Luxembourg: Reduced rate of subscription tax, investments in sustainable assets
Luxembourg: Reduced rate of subscription tax
Undertakings for the collective investment in transferable securities (UCITs) and Part II undertakings for collective investments (UCIs) (or their individual compartments) can benefit from a reduced subscription tax rate beginning in 2021 for the portion of net assets invested in “taxonomy” compliant activities within the meaning of an EU regulation (2020/852). The new rule was introduced as part of the 2021 budget law to promote investments into sustainable projects.
The Luxembourg tax authorities issued guidance (Circular N° 804) clarifying the rules and procedures and providing examples for illustration purposes.
Overview of the new law and guidance
Retail funds are generally subject to an annual subscription tax at a rate of 0.05% on their net assets. With the new law, this rate may now be reduced down to 0.01% if part of the net assets is invested as follows (not relevant for specialized investment funds (SIFs) and reserve alternative investment funds (RAIFs) that already benefit from a rate of 0.01% without conditions):
|Percentage of net assets invested into qualifying assets||Subscription tax rate applicable to the portion of qualifying assets|
|At least 5%||0.04%|
|At least 20%||0.03%|
|At least 35%||0.02%|
|At least 50%||0.01%|
Certain steps need to be considered in order to be able to benefit from these reduced rates:
- The percentage of the total net assets of the fund or sub-fund invested in qualifying assets determined as of the end of the financial year of the fund must be published in the fund’s annual report or in a separate reasonable assurance report.
- The statutory auditor must issue a certificate confirming the percentage of the qualifying assets as disclosed in the annual report or in the assurance report, which would then be filed with the Luxembourg indirect tax authorities (Administration de l’Enregistrement, des Domaines et de la TVA) together with the first subscription tax return following the issuance of the annual report or assurance report.
- Once the certificate is filed, the reduced rate would apply for the following four quarters. Although the certificate as filed would fix the applicable rate of subscription tax that will be applicable for the following four quarters, the taxable basis (that is, the net assets that are in invested in qualifying assets) would be recalculated on the last day of each of those four quarters.
A transition period applies from 1 January 2021 to 1 January 2022 in order to afford the tax authorities time to set up their IT systems and procedures. During this period, the quarterly subscription tax return of 0.05% needs to be filed and the certificate sent via e-mail to the indirect tax authority as that will adapt the amount of tax payable.
Read a February 2021 report prepared by the KPMG member firm in Luxembourg
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