During 2024, the Luxembourg government introduced a draft bill of law with a number of amendments to the rules on taxation, in particular in the financial sector, with the aim of improving Luxembourg’s competitiveness. A number of measures were proposed, such as the lowering of the corporate income tax or increasing the portion of tax-exempt profit-sharing bonuses of employees’ remuneration. Concerning the investment funds sector, an additional exoneration of exchange traded funds (ETF) from the subscription tax was proposed. The draft bill was voted at the end of last year, published on 24 December and entered into force on the 1st of January.

The market of ETFs in Europe is largely dominated by Ireland, which currently holds a market share of around 70% in this segment, with Luxembourg below 20%. Due to the low cost burden of ETFs (at least of passive ones), their market share has grown rapidly over the past years, to the detriment of actively managed funds. Luxembourg already introduced an exoneration of index tracking ETFs from the subscription tax (which is set at 5 basis points p.a. in principle) a while ago, in the law dated 17 December 2010 that was now amended again and which mostly regulates UCITS. The newly introduced exoneration however has a wider scope and also captures ETFs that do not aim at reproducing the performance of one or more indices, but that have for example the objective of outperforming an index – and therefore require an active management to do so. These funds need to be quoted on a regulated market or multilateral trading facility, with a market maker ensuring there is no substantial difference between the relevant fund’s net asset value and the market price.

While this further exoneration will not revolutionise Luxembourg’s position in the ETF market segment, it is a step into the right direction to reduce the gap in terms of fund expenses with Ireland.