Most (but not all) investment funds in Luxembourg need to pay a subscription tax (taxe d’abonnement) each quarter. Photo: Shutterstock

Most (but not all) investment funds in Luxembourg need to pay a subscription tax (taxe d’abonnement) each quarter. Photo: Shutterstock

Delano has been unpicking some of the terminology that can make the financial sector difficult for outsiders to follow. This week: Luxembourg’s subscription tax.

It is not a surcharge on a video streaming account or produce box delivery. In the grand duchy, the (taxe d’abonnement) is paid by investment vehicles based on their size.

Mutual funds (UCIs, or undertakings for collective investment) generally are levied an annual rate of 0.05% of their net assets, which is paid quarterly. That rate is lowered down in stages to 0.01% if a certain amount of the fund’s assets are invested in “sustainable economic activities.”

” structures used by professional investors (namely, specialised investment funds, known as a Sif, and reserved alternative investment funds, known as a Raif) pay the 0.01% rate. Another type of investment vehicle, family wealth management companies (known by its French acronym SPF), pays 0.25% of its adjusted share capital, capped at €125,000.

One increasingly popular type of investment fund, called an exchange-traded fund or , is exempt from the subscription tax.

The subscription tax is quite the money-spinner for the Luxembourg state. Last year it raised €1.38bn for the treasury, up from €1.28bn in 2021 and €1.05bn in 2020, although the government estimates the figure will fall to €1.23bn this year, mainly due to sagging financial market conditions.

Legislative reform

Some in Luxembourg’s funds sector have long complained about the subscription tax, arguing that it puts the grand duchy at a competitive disadvantage to other financial jurisdictions, such as Ireland. To address some of those concerns, the government introduced a new law, , which took effect in late July 2023.

The legislation cut the subscription tax to 0% for several types of investment funds: European long-term investment funds, or s, which typically finance infrastructure or property projects; pan-European individual retirement savings plans, or s, which are basically private pension schemes; and money market funds, which essentially are used for short-term savings and to safely stash cash. The new rates will when fund firms calculate their net assets on 30 September 2023.

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Organisations from the trade group to service providers such as , and said the legislation would boost the competitiveness of the grand duchy’s funds sector, which operates in, as both Alfi and Atoz said, a “highly competitive international environment.”

The subscription tax will be one of the topics covered during the Association of the Luxembourg Fund Industry’s seminar on investment fund taxes, for professionals, to be held on .