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Luxembourg’s ALFI conference hears proposal to exempt active ETFs from subscription tax on fund assets

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Delegates at ALFI’s 2024 Global Asset Management Conference held at the European Convention Center in Luxembourg in March saw chair Jean‑Marc Goy declare that this year the fund industry is confronted with an uncertain and unstable economic and geopolitical environment, buffeted by high inflation and interest rates. 

But he also pointed to signs of growth, including a rebound in Luxembourg fund assets to more than EUR5.3 trillion at the end of January, following a slump prompted by falling global markets over the previous two years.

Goy also noted the continuing growth of the private assets sector, which has become a substantial share of industry assets since the adoption of the EU’s Alternative Investment Fund Managers Directive (AIFMD) in 2011, and, he said, Luxembourg’s continuing primacy as a hub for cross-border distribution, as well as the world’s second largest fund centre measured by assets after the United States. 

“And whatever the ongoing issues regarding sustainable finance regulation, the country remains the key EU hub for ESG funds, with 34 per cent of article 8 fund assets and 51 per cent for article 9,” he said.

ALFI has also announced that it has identified a new potential growth area in actively-managed ETFs, which are becoming an increasingly substantial challenger to traditional mutual funds in the US, the association said. Goy said that after the highly welcomed modernisation of Luxembourg’s core fund legislation framework last year, another important step would be to exempt active ETFs from the subscription tax on fund assets.

The new government coalition that took office last autumn is receptive to the needs of one of Luxembourg’s key economic sectors, according to finance minister Gilles Roth, a senior finance ministry official before he entered politics. He praised the resilience of the fund industry in a difficult environment, noting the challenges it is embracing in digitalisation of processing and distribution, as well as the importance of its role in meeting the needs of society and dealing with an ageing population.

 Roth said he recognised the importance of ensuring that the financial sector remains attractive and competitive through measures conducive to climbing the value chain. A reduced subscription tax for active ETFs is among a number of promised changes to the country’s tax structure, including a 1 per cent cut in corporate income tax as a signal to companies and investors of the government’s ambition to bring corporate taxation down to the OECD average.

He also promised legislation to help bolster Luxembourg’s position as a leader in digital assets, efforts to mobilise finance for the green transition, support for the EU’s slow-moving Capital Markets Union project, and measures to improve the country’s tax regime for profit-sharing bonuses as well as the fiscal status of expatriates whose skills and experience are needed to drive business growth.

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