Changes to the subscription tax introduced by the law and Grand-Ducal regulation of 21 July 2023

The law and RGD of 21 July 2023

The law of 21 July 2023 entered into force on 28 July 2023, and contained many changes amending all of the fund product laws, amongst which changes to the subscription taxes levied on certain funds. At the same time Grand-Ducal regulation was published the purpose of which was to repeal:

1. the Grand-Ducal regulation of 14 April 2003 determining the conditions and criteria for the application of the subscription tax referred to in Article 129 of the law of 20 December 2002 on undertakings for collective investment (repealed by the law of 17 December 2010, relating to undertakings for collective investment (the “UCI Law”)), and
2. the Grand-Ducal regulation of 27 February 2007 determining the conditions and criteria for the exemption from the subscription tax referred to in Article 68 of the law of 13 February 2007 relating to specialised investment funds (“SIFs”), as amended (the “SIF Law”)

both of which had become obsolete, as a result of the amendments brought about by the law of 21 July 2023.

Key changes to the subscription tax

• SIF

In order to encourage investment into European Long-Term Investment Funds ("ELTIFs"), the SIF Law now provides that SIFs (or sub-funds thereof) authorized as ELTIFs are exempt from subscription tax.

In addition, SIFs authorized as money market funds ("MMFs") are exempt from subscription tax if they (i) qualify as short-term money market funds and (ii) have received the highest possible rating from a recognized rating agency.

In order to benefit from these exemptions, specialized investment funds must disclose the value of their eligible net assets in their periodic filings with the Luxembourg Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA) (“AED”).

• RAIF

RAIFs authorised as MMFs are exempt from subscription tax if they (i) qualify as short-term MMFs and (ii) have obtained the highest possible rating from a recognised rating agency.

Finally, in order to encourage investment into ELTIFs, the RAIF Law now provides that RAIFs (or sub-funds thereof) authorised as ELTIFs are exempt from subscription tax.

• UCITS & PART II UCI 

In order to align with EU terminology, it is clarified that UCITS & Part II UCIs (or sub-funds thereof) that qualify as MMF’s benefit from the reduced subscription tax of 0.01%. The requirements for MMFs to qualify for the subscription tax exemption have been slightly amended to align with EU terminology. UCITS and Part II UCIs (or sub-funds thereof) wishing to benefit from this exemption must (i) qualify as short-term MMF’s, (ii) be available only to institutional investors and (iii) have obtained the highest possible rating from a recognized rating agency. In addition, and to support the development of pan-European personal pension products (“PEPPs”) as requested by the European Commission, UCITS & Part II UCIs reserved for PEPP investors are exempt from subscription tax. Finally, to encourage investment into ELTIFs the new law now provides that Part II UCIs (including sub-funds thereof) authorised as ELTIFs are also exempt from subscription tax.