On 12 July 2023, Luxembourg Finance Minister Yuriko Backes and Economy Minister Franz Fayot presented a bill that proposes legislation updates on funds and significant changes to the tax rebates that entities earn from their investments, starting the 2024 tax year.
The proposed bill is looking to modernise the Luxembourg fund toolbox, which covers five sectoral laws and further increases the attractiveness and competitiveness of the jurisdiction as an international financial centre. The bill will implement changes on the following:
- UCI Law (Undertakings for Collective Investment)
- SICAR Law (Investments in Risk Capital)
- SIF Law (Specialised Investment Funds)
- RAIF Law (Reserved Alternative Investment Funds)
- AIFM Law (Alternative Investment Fund Managers)
According to Backes,: “[T]he bill modernizes the subscription tax regime, particularly to align with European efforts promoting long-term investments. It creates tax incentives to support the emergence of new European products such as European long-term investment funds (ELTIFs) and pan-European personal pension products (PEPPs) while strengthening Luxembourg’s competitiveness.”
Changes related to Luxembourg fund managers
- Liquidation rules for AIFMs and UCI management companies. If an AIFM receives a withdrawal notification from the official CSSF list, it cannot take any legal action until the pronouncement of liquidation, with the exception of conservatory acts. The Tribunal d’Arrondissement will appoint a commissioner to oversee the assets until the dissolution and liquidation of the entity.
- New rules on voluntary liquidation for AIFMs. Under the bill, the AIFM is deemed to exist after the dissolution for the purpose of liquidation, which can only take place when all management activities have been stopped.
- New fund requirements for UCI management companies. The bill requires management companies to invest in liquid assets or short-term liquid assets in their own funds for the purpose of investor protection. If non-compliant, the CSSF will order the companies to halt activities.
Changes related to retail investors
- The bill proposes amendments to the definition of well-informed investors under the RAIF Law, SICAR Law and the SIF Law. From €125,000 the minimum investment will now be €100,000 under the bill.
- The bill extends the deadline for managers to meet the AUM amount:
|UCITS Fund Type
|Part II UCI
- The bill allows more flexibility to fund managers as they can now structure Part II UCIs as SCA, SCSp, SCS, S.à r.l. or SCSA. Previously, Part II UCIs can only be established as SAs. Additionally, units of closed-ended Part II UCIs can be issued at a price determined by constitutive documents. Under the current UCI Law, units must be issued at net asset valuations.
- The bill allows managers to market RAIFs, SICARs and SIFs to retail and non-professional investors in Luxembourg if they qualify as well-informed investors.
Tax rebates for digital and ecological projects/expenses
Tax rate increase in global investments. Under the bill, the government will grant 12% (up from 8%) tax subsidy to global investments, which include depreciable assets and tangible property, such as machinery and equipment.
The bill also proposes an additional 6% tax bonus on top of the 12% (total 18%) in investments and projects that are part of digital transformation or ecological and energy transition. Examples are:
- Employee training costs
- Diagnostic or audit
- Cloud computing
- Software licenses
- Projects that significantly improve a company’s energy efficiency or decarbonise the production process
- Production or storage of energy produced from non-fossil renewable resources for the company’s energy needs
The rebates on operating expenses are major changes to the country’s tax system, as currently, OEs are not tax-exempted. The investments must meet specific objectives to be eligible for the 18% tax bonus. In addition, the authorities will implement an attestation and certification system to ensure the projects are eligible for the tax rebate.
The company must submit a project to the Minister of Economy, who will work with other stakeholders in determining if the project is eligible for the tax holiday. If so, the company will be given a certificate. This certificate will then be a part of the company’s annual tax declaration.
Our funds solutions in Luxembourg
The Association of the Luxembourg Fund Industry expressed its support for this initiative. In a LinkedIn post, it stated: “The law further enhances the legislative framework applicable to the [fund industry], which operates in a highly competitive international environment.”
While not fully meeting industry expectations, especially concerning tax questions, these legislative updates, according to Bolder Group Luxembourg Head of Funds Matej Sajgalik, “demonstrate an ongoing commitment and a conscious effort [from Luxembourg] to remain the top place to go for alternative investment funds.” Our experts from Bolder Group can guide clients amid these regulatory changes to ensure the sustainability and compliance of their investments in Luxembourg.
Bolder Group is an active fund administrator in Luxembourg, providing fund domiciliation, fund administration (regulated and unregulated) and fund management solutions. For more information about our funds services, contact our team through this link.
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