The absence of the subscription tax was one of the reasons managers chose Ireland over Luxembourg. Now that they have established funds and grown nicely, they are unlikely to change domicile, says Mark Browne, partner and head of asset management and funds at Clerkin Lynch Solicitors.
Luxembourg has historically been a leading fund domicile in Europe, particularly for UCITS and alternative investment funds. However, in ETFs, a fast-growing segment, Dublin has taken a commanding lead. The reasons are structural: cost advantages, a strong regulatory framework, and an ecosystem that has been building expertise in ETFs for more than a decade.
“ETF managers are looking at the long-term cost benefits,” said Browne, who is based in Ireland. “Even a few basis points make a difference, and Ireland has positioned itself as the more cost-efficient jurisdiction.” The removal of the subscription tax, Luxembourg’s latest move to catch up with Dublin in the ETF-space, is not going to cut it, Browne said.
The latest move by Amundi reinforces this trend. The French asset manager, Europe’s largest, announced last week that it is transferring 6.7 billion euro of ETF assets to Ireland. The decision underscores the dominance of Dublin as the preferred domicile for ETF issuers and raises further questions about Luxembourg’s ability to compete in this segment.
The Esma report: Hard data supports anecdotal evidence
For years, industry insiders have noted that Luxembourg is a more expensive place to do business. This was often dismissed as anecdotal, but a recent report from the European Securities and Markets Authority (Esma) has quantified the cost disparity. According to the regulator’s findings, Luxembourg and Austria have the highest fund costs in Europe.
“Luxembourg is simply a pricier jurisdiction. In an asset class as cost-sensitive as ETFs, that puts it at a structural disadvantage.”
Mark Browne, Clerkin Lynch Solicitors
“The Esma report confirmed what many already suspected,” Browne noted. “Luxembourg is simply a pricier jurisdiction. In an asset class as cost-sensitive as ETFs, that puts it at a structural disadvantage.”
Esma examined factors such as management fees, distribution costs, and administrative expenses. While Luxembourg’s regulatory framework remains robust, higher operational costs continue to weigh on its competitiveness.
Browne illustrated the cost disparity with a practical example: “I lived and worked in Luxembourg, and a story I always tell is that even though the distance from the airport to the city center in Luxembourg is half the distance from the city center to the airport in Dublin, the taxi costs you twice the price. That’s actually a good benchmark for how, in business generally, everything seems to cost much more than you think it should.”
Ireland’s first-mover advantage
Another factor working in Ireland’s favour is its early entry into the ETF market. “Once a jurisdiction builds expertise and infrastructure in a particular asset class, it becomes very difficult to dislodge,” said Browne.
Ireland’s growth in ETFs can be compared to Luxembourg’s own first-mover advantage in Ucits. Decades ago, Luxembourg established itself as the premier hub for Ucits funds, attracting major players who have remained loyal ever since. Ireland, through its early success with ETFs, has managed to do the same.
This first-mover advantage extends beyond cost. Service providers, legal experts, and market participants have developed deep expertise in Dublin, making it the natural choice for ETF issuers. Regulatory certainty, combined with the absence of a subscription tax, has only strengthened its position.
The Luxembourg perspective
While Luxembourg remains dominant in areas such as private equity and real estate funds, its struggles in the ETF space are becoming more pronounced. Browne believes that while some managers may still prefer Luxembourg for strategic reasons, objective cost-benefit analysis increasingly favours Dublin.
“There will always be managers who prefer Luxembourg due to existing relationships or operational preferences,” he said. “But for a new entrant evaluating the options purely on costs, Ireland is hard to ignore.”
Luxembourg has made efforts to close the gap. Removing the subscription tax was one such move, but industry experts believe it is not enough. Browne points to broader cost factors, including the high price of labour and services, which make Luxembourg a more expensive jurisdiction overall.
“Luxembourg arguably is at capacity for a large part of its ability.”
Additionally, Browne highlights another challenge: capacity. “Because the cost of doing business is lower in Ireland than Luxembourg generally, and because Luxembourg arguably is at capacity for a large part of its ability, because it has been so successful, it’s hard to see scope for them to reduce costs to below Ireland.”
“Luxembourg is already servicing a huge number of funds and large amounts of assets, and I’m not sure how much capacity they have to take on more, especially large-scale ETFs,” he said. “ETFs are very cost-conscious vehicles, and you need a certain scale for them to be financially viable. We’re talking billions, typically. Unfortunately, the competitive forces Luxembourg faces are strong headwinds rather than tailwinds.”