.
The depositary must be Luxembourg-based and CSSF-authorized, acting as custodian of fund assets and subject to the liability regime established under the AIFMD. The central administrator, also Luxembourg-based and CSSF-authorized, bears responsibility for fund accounting, net asset value calculation, and daily operational administration. The independent statutory auditor must be a certified Luxembourg auditor (réviseur d’entreprises agréé) approved by the CSSF as auditor of Luxembourg UCITS, Part II funds, SIFs, or SICARs. The transfer agent and registry agent, likewise CSSF-authorized, maintains the shareholder registry and processes subscriptions and redemptions.
C. Minimum Substance Requirements
RAIFs must maintain specific operating substance in Luxembourg, comprising a registered office (typically at the central administrative agent’s premises), a Luxembourg bank account, financial statements prepared under Luxembourg accounting rules, at least one board member possessing knowledge of Luxembourg regulations, identification of ultimate beneficial owners holding twenty-five percent or greater interests in the UBO register, and—preferably—a majority of general partner board members or directors who are Luxembourg residents.
These requirements reflect Luxembourg’s commitment to ensuring genuine economic presence rather than mere legal domiciliation, consistent with evolving international standards regarding substance in holding and investment structures.
IV. Structural Flexibility
A. Umbrella Structures
RAIFs may be structured as umbrella funds with multiple sub-funds (compartments), each possessing distinct investment objectives and strategies, separate share classes and investor bases, segregated asset and liability accounting, and individual prospectuses and management regulations. This compartmentalization enables promoters to offer diverse investment strategies within a single legal vehicle while maintaining strict separation of economic interests.
Umbrella RAIFs may produce separate annual accounts for each sub-fund or consolidated financial information across all compartments, providing reporting flexibility aligned with investor preferences.
B. Risk Diversification Flexibility
The RAIF regime accommodates two distinct approaches to risk diversification. Risk-spreading RAIFs are subject to limited diversification requirements analogous to those applicable to SIFs. Risk capital RAIFs—those focusing exclusively on venture capital and private equity—face no diversification requirements, comparable to the treatment of SICARs. This flexibility enables promoters to structure vehicles appropriate to their investment strategy without artificial constraints on portfolio concentration.
C. Unrestricted Asset Eligibility
A defining advantage of the RAIF regime is the absence of prescribed investment restrictions. RAIFs may invest in all types of alternative assets without statutory limitation, including impact-driven private equity and debt instruments, venture capital and growth equity investments, infrastructure and real assets, fixed income and bonds (including impact bonds), carbon credits and ESG-related assets, financial derivatives (on an exceptional basis), cash and money market instruments (as temporary holdings), and other collective investment schemes and underlying funds.
This unrestricted asset scope enables RAIFs to serve as vehicles for virtually any alternative investment strategy, from traditional private equity and venture capital through real assets, credit, and impact investing.
V. Risk Capital-Focused RAIFs
A. Election and Definition
RAIFs may elect to specialize exclusively in risk capital investments by stating this purpose in their constitutive documents. For these purposes, risk capital is defined as the direct or indirect contribution of fund assets to entities intended for their launch or start-up phase, development and expansion, or listing on a regulated stock exchange.
B. Enhanced Fiscal Benefits
Risk capital-focused RAIFs may qualify for enhanced tax benefits available under the SICAR taxation regime, including complete exemption from subscription tax. This treatment positions the risk capital RAIF as functionally equivalent to a SICAR from a fiscal perspective while preserving the regulatory advantages of the unregulated RAIF structure.
Statutory auditors must certify that risk capital RAIFs have effectively invested portfolio assets in risk capital during the financial year, ensuring ongoing compliance with the requirements for favorable tax treatment.
VI. Investor Base and Eligibility
A. Well-Informed Investor Requirement
RAIFs are exclusively reserved for “well-informed investors” (investisseurs avertis) who satisfy specific criteria demonstrating sufficient knowledge and experience to understand the risks associated with investment in the fund. This restriction excludes retail investors and ensures that RAIF participants possess the sophistication to evaluate complex alternative investment strategies without the protections afforded by fund-level regulation.
