AGEFI Luxembourg - mai 2025

Mai 2025 23 AGEFI Luxembourg Fonds d’investissement A s at 31March 2025, the total net assets of undertakings for col- lective investment, compris- ingUCIs subject to the 2010 Law, specialised investment funds andSICARs, amount- ed toEUR5,749.779 billion compared toEUR5,957.264 billion as at 28 February 2025, i.e. a decrease of 3.48% over onemonth. Over the last twelvemonths, the vol- ume of net assets increased by 4.82%. The Luxembourg UCI industry thusregisteredanegativevariation amounting to EUR 207.485 billion inMarch.Thisdecreaserepresents the sum of positive net capital investments of EUR 16.319 billion (0.28%) and of the negative devel- opment of financial markets amounting to EUR 223.804 billion (-3.76%).Thenumberofundertak- ings for collective investment taken into consideration totalled 3,124, against 3,131 the previous month. Atotalof2,066entitiesadoptedan umbrella structure representing 12,461 sub-funds. Adding the 1,058 entities with a traditional UCI structure to that figure, a total of 13,519 fundunitswere active in the financial centre. As regards the impact of finan- cial markets on the main cate- gories of undertakings for collec- tive investment and the net cap- ital investment in theseUCIs, the following can be said for the month of March. During the month, global finan- cial markets were adversely affected by a series of announce- ments regarding US tariffs, ini- tially directed at China, Canada and Mexico, followed by steel and aluminium, and eventually the automobile sector.Numerous revisions, suspensions and exemptions created confusion and undermined both business and consumer confidence. The resulting trade tensions and likely negative impact on growth, including an increasing risk of global recession or even stagflation in the US, also added to concerns. In Europe, the announcement of a historic deci- sion in Germany to invest hun- dreds of billions of euros in defence and infrastructure led to a strong improvement inmarket sentiment and to a reassessment of economic forecasts, resulting among other in a significant appreciation of the euro against most other currencies. Against this backdrop, most equities UCIs categories, including European equities despite an improved outlook, posted sub- stantial monthly losses, the largest being US equities includ- ing a nearly 4% depreciation of the US dollar against the euro. InMarch, equity UCI categories registered positive capital investment. The categories European equities and Eastern European equities collected the largest inflows. During the month, the European Central Bank reduced interest rates by 25 bps for the sixth consecutive time, as anticipated, while the Federal Reserve left its bench- mark interest rate unchanged, indicating the possibility for future cuts due to concerns regarding economic growth. Performances were however mostly driven by tariff-related developments, rather than by monetary policy decisions. Emerging market recorded the worst returns, primarily due to weaker growth anticipations resulting fromUS tariffs, includ- ing fears concerning those to be announced in April, as well as the impact of exchange rates. European bonds also experi- encednegative returns drivenby a steepening of the yield curve resulting from anticipated increases in long-term funding requirements, while credit spreads remainedbroadly stable. InMarch, fixed incomeUCIs reg- isteredpositive net capital invest- ment. The category EUR money market collected the largest inflows. Source :CSSF Global situation of undertakings for collective investment Mar.24 Apr.24 May24 Juney July24 Aug.24 Sept.24 Oct.24 Nov.24 Dec.24 Janv.25 Feb.25 Mar.25 Thedevelopmentofundertakingsforcollectiveinvestmentisasfollows: NetAssets Number of UCI Number ofUCI 6000 5000 4000 3000 2000 1000 0 inbn. EUR 3500 3000 2500 2000 1500 1000 500 0 A dopted in 2015, the Euro- peanLong-TermInvest- ment Fund (ELTIF) (1) Regulation aimed at fostering in- vestments in long-termprojects such as infrastructure, real estate, private equity, venture capital, and private debt. However, by 2022, ELTIFs sawa limited growthwith only a handful authorized andnet asset size belowexpectations. The application of the ELTIF 2.0 Regula- tion (2) in January 2024 projected an opti- mistic increase in their number by allowing a wider range of eligible assets, fundoffundsstrategies,reducingbarriers for investors and enhancing product at- tractiveness. The new regulation resulted already in a significant increase of ELTIFs from95 in2023 to186byMay12th2025 (3) , especially inLuxembourg. Despite the revised norm, the ELTIF 2.0 regulationdoes not