2021 brings good news to the fund industry in Luxembourg with favorable tax measures of the Budget Law for 2021 and a milestone regarding the withholding tax reclaims.
ESG is at the heart of the agenda of asset managers. The Luxembourg legislator has now granted to investment funds pursuing an ESG strategy a unique opportunity to gradually reduce the subscription tax rate down to 1 basis point. This reduction will apply to assets falling under the EU Sustainable Finance Taxonomy. To become effective, the fund’s percentage of sustainable assets will need to be published in its annual report or in a separate assurance report.
More than 10 years after the Aberdeen decision, the discriminatory taxation of Luxembourg investment funds is still not solved. But we see evolutions taking place at an unprecedented pace.
For instance, Italy has finally adopted a withholding tax exemption on dividends and capital gains. By contrast, through the application of TRACE in Finland and of the planned withholding tax mechanism in Poland, the conditions to benefit from a tax exemption in these countries have worsened.
Funds can now benefit from favorable court decisions in Portugal based on EU law and in Korea based on the tax treaty with Luxembourg. In Germany, a milestone judgement is still pending at the level of the Federal Tax Court with an estimated impact on the budget of more than 10 billion euros.
In the light of these evolutions, a regular monitoring is recommended to ensure that your funds are not suffering any unnecessary tax leakage.
Good news for the fund industry?