ABBL

The fund tax regime has been improved for master feeder funds and foreign funds managed in Luxembourg. Both fund types are expected to grow after UCITS IV. Draft Law 6170 which implements Directive 2009/65/EC of 13 July 2009 on undertakings for collective investment in transferable securities (“UCITS IV” Directive) introduces as from 2011 some positive tax changes for the Luxembourg Investment fund industry.

Non-resident investors no longer taxable in Luxembourg on capital gains on shares in UCIs

Capital gains realised by non-residents on the sale of shares in SICAVs/SICAFs/SIFs will no longer be taxable in Luxembourg. So far, taxation could occur in case of a sale of a 10% or greater shareholding within 6 months following the acquisition of the shares to the extent there was no treaty which granted the exclusive taxation right to the country of the investor. This was a concern for a Luxembourg fund with a foreign feeder.

Management Company or central administration in Luxembourg does not create a Luxembourg tax residence of non-resident UCIs

The UCITS IV Directive introduces a full passport for UCITS Management Companies, which allows a UCITS established in one EU Member State to be managed by a management company in another Member State. Having a UCITS established in one country with its management company established in another one could create a tax residence of the UCITS in the country of the management company based on the place of effective management criteria, which is used very often to determine tax residence.
In order to remove this tax barrier to the management company passport, the draft law introduces a new article which provides that non-resident UCIs will not become taxable in Luxembourg even if they have their place of effective management or their central administration in Luxembourg.

Interestingly, this provision will not only apply in a UCITS context but will apply to all foreign UCIs including for example foreign Alternative Investment Funds (AIF), which may consider moving their management company to Luxembourg as a consequence of the upcoming AIFM Directive.

Exchange Traded Funds become exempt from subscription tax

Exchange Traded Funds ("ETFs") will be exempt from the 0,05% subscription tax (taxe d’abonnement) currently levied on their Net Asset Value.

Multi-employer pension pooling vehicles become exempt from subscription tax

Multi-employer pension pooling vehicles will also become exempt from the 0,05% subscription tax. So far, this exemption applied only to Specialised Investment Funds but did not apply to funds set up under the Law of December 20, 2002 (the exemption applied only to single-employer vehicles).

Implications

These future changes, which will enter into force on January 1st, 2011, are welcome as they both remove some tax obstacles to the EU management company passport and increase the attractiveness of the Luxembourg Investment fund center at the same time. Fund complexes should consider the changes in deciding where to site funds and management companies in the light of the EU regulatory changes.
 

(Source: Atoz Luxembourg)