Fund Taxation e-alert - Issue 2015-11

Fund Taxation e-alert - Issue 2015-11

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Circular n° 777

Concept of “institutional investor” in the context of Luxembourg subscription tax

On 2 October 2015, the Luxembourg Tax Administration for registration and estates issued an administrative circular (Circular n° 777) providing needful clarification on the concept of “institutional investor” in the context of collective investment vehicles.

Luxembourg collective investment vehicles setup under the provisions of the Law of 19 December 2010 (UCITS and UCIs) are subject to a standard annual subscription tax of 0.05% on their net assets, payable on a quarterly basis.

The standard rate of 0.05% can be reduced to 0.01% in specific cases including individual compartments of UCIs with multiple compartments as well as individual classes of securities issued within a UCI or within a compartment of a UCI with multiple compartments, provided that the securities of such compartments or classes are reserved to one or more institutional investors.

Furthermore, an exemption from the subscription tax is available in specific cases including UCIs as well as individual compartments of UCIs with multiple compartments,

  • whose securities are reserved for institutional investors, and
  • whose sole object is the collective investment in money market instruments and the placing of deposits with credit institutions, and
  • whose weighted residual portfolio maturity does not exceed 90 days, and
  • that have obtained the highest possible rating from a recognized rating agency.

The conditions for both, the application of the reduced rate and application of the exemption refer to the concept of “institutional investor”, without providing a legal definition of the concept, leaving leeway for a flexible interpretation.

For coherence purposes, the Luxembourg Tax Administration decided to apply the definition used by the Luxembourg Commission de Surveillance du Secteur Financier (CSSF), considering its supervision power over collective investment vehicles.

According to the Circular n° 777 an “institutional investor” is defined as:

  • a financial institution or a professional of the financial sector;
  • an insurance or reinsurance company investing for its own account;
  • a social security institution or a pension fund;
  • an industrial and financial group and the structures it has set up for managing its funds and important values; and
  • a public territorial or administrative authority if its own funds are invested.

 

For further information, please do not hesitate to contact us.

 

 

 

 

 

 

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
 

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