Luxembourg has emerged as a vital player in the international investment fund industry and positioned itself as a hub for fund managers. With over 300 licensed investment fund managers operating within its borders, the Luxembourg fund sector has become a significant contributor to the economy, generating more than 20,000 direct jobs.
However, in light of the ongoing transition towards sustainable and resilient economies, as well as the introduction of innovative products such as Eltifs and Pepps, industry commentators have said that Luxembourg needs to adapt to the ever-evolving investment fund industry to maintain its position as a leading financial centre.
To support these endeavours, the minister of finance, (DP), introduced the to the Chambre of Deputies which, a finance ministry spokesperson told Delano, “proposes to make targeted modifications to the five sectoral laws related to investment funds or their managers.”
These amendments aim to harmonise sectoral laws, align terminologies with European regulations and incorporate administrative practices into the law.
“The proposed law under discussion aims to enhance and modernise the Luxembourgish toolkit related to investment funds, thereby boosting the appeal and competitiveness of the financial sector,” according to the spokesperson.
One significant aspect of the proposed amendments is the modernisation of the subscription tax, which fund firms pay based on assets under management.
In line with the recommendations of the European Commission, Luxembourg aims to implement national tax incentives that support the emergence of new European products like Eltifs and Pepps, the spokesperson stated. Additionally, the regime applicable to money market funds will be aligned with European standards.
According to the text in the draft Bill, these amendments will not result in “significant” loss of tax revenue.
Specifically, Article 68 of the draft law focuses on modifying Article 174 of the undertakings for collective investment (OPC) Law.
The purpose of this modification is to align the terminology used in Article 174, paragraph 2, with regulation .
By doing so, Luxembourg ensures that OPCs meet the criteria outlined in the European regulation to benefit from a reduced subscription tax rate.
Currently, Article 174, paragraph 2, of the OPC Law specifies the conditions under which OPCs can benefit from a reduced subscription tax rate ranging from 0.05% to 0.01%.
These conditions pertain to entities exclusively investing in money market instruments and deposits with credit institutions.
However, since the entry into force of Regulation (EU) 2017/1131 on 21 July 2018, which establishes uniform rules for money market funds (MMFs) at the European level, there is a need to align national legislation with this framework.
To address this, the draft law proposes replacing the provision in the OPC Law with a reference to MMFs authorised in accordance with EU regulation. This change allows entities complying with the European regulation to benefit from the reduced subscription tax, thereby ensuring consistency between European and national legislation.
In addition, the draft law introduces a new paragraph to Article 174, requiring entities to separately declare the value of eligible net assets to the tax administration, domains and VAT. This declaration is essential for entities to qualify for the reduced subscription tax rate.
The finance ministry spokesperson said: “The [European] Commission has indeed encouraged member states to implement national tax incentives to support the emergence of new European products such as Eltifs and Pepps. In addition, the regime applicable to money market funds will be aligned with European standards.”