however address tax- ationaspects,leavingthemtobegoverned by the jurisdictions of establishment and those of the investors. Several European countries are already providing tax incentives to attract retail investments. Nevertheless, the High- Level Forum on the Capital Markets Union has recommended simplifying tax rules or granting preferential treat- ments forELTIFs toensure taxneutrality, while the European Fund and Asset Management Association (EFAMA) has prompted for the harmonization of tax incentives emphasizing the need for a uniform tax approach. This article addresses high-level key tax considerations of the ELTIF 2.0, focusing on the fund, investor, and asset aspects, whichmaybe relevant for both investors and asset managers wanting to enter or launchanELTIF in the future. Tax impli- cations need to be considered upfront but also during the lifetime of the ELTIF (from investment, holding and cash repatriation to exit). ELTIFs label and legal form ELTIFs are alternative investment funds (AIFs) authorized and supervised by the CSSF (4) , and governed by the AIFM (5) Di- rective. ELTIFs aremanaged by anAIFM andcanbemarketedacrosstheEUthanks to the cross-border passport. Legally, ELTIFs can be established under the form of partnerships (S.C.S., S.C.A., S.C.Sp), mutual funds (F.C.P.), or compa- nies (S.A., S.àr.l.). Before establishing the fund, the legal form is a key parameter which must be considered due to its im- plicationsongovernance,commercialand operationalaspects,inadditiontotaxation. Luxembourghasnotintroducedaspecific law on ELTIFs, allowing managers and promoters to choose from the existing fund regimes available in the Luxem- bourgtoolbox.ELTIFscanbesetupasUn- dertakings of Collective Investments funds (UCI-Part II), if addressed to retail investorsandprofessionalinvestors,oras Specialized Investment Funds (SIF), In- vestment Companies in Risk Capital (SICAR), or as Reserved Alternative In- vestment Funds (RAIF), if restricted to professionalandwell-informedinvestors. They can also be set-up as vehicles not subject to a specific fund-product law as long as they complywith the ELTIFReg- ulation (e.g., Lux S.C.Sp). While an ELTIF-labelled fund would be expected to comply with asset eligibility requirements if it applies one of the regimes of the Luxembourg toolbox, the ELTIF 2.0 Regulation indicates that at minimum 55% of an ELTIF’s portfolio should be long-term investment on eq- uity, quasi equity, debt instruments, green bonds or loans granted to qualify- ingportfolioundertakings. Other invest- ments (i.e., short-term) can be composed of liquid and easily transferrable assets (e.g. equities, bond). Furthermore, if the ELTIF is a retail fund, further diversifica- tion requirements apply (6) . The distinction between retail ELTIF (i.e., anUCIPartII)andprofessionalELTIF(i.e., SIF, SICAR, RAIF or un-regulatedAIF) is akeyaspect of thenewregulation. For in- stance,inatraditionalscenariowhereaSIF or RAIF-SIF would need to comply with a30%diversificationruleapplicableunder their standard regime, an ELTIF SIF or ELTIFRAIF-SIFmayinvestintoonesingle large infrastructure asset without further diversificationgiventhefundwouldbere- strictedonly toprofessional investors. ELTIF taxation Taxationpoints at the level of the invest- ments The jurisdictionwhere the ELTIF invests is crucial to determine whether the in- vestment country would levy withhold- ing tax on interest and dividends, and how the capital gain tax on the disposal of the investments should be taxed. Taxation at the level of the Fund In Luxembourg, the tax treatment of ELTIFisdeterminedbyitslegalformand fund regime. They canbe set up either as tax transparent (i.e., S.C.S., S.C.Sp., and F.C.P) or opaque vehicles (e.g., S.A., S.à r.l. and S.C.A.). If incorporated as UCI Part II funds, SIF, or RAIF-SIF, they are exempt from tax on income and gains, exempt fromnetwealth tax, subscription tax and from withholding tax on distri- butions. For those funds set-up under a corporatelegalform,theycanalsobenefit toalargeextentfromdoubletaxtreaty(to be reviewed on a case by case basis). ELTIFs established as SICAR or RAIF- SICAR(corporatevehicle)areinprinciple fully taxable under corporate income tax rules; however, those complying with capital risk requirements are entitled to a taxexemptionon incomeandgains from equity at-risk securities and interest in- comeon transit funds,withnowithhold- ing taxondividends andanetwealth tax exemption. Also, when taking a corpo- rate legal form theymay access the large Luxembourg double tax treaty network (under conditions). WhenanELTIF is incorporatedas anun- regulated vehicle in the form of an S.A., S.C.A.,S.