B. Qualifying Investor Categories
Professional investors qualifying for RAIF participation include investment firms, credit institutions, and insurance companies; pension funds and other collective investment vehicles; government agencies and international organizations; entities managing substantial assets professionally; and natural persons demonstrating professional investment experience.
Investors may demonstrate expertise through certification by credit institutions, investment firms, or authorized management companies—a mechanism that enables high-net-worth individuals with appropriate experience to access RAIF investments notwithstanding their non-institutional status.
C. Threshold Evolution
Pursuant to Law No. 8183, adopted on 11 July 2023 and effective from 28 July 2023, Luxembourg reduced the minimum investment threshold for “knowledgeable investors” from EUR 125,000 to EUR 100,000. This adjustment broadened the eligible investor base while maintaining professional investor requirements, enhancing market accessibility without compromising investor protection principles.
VII. Taxation Framework
A. Dual Regime Architecture
RAIFs operate under two distinct taxation regimes determined by investment focus and strategic design. The standard regime applies to risk-spreading RAIFs pursuing diversified investment strategies. The risk capital regime, compatible with SICAR treatment, applies to RAIFs investing exclusively in venture capital and private equity. The selection between regimes is determined by the RAIF’s investment strategy as documented in its constitutive instruments.
B. Subscription Tax
Risk-spreading RAIFs are subject to an annual subscription tax (taxe d’abonnement) calculated at 0.01 percent of net asset value—a favorable rate compared to the standard 0.05 percent applicable to most Luxembourg investment vehicles. The tax is calculated on total net asset value as of the last day of each quarter, with payment made quarterly in arrears.
RAIFs qualify for complete exemption from subscription tax in specified circumstances: where a portion of the RAIF’s assets is invested in other UCI funds subject to subscription tax; for institutional cash funds; for microfinance funds; for pension funds; and for RAIFs investing exclusively in risk capital that elect SICAR taxation.
C. Risk Capital RAIF Taxation
RAIFs investing exclusively in risk capital may elect taxation under the SICAR-specific regime by explicitly stating this investment objective in their constitutive documents. Such RAIFs benefit from complete exemption from subscription tax, exemption from corporate income tax (pass-through treatment equivalent to SIFs and traditional SICARs), and favorable treatment of capital gains.
D. Capital Gains Exemption
Both risk-spreading and risk capital RAIFs benefit from exemption from capital gains tax on gains derived from the sale of securities linked to risky assets. Gains from venture capital and private equity holdings are fully tax-exempt, facilitating reinvestment of proceeds and enhancing investor returns. This exemption applies at both the corporate level and, indirectly, at the investor level through the absence of fund-level taxation on appreciation.
E. Withholding Tax Treatment
A defining feature of the RAIF tax regime is the complete absence of withholding taxes. No withholding tax applies to dividend distributions, capital gains distributions, or liquidation surpluses. Non-resident recipients are not subject to Luxembourg income tax on RAIF distributions. This treatment creates a tax-neutral distribution environment particularly attractive to international institutional investors accustomed to gross distributions.
F. Value Added Tax
AIFMs managing RAIFs are exempt from VAT on their management fee services, reducing cost drag and enhancing net returns to investors. This exemption applies specifically to portfolio management services and extends to related administrative functions performed by the AIFM.
G. Tax Treaty Eligibility
When constituted as a company, the RAIF is eligible to benefit from tax agreements signed by Luxembourg, including the EU Interest and Royalties Directive, double taxation conventions, participation exemptions, and treaty-based relief mechanisms. This treaty eligibility is particularly advantageous for RAIF-corporations as compared to contractual fund structures, which may face challenges in establishing treaty residence.
H. Tax Neutrality Philosophy
Luxembourg’s RAIF tax regime reflects a tax neutrality philosophy whereby taxation is imposed only at the fund level (avoiding double taxation at the investor level), distributions carry no withholding tax impediments, and capital appreciation remains largely untaxed. Losses may be carried forward or utilized by managers in accordance with applicable rules. This architecture positions the RAIF as a tax-efficient intermediary vehicle that does not itself impose material fiscal drag on investment returns.
VIII. Reporting and Compliance Obligations
A. Financial Reporting Standards
RAIFs must maintain annual accounts under one of two accepted frameworks: Luxembourg Generally Accepted Accounting Principles (Luxembourg GAAP) or International Financial Reporting Standards (IFRS) as adopted by the European Union. The selection between frameworks is a management decision documented in the fund’s prospectus, with IFRS increasingly preferred by institutional investors accustomed to consolidated financial reporting under those standards.
