It is not a surcharge on a video streaming account or produce box delivery. In the grand duchy, the subscription tax (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.”
“Alternative fund” 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 ETF, 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.
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, bill 8183, 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 Eltifs, which typically finance infrastructure or property projects; pan-European individual retirement savings plans, or Pepps, 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 apply when fund firms calculate their net assets on 30 September 2023.
Organisations from the Alfi trade group to service providers such as Atoz, EY and SGSS 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 Tuesday 24 October 2023.