Taxation of an Investment Fund in Luxembourg

Luxembourg is known for having one of the most prolific financial industries in the world. Among the subsectors of the financial industry, the investment funds branch is by far the most important. The Luxembourg Financial Regulator has created one of the vastest legislations in the world when it comes to regulating investment funds, which is one of the main attraction points of those interested in setting up such structures here.

An important aspect related to the creation of Luxembourg investment funds is their taxation which must follow specific regulations. Below, our lawyers in Luxembourg provide useful information on the legislation related to the taxation of investment funds in the Grand Duchy. Foreign entrepreneurs can also rely on us if they want to start a business in another industry in Luxembourg.

What are the taxes to be paid by Luxembourg investment funds?

It should be noted that the taxation of investment funds in Luxembourg does not follow the same trajectory of companies registered here. Even if some of them are registered by using business forms available for companies employed in other industries, such as manufacturing or information technology, funds are treated separately, and thus benefit from a special tax treatment.

The main taxes which need to be paid by investment funds in Luxembourg are:

• -          the registration fee which is the first tax to be considered with establishing a fund in Luxembourg;
• -          the subscription tax which is what makes Luxembourg an appealing investment fund destination;
• -          the value added tax (VAT) which is applied under specific circumstances on investment funds;
• -          the corporate tax, the municipal tax and the wealth tax which are imposed on investment management companies.

It should be noted that the taxation of investment funds occurs based on the type of fund registered in Luxembourg.

Our law firm in Luxembourg can assist with the registration of various types of investment funds, but also of investment management companies.

Taxation of Alternative Investment Funds (AIFs) in Luxembourg

Alternative Investment Funds or AIFs are some of the most common types of funds in Luxembourg because they can also be registered in other EU countries or can operate across the EU without any other authorization.

The taxation of AIF in Luxembourg implies the payment of the registration tax which amounts to 75 euros at the moment. Then, the AIDF is subject to the subscription tax which is paid on annual basis.

The subscription tax is levied at a rate of 0.05% on the net assets held by the fund. A reduced rate of 0.01% is also available if the fund invests in specific assets.

One of the main tax benefits of the AIF in Luxembourg is the exemption from the income, wealth and withholding capital gains taxes.

Taxation of SIFs and RAIFs in Luxembourg

Other common investment funds are the Special Investment Fund (SIF) and the Reserved Alternative Fund (RAIF) which are subject to the same registration tax with the Luxembourg Financial Regulator.

Compared to the AIF, the SIF and the RAIF are subject to a 0.01% subscription tax and benefit from exemptions on investments made in certain assets. The same tax exemptions are available when it comes the income and wealth net tax in Luxembourg.

Payment of the VAT for investment funds in Luxembourg

One of the taxes which need to be considered when setting up an investment fund in Luxembourg is the value added tax. According to the law, all investment funds in Luxembourg are subject to the VAT, with a few exceptions which target:

• -          offering investment advisory services;
• -          offering portfolio management services;
• -          offering administrative services.

With the help of our Luxembourg lawyers, foreign investors can set up various types of investment funds in order to qualify for the benefits offered by the legislation in this country.

Taxation of investment management companies in Luxembourg

The creation of an investment fund in Luxembourg implies appointing an investment management company which will be in charge of administering the assets of the respective fund. Under the tax legislation in Luxembourg, these companies will be subject to the corporate tax, the net wealth tax and the withholding taxes applicable in this country.

An important benefit related to the taxation of investment funds in the Grand Duchy is that these can fall under the regulations of Luxembourg’s double taxation agreements.

For full information on how investment funds are taxed in the Grand Duchy, we invite you to contact our law firm in Luxembourg. We remind you that you can also rely on us for other services, such as business registration in Luxembourg.