Luxembourg private fund structuring: do you still need a RAIF?

Luxembourg may soon add a new structuring tool to its private funds toolbox. Compartmentalised fund structures are already well established in competing jurisdictions, notably segregated portfolio arrangements in the Cayman Islands and series limited partnership structures in Delaware. The proposed reform would bring Luxembourg's common limited partnership (société en commandite simple, commonly referred to as an SCS) and special limited partnership (société en commandite spéciale, commonly referred to as an SCSp) offering closer in line with these international market standards.

A bill, tabled on 30 July 2026, proposes to introduce a new Article 28bis into the Luxembourg law of 12 July 2013 on alternative investment fund managers, as amended (AIFM Law). If adopted in its current form, the bill would allow a Luxembourg Alternative Investment Fund (AIF) established as an SCS or SCSp to create statutory compartments, provided it is managed by an EU-authorised AIFM.

This would be a meaningful development for Luxembourg fund structuring.

Until now, managers looking to combine the contractual flexibility of an SCSp with statutory segregation of assets and liabilities between sub-funds would often rely on a Luxembourg product law wrapper, most commonly the Reserved Alternative Investment Fund (RAIF). 

The proposed regime would change that. It would allow a “pure” SCS or SCSp AIF to operate as a multi-compartment platform without becoming a RAIF or other specialised product law wrapper.

So the obvious question is: do managers still need a RAIF?

In our view, the answer is not “yes” or “no”. The better question is: what is the RAIF being used for?

What would actually change?

The proposed Article 28bis would allow a Luxembourg SCS or SCSp AIF to be established with multiple compartments, each corresponding to a distinct part of the fund’s assets and liabilities.

In practical terms, this would make it possible to use a single SCS or SCSp platform for several strategies, assets, investor groups or co-investment opportunities, while benefiting from statutory segregation between compartments.

The draft provision includes several important features:

• the use of compartments, and the related mechanics, must be expressly provided for in the fund’s constitutional documents;
• the specific investment policy of each compartment must be described;
• investors’ and creditors’ rights relating to a compartment are limited to the assets of that compartment, unless the constitutional documents provide otherwise;
• each compartment may be liquidated separately without triggering the liquidation of any other compartment, and the liquidation of the last remaining compartment will result in the liquidation of the fund itself;
• one compartment may subscribe for, acquire or hold interests issued by another compartment of the same fund, subject to anti-circularity rules and the suspension of voting rights; and
• a separate annual report may be prepared for each compartment, provided that it also includes aggregated data for all compartments.

This is more than a technical amendment. It would give statutory recognition to an umbrella-style SCS/SCSp AIF outside the traditional Luxembourg product law framework.

Who would be able to use it?

The proposed regime would not be a general company law tool available to all SCS or SCSps.

It would apply only to Luxembourg AIFs established as an SCS or SCSp and managed by either:

• a Luxembourg AIFM authorised under the AIFM Law; or
• an AIFM authorised in another EU member state under the EU's AIFMD (Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers).

The regime would therefore be confined to SCS/SCSp AIFs managed by fully authorised EU AIFMs, excluding non-EU and sub-threshold AIFMs. A compartmentalised SCS/SCSp under Article 28bis would not be subject to a Luxembourg product law such as the RAIF Law. However, it would still sit within the AIFMD environment through its authorised AIFM.

As a result, the new regime should not be seen as an entirely unregulated alternative. Rather, it would offer a streamlined, non-product law structuring option for managers that already operate within the AIFMD framework.

Why does this matter for managers?

For managers, the main benefit is operational flexibility.

A compartmentalised SCS or SCSp could avoid the need to establish a separate partnership for each investment strategy, co-investment, investor sleeve or transaction. This may reduce duplication in documentation, governance, administration and operating processes, while preserving the contractual flexibility that has made the SCSp one of the preferred vehicles for Luxembourg private funds.

Where established outside a Luxembourg fund product regime, the structure could also offer greater flexibility than a RAIF, with no product-law risk-spreading requirement and no statutory minimum fund size. The diversification distinction does not apply to qualifying risk-capital RAIFs, which are exempt from risk-spreading requirements. 

The new structure could be particularly attractive for:

• deal-by-deal platforms;
• co-investment vehicles;
• club deals;
• private credit or real asset strategies with segregated portfolios;
• single-asset structures;
• parallel or feeder-like arrangements; and
• emerging managers looking for a scalable Luxembourg platform without immediately adopting a product law regime.

In short, the SCS/SCSp could become a more versatile and modular fund platform.

Does this remove the need for a RAIF?

Not necessarily. The RAIF has never been only about compartments. Its value also lies in its product law status, recognised label and established market practice, which would remain unchanged under the proposed reform.

For many institutional investors, the RAIF remains a familiar and well-understood Luxembourg fund product. It is governed by a dedicated product law, benefits from established market practice, and is supported by a legal and operational framework that investors, service providers and financing parties know well.

A RAIF is therefore likely to remain the preferred option where:

• the structure needs to be opaque and investors or counterparties require a Luxembourg product law framework at fund level;
• the manager wants the credibility of a recognised Luxembourg fund label;
• the fundraising is broad or cross-border;
• investor internal policies refer specifically to RAIFs or other funds with a product law;
• the manager wants to align with an existing RAIF platform;
• established RAIF market practice is helpful from an onboarding, due diligence or financing perspective; or
• the investor base is more conservative and values the discipline of a product law framework.

What about tax?

The choice between a pure compartmentalised SCS/SCSp AIF and an SCS/SCSp-RAIF raises a number of tax considerations that go well beyond subscription tax. The introduction of statutory compartments brings additional structuring questions that remain, for the time being, unanswered.