A certified Luxembourg statutory auditor must issue an annual certification to the Direct Tax Administration (Administration des Contributions Directes) confirming compliance with applicable taxation rules. This certification requirement ensures ongoing verification of tax treatment eligibility.
RAIFs must issue audited annual reports no later than six months following the end of their accounting year. Annual reports must include, at minimum, financial statements with appropriate notes, a list of current investments and holdings, NAV calculation and historical performance data, management fees and expense breakdown, risk management overview and compliance certification, the auditor’s report, information required by Appendix 1 of the RAIF legislation, and AIFMD Article 22 disclosure items.
B. AIFMD Reporting Requirements
Although RAIFs themselves are unregulated, they remain subject to AIFMD reporting obligations through their appointed AIFM. Key disclosures encompass investment strategy and positioning, leverage and borrowing arrangements, valuation policies, liquidity risk management, and risk profile and concentration. These reports are filed with the AIFM’s home state regulator and, where applicable, with regulators in jurisdictions where the RAIF is marketed.
C. AML/CFT Compliance
RAIFs must comply with customer due diligence requirements, know-your-customer procedures, beneficial ownership identification and verification, suspicious activity reporting, and enhanced due diligence for higher-risk jurisdictions. The AED serves as the competent authority for RAIF AML/CFT matters.
RAIFs must register all ultimate beneficial owners holding twenty-five percent or greater beneficial interests in the Luxembourg UBO register maintained by the Trade and Companies Register, with annual updates and amendments as ownership changes occur.
IX. Comparative Analysis
A. RAIF Versus SIF
The RAIF and SIF share certain characteristics—the 0.01 percent subscription tax rate, mandatory external AIFM appointment, and audited annual reporting requirements—while differing materially in regulatory treatment. The SIF requires CSSF authorization and ongoing supervision; the RAIF does not. The SIF must satisfy regulatory approval processes requiring four to six months; the RAIF may be established in two to three months. The SIF faces prescribed diversification requirements; the RAIF enjoys unrestricted asset flexibility. Both structures are reserved for well-informed or professional investors and require minimum capital of EUR 1.25 million, though the RAIF permits attainment of this threshold over twenty-four months compared to twelve months for the SIF.
B. RAIF Versus SICAR
For risk capital-focused strategies, the RAIF and SICAR achieve functional equivalence in taxation—both are exempt from subscription tax and capital gains tax—while differing in regulatory treatment. The SICAR requires CSSF supervision and a four-to-six-month establishment timeline; the risk capital RAIF remains unregulated and may be established in two to three months. Both require certification of investor expertise and impose a risk capital investment mandate. The RAIF offers higher regulatory flexibility, rendering it the preferred structure for promoters prioritizing speed-to-market and administrative efficiency.
X. Recent Regulatory Developments
A. AIFMD II Implementation
AIFMD II must be transposed by all EU member states, including Luxembourg, by 16 April 2026. Transposition in Luxembourg is being effected through Bill of Law No. 8628, submitted in October 2025.
Bill 8628 proposes revised regulatory and fiscal framework alignment with contemporary European standards, enhanced standardization of fund structures across SICARs, SIFs, UCITS, and RAIFs, potential adjustments to reporting and compliance frameworks, and modernization of investor eligibility criteria.
B. Prior Modernization—Law No. 8183
Law No. 8183, adopted on 11 July 2023 and effective from 28 July 2023, modernized Luxembourg’s investment fund “toolbox.” Key amendments included reduction of the minimum investment for knowledgeable investors from EUR 125,000 to EUR 100,000, extension of the period for attaining minimum capital from twelve to twenty-four months, and various other enhancements to the regulatory framework for SIFs, SICARs, and RAIFs.
C. Substance and Reporting Evolution
Regulatory guidance, including CSSF Circular 25/901 issued on 18 December 2025 (replacing the former CSSF Circular 07/309), introduces updated requirements concerning minimum substance documentation and certification, AML/CFT compliance procedures, beneficial ownership verification methodologies, and digital reporting and disclosure requirements. These developments reflect Luxembourg’s ongoing calibration of its fund regime to meet evolving international standards while preserving competitive positioning.