àr.l.itwouldbefullytaxable(in- cluding withholding tax on dividends) but entitled to tax exemptions through domestic participation regime or double taxtreaties/EUDirectivessubjecttomeet- ing substance, control, and ownership conditions as the casemay be. As a S.C.S., S.C.Sp, the ELTIF would, in principle, be tax transparent. While a Luxembourgpartnership’saccesstoLux- embourg’s double tax treaties is ulti- mately dependable on the qualification of the vehicle in the source country, in practice tax transparent vehicles do not usually benefit from double tax treaties. Further to that, as tax transparency may not be reciprocally applied overseas, in- vestor tax review might be required to considertheapplicationofthereversehy- brid rule under the Anti-Tax Avoidance Directive (ATAD 2). Additionally, Lux- embourg municipal tax implications should be duly considered. Taxation at the level of the investors WhileELTIFsstrivetobetax-neutralwith one layer of taxation, there are questions to be considered from an investor tax preferenceperspective.Morespecifically, what would be the taxation aspects and tax reporting obligations. As indicated, the choice of the legal form (transparent or opaque) significantly im- pacts tax treatment for investors. Tax transparent ELTIFs can pool investors with taxable, tax-exempt, or preferential profileswhilegenerallyallowingtaxneu- trality at fund level, but may trigger tax leakages at the level of the investors de- pendingon their profiledue to the appli- cation of the reverse hybrid rules. Similarly,thereisthequestionofwhether the investors relyondouble tax treaties to mitigate double taxation vis-à-vis the ju- risdiction where the ELTIF holds the in- vestments through the tax transparency. For some investors, using a corporate entity may be operationally more ade- quate, especially if they aim to prevent local tax reporting through the use of corporate blocker. Assessing the timing of taxation is also a crucial point to consider with respect to the investor. The taxation of opaque ELTIFs would be expected to occur only upondistributions, disposals, or liquida- tion events. In this sense, opaque ELTIFs wouldallowfor taxdeferrals, save if con- trolled foreign companies (CFC) rules apply in the investor’s jurisdiction of ori- gin, or if their country applies the tax transparency principle to opaque funds like inAustria. Conversely, transparent ELTIFs usually offernotaxdeferral,therebyrequiringpo- tentially investors to pay taxes when in- come or gains are realized at the fund’s level and not necessarily upon profit dis- tributions. This could potentially trigger someunintendedcashflowissues.There- fore, the distribution strategy will be also key to review, tax-wise. Last, a fund’s corporate structure can ei- therbeset-upasaccumulatingfundordis- tributingfunds.Dependingonthetypeof income received by investors, i.e., divi- dends or capital gains, the tax treatment applicable in their country of origin may vary, but also whether it would be re- quired looking at the underlying assets heldby the Fund. Other tax considerations Aside these considerations, the man- agement fees, carried interest, man- agers incentives, transfer tax, stamp duty, VAT and local taxes would also be important considerations to review from a tax perspective. Assessing Investor and asset-level tax implications Luxembourgoffersaflexibleandtaxneu- tral toolbox for launching a cross-border ELTIF meeting the various expected in- vestors andpromoters tax requirements. The choice of the legal form and fund regime of ELTIF goes beyond legal and regulatory considerations and require a careful assessment of the tax implications at both the investor and asset levels. Tax treatment may also vary significantly dependingonthejurisdictionandtaxpro- file of the investors, the nature of the un- derlying assets. Yves K NEL , Partner Matheus C ORPAS F ROMENT F ERNANDES , Director Cynthia T AMARA , Manager Deloitte Luxembourg 1)Regulation(EU)2015/760onEuropeanlong-term investmentfunds 2) Regulation (EU) 2023/606 amendingRegulation (EU)2015/760asregardstherequirementspertain- ingtotheinvestmentpoliciesandoperatingcondi- tionsofEuropeanlong-terminvestmentfundsand thescopeofeligibleinvestmentassets,theportfolio composition and diversification requirements and theborrowingofcashandotherfundrules 3)ESMA 4) Commission de Surveillance du Secteur Fi- nancier(CSSF). 5)AlternativeInvestmentFundManagersDirective of2011. 6)ALFI. ELTIF 2.0- The European long-term in- vestment fund. 2024. Available online: https://lc.cx/rEr0bo ELTIF 2.0 and Taxation: What investors and fund managers need to know