Subscription tax 

One of the most commercially significant features of the new compartmentalised SCS/SCSp AIF is precisely what it is not: it is not a Luxembourg product law fund, and therefore not subject to Luxembourg subscription tax. For managers and investors who have historically considered a RAIF for its compartmentalisation and structural flexibility, the new structure offers a compelling alternative:  comparable organisational features and statutory ring-fencing, but without the subscription tax cost that applies to RAIFs (unless the risk capital regime is elected).

The flipside is equally important: the SCS/SCSp AIF is subject to the standard Luxembourg fiscal regime applicable to partnerships and does not benefit from the specific tax reliefs built into product law funds. 

Tax treatment of a multicompartment SCS/SCSp AIF 

The introduction of statutory compartments does not alter the fundamental tax status of the SCS or SCSp: the fund remains a single entity for Luxembourg tax purposes, and each compartment does not constitute a separate taxpayer. 

This matters more than it might appear. Unlike product law funds, a pure SCS or SCSp AIF falls within the scope of general Luxembourg income tax law. Under that regime, fiscal neutrality is not automatic; it must be properly structured. Whilst the Luxembourg tax authorities have confirmed, through Circular L.I.R. n° 14/4 of the Luxembourg direct tax authorities (Administration des contributions directes) on the tax treatment of limited partnerships, that such vehicles are transparent for municipal business tax purposes, this does not exhaust the analysis. The fund must separately be assessed for potential exposure under the EU's ATAD2's reverse hybrid rules (Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries) for the recognition of transparency at investor level in each relevant jurisdiction, and for treaty access purposes. The compartment structure adds a further layer of complexity to each of these questions without resolving any of them.

Luxembourg does not levy withholding tax on distributions by a fiscally transparent partnership. Withholding tax on income generated at the level of underlying assets remains a separate matter and is unaffected by the compartment structure.

Income allocation in a multi-compartment structure

In a fiscally transparent partnership, income is allocated to investors, pro rata their limited partnership interest, in accordance with the terms of the limited partnership agreement. Each investor is then taxed on their allocable share in their home jurisdiction, regardless of whether a distribution has actually been made.

In a single-pool fund, this exercise is relatively straightforward. Where different investors participate in different compartments,  each with its own underlying assets, income streams and expense allocation, the question of how income is attributed to each investor becomes significantly more complex and currently lacks a clear answer. The limited partnership agreement will need to specify clearly how income, gains, losses and expenses are allocated across compartments and between investors participating in each of them. In the absence of such provisions, there is a real risk of ambiguity, both as to the tax reporting obligations of individual investors and as to the consistency of the allocation methodology applied by the fund administrator.

It is worth asking whether the legislator should go further and provide guidance, or impose minimum requirements, on how income allocation must be documented in a multi-compartment SCS or SCSp AIF. In the absence of legislative guidance, the burden falls entirely on the limited partnership agreement and the fund administrator, which may lead to inconsistent market practice. Guidance from the Luxembourg Commission des Normes Comptabes or  a tax circular addressing this point specifically would be a welcome development.

Reporting obligations

The commentaries to the bill are silent on how compartments should be treated for purposes of the US's Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). Since compartments are not separate legal entities, the most defensible position is that the SCSp as a whole remains the single Foreign Financial Institution, with a single Global Intermediary Identification Number, reporting across all compartments. The same logic should, in the author's view, apply under CRS. 

Questions as to the identification of the reporting entity and the classification of accounts at compartment level will require careful consideration before the structure is deployed. Most probably, Circular ECHA 2 from the Luxembourg direct tax authorities (Administration des contributions directes) on the application of FATCA and CRS to Luxembourg investment funds might be updated to address these gaps expressly.

The key point is straightforward: the new SCS/SCSp AIF compartment option may reduce product law friction, but it does not remove the need for careful tax structuring.

Pure compartmentalised SCSp or SCSp-RAIF?

The practical analysis should therefore move away from asking which structure is “better” in the abstract.

The real question is: what does the structure need to achieve?

This is where the proposed reform becomes particularly interesting.

Managers would no longer need to use a RAIF solely because they require statutory compartments. They could instead choose between a product law fund and a non-product law AIF platform based on investor expectations, tax considerations, operational needs and fundraising strategy.

What does this mean in practice?

The bill would not render the RAIF obsolete. Instead, it would make the Luxembourg structuring analysis more nuanced.

If a manager’s main objective is to operate an AIFMD-managed Luxembourg SCS or SCSp with statutory compartments, the new regime could provide an efficient alternative to an SCS/SCSp-RAIF. It may be particularly relevant for co-investment platforms, deal-by-deal strategies, single-asset structures, club deals, continuation vehicles or bespoke private fund arrangements. The regime may also be of particular interest to US-based managers and sponsors already familiar with series limited partnership structures under Delaware law, as it would offer a structurally comparable Luxembourg platform within the AIFMD framework.

However, where investor familiarity, a recognised Luxembourg product law label, established market practice or internal investor requirements are key considerations, the RAIF will remain a highly relevant and often preferred solution.

The practical message is therefore clear: managers should not choose a RAIF solely because they need compartments. They should choose it where the RAIF framework, label and market recognition add value to the fundraising strategy and operating model.

The bill is therefore less about replacing the RAIF than about giving managers more structuring choice.

Our Luxembourg investment funds team advises managers and sponsors on RAIFs, SCS/SCSp AIFs, and various fund structures. Please contact our team to discuss how the proposed SCS/SCSp compartment regime could affect your existing or planned Luxembourg fund platform, or to explore the structure best suited to your needs, taking into account legal, regulatory, tax and market practice considerations.