On 23 December 2020, the Luxembourg Budget Law was published in the Mémorial (“the Law”). It contains some tax measures aiming at promoting investment in sustainable economic activities and is part of a more extensive sustainable finance strategy for Luxembourg as an international financial centre.
The Law introduces reduced subscription tax rates for undertakings for collective investments (“UCIs”) subject to the Law of 17 December 2010 as amended (i.e. Undertakings for Collective Investments in Transferable Securities “UCITS” and Part II funds) when investing in activities which qualify as environmentally sustainable economic activities under the Taxonomy Regulation* (“Qualifying Activities”).
A UCI (or one or more compartment(s) of the UCI) may benefit from this reduced subscription tax rate depending on the value of its net assets invested in Qualifying Activities:
if the UCI (or one or more of its compartment(s)) invests at least 5% of its net assets in Qualifying Activities, it will benefit from a subscription tax rate of 0,04% p.a. (instead of 0,05%);
if the UCI (or one or more of its compartment(s)) invests at least 20% of its net assets in Qualifying Activities, it will benefit from a subscription tax rate of 0,03% p.a. (instead of 0,05%);
if the UCI (or one or more of its compartment(s)) invests at least 35% of its net assets in Qualifying Activities, it will benefit from a subscription tax rate of 0,02% p.a. (instead of 0,05%);
if the UCI (or one or more of its compartment(s)) invests at least 50% of its net assets in Qualifying Activities, it will benefit from a subscription tax rate of 0,01% p.a. (instead of 0,05%).
It should be noted that the reduced subscription tax rate is only applicable to the net assets invested in Qualifying Activities.
Further, it should be noted that no reduced subscription tax rate is available to investment funds that qualify as specialised investment funds (“SIFs”) under the Luxembourg Law of 13 February 2007 or as reserved alternative investment funds ("RAIFs") under the Luxembourg Law of 23 July 2016. They are generally subject to a subscription tax rate of 0,01%, which is the lowest rate foreseen in the new regime, irrespective of investments into Qualifying Activities.
There are a number of conditions to be fulfilled by UCIs to benefit from this reduced subscription tax rate:
the proportion of net assets invested in Qualifying Activities as at the last day of the financial year of the UCI (or its individual compartment(s)) must be audited by an approved statutory auditor (réviseur d’entreprises agréé);
the above referred amount must be included in the annual report or in an assurance report;
based on the information contained in the annual report or the assurance report regarding the proportion of net assets invested in Qualifying Activities of the UCI (or its individual compartment(s)), a respective certified statement (“attestation certifiée”) must be delivered by the approved statutory auditor and filed to the Luxembourg tax authorities (Administration de l’enregistrement des domaines et de la TVA) with the first subscription tax return following the annual report or the assurance report;
Based on the filing of the aforementioned certified statement with the tax authorities, the applicable reduced subscription tax rate will be determined for the next four quarters.
Until 1 January 2022, UCIs willing to benefit from the reduced subscription tax rate need to file their quarterly tax return electronically at a rate of 0.05% accompanied by a corrective statement (déclaration rectificative).
If you have any questions regarding the above, please liaise with your usual Linklaters contact.
*article 3 of Regulation (EU) 2020/852, for further details on the Taxonomy Regulation please click here