D. Risk Diversification Requirements
Risk-spreading RAIFs are subject to a thirty percent limit on exposure to any single issuer, in accordance with requirements set forth in current CSSF guidance. Risk capital RAIFs investing exclusively in venture capital and private equity face no such diversification requirements.
XI. Conversion of Existing Structures
A. Eligible Source Structures
Existing Luxembourg investment vehicles may be converted into RAIFs, including regulated entities (SIFs, Part II funds, SICARs) and unregulated limited partnerships (SCS, SCSp). This conversion facility enables promoters to migrate existing structures to the RAIF regime without liquidation and re-establishment.
B. Conversion Benefits
Promoters convert to RAIF structures for distinct reasons depending upon the source vehicle. For regulated entities, conversion provides speedier launch of new sub-funds and reduced regulatory overhead. For unregulated entities, conversion provides access to umbrella structure benefits and standardized reporting frameworks.
C. Regulatory Process
Conversion of regulated entities requires CSSF prior approval of amendments to constitutional documents and prospectus or issuing document amendments. SIFs and SICARs closed to new investors may convert without amendment requirements. Conversion of unregulated limited partnerships requires amendment of the Limited Partnership Agreement in accordance with standard amendment procedures, without regulatory approval.
XII. Risk Considerations and Investor Protection
A. Implications of Unregulated Status
The unregulated nature of RAIFs creates specific risk considerations warranting investor attention. The absence of CSSF oversight means no pre-approval or ongoing regulatory supervision of the fund vehicle. Compliance depends heavily upon appointed AIFM governance and operational integrity. No mandatory investor protection schemes or guarantee mechanisms apply. Operational risk exposure derives from reliance upon service provider competence and integrity.
B. Risk Mitigation Best Practices
Prudent risk controls include robust service provider due diligence and selection, segregation of custodial and operational functions through depositary independence, engagement of qualified and experienced AIFMs with strong compliance infrastructure, regular auditor oversight and financial statement certification, documented valuation policies and procedures, investment committee governance particularly for illiquid assets, regular investor reporting and performance monitoring, and conflict of interest management and disclosure.
C. Indirect Regulatory Alignment
Although RAIFs escape direct CSSF supervision, they remain subject to AIFMD requirements through their appointed AIFM, which must maintain authorized status with appropriate operational infrastructure, implement risk management, compliance, and valuation controls, generate comprehensive annual and periodic reporting, and conduct ongoing due diligence and monitoring. This indirect regulatory alignment provides meaningful investor protection notwithstanding the absence of fund-level supervision.
Conclusion
The Reserved Alternative Investment Fund has established itself as one of the preeminent vehicles for alternative investment management in Luxembourg. The RAIF’s popularity reflects a compelling combination of regulatory flexibility, favorable taxation, operational efficiency, and structural versatility that appeals to both fund managers and institutional investors.
The structure’s key competitive advantages comprise rapid deployment (two-to-three-month establishment timeline without prior authorization), tax efficiency (0.01 percent subscription tax, no capital gains tax, no withholding taxes), regulatory freedom (unregulated structure with only AIFM-mediated AIFMD compliance), operational flexibility (umbrella structures, unrestricted asset scope, accounting framework discretion), and international appeal (tax treaty eligibility, professional investor infrastructure).
The RAIF remains particularly attractive for venture capital and early-stage equity managers, private equity buyout funds, infrastructure and real asset investors, impact-focused and ESG-compliant fund strategies, multi-strategy and fund-of-funds vehicles, and international institutional capital deployment.
As Luxembourg prepares to implement AIFMD II by 16 April 2026 pursuant to Bill of Law No. 8628, the RAIF framework is expected to maintain its competitive positioning while achieving greater alignment with evolving EU regulatory standards. For international legal and tax professionals advising on Luxembourg fund structures, the RAIF represents a sophisticated, tax-efficient, and operationally streamlined vehicle suitable for most alternative investment strategies and investor profiles—provided that the implications of its unregulated status are thoroughly understood and appropriately managed.
This Article is intended for informational purposes only and does not constitute legal advice. Readers are encouraged to consult qualified counsel for guidance on specific matters.
