Luxembourg is taking measures to become more competitive in the international funds market. Finance Minister Yuriko Backes has revealed plans to amend the “subscription” tax imposed on funds such as European Long Term Investment Funds, known as Eltifs, a move aimed at preserving Luxembourg’s position as a leading fund location in Europe.
The proposed draft law, currently under parliamentary consideration, seeks to reduce the annual subscription tax, known as “taxe d’abonnement,” for Eltifs in Luxembourg as well as various other types of funds. The tax, currently set at 0.05% of net assets under management, would be adjusted to allow funds the option of benefiting from a reduced rate of 0.01% or a complete exemption.
Eltifs, not ETFs
A spokesperson for the finance ministry told Investment Officer that the proposal does not target a reduced subscription tax for Exchange Traded Funds, or ETFs. A Luxembourg press report misinterpreted comments by finance minister Yuriko Backes as if tax cut would apply to ETFs, instead of Eltifs.
ETFs in Luxembourg are not subject to such a subscription tax at all, the spokesperson underlined. Under the existing Luxembourg Law of 17 December 2010, specifically Article 175, ETFs, whose exclusive object is to replicate the performance of one or more indices, already benefit from an exemption from subscription tax, the ministry said.
Luxembourg’s new funds law, known as Bill 8183, foresees the exemption from subscription tax of European Long-Term Investment Funds. This bill is currently under discussion in the finance and budget committee of Luxembourg’s parliament.
Last Thursday, the committee’s rapporteur, MP André Bauler, presented a 70-page commentary on the proposal that is due to be adopted during the coming weeks. The proposal, among other things, aims to modernise the regime of the subscription tax on three specific points in order to support the emergence of new European products, such as Long-Term Investment Funds (Eltifs) and Pan-European Personal Pension Products (Pepp).
“These modifications will not result in any significant direct fiscal loss and could even have a positive impact on state revenues due to their incentive effect on the establishment of such activities in Luxembourg,” said the proposal.
Legal experts in Luxembourg anticipate that the law will be adopted before the summer holidays in August. If that won’t happen adoption of the proposal is expected to be delayed for much longer, given that Luxembourg is facing a general election by October. The parliament’s pre-summer plenary sessions are scheduled for 18, 19 and 20 July.
Leading fund destination
To maintain its position as a leading fund destination, Luxembourg recognizes the need to adapt its legal framework continuously. Speaking to the Luxembourg Wort daily published last Thursday, Finance Minister Backes emphasised the importance of modernising their laws in the realm of investment funds.
“In order to remain the leading fund location in Europe,” Backes stated, “we have to constantly adapt our legal framework. In the case of investment funds, we have therefore initiated a modernisation of our laws.”
[This article was updated on 5 July to make clear that the reduced subscription tax proposal applies to Eltifs, and not ETFs as was reported in a Luxembourg press report.]