LUXEMBOURG Law and Practice Contributed by: Evelyn Maher, Gaston Aguirre Draghi and Djelloul Mansour, BSP
which is a long-term, individual, non-occupa - tional personal pension product (third-pillar pension) subscribed to on a voluntary basis by so-called PEPP savers to provide sup - plementary income on retirement, created per Regulation (EU) 2019/1238 on a pan- European personal pension product (“PEPP Regulation”), which entered into application on 22 March 2022 and by which the Luxem - bourg congress on 4 March 2022 enacted the Law of 25 February 2022, which lays down certain rules on, among other things, the PEPP Regulation; • those UCITS funds, as well as individual compartments of UCITS funds with multi - ple compartments, (i) whose securities are reserved for institutional investors, (ii) which are authorised as short-term money market funds in accordance with Regulation (EU) 2017/1131, and (iii) which have obtained the highest possible rating from a recognised rating agency – where several classes of securities exist within the UCITS fund or the compartment, the exemption only applies to classes whose securities are reserved for institutional investors; and • those UCITS funds that are authorised as ELTIFs in accordance with Regulation (EU) 2015/760. In addition, retail funds may benefit from reduced subscription tax rates on the portion of their net assets, or a compartment thereof, invested in economic activities that qualify as environmentally sustainable within the meaning of the Taxonomy Regulation (“qualifying activi - ties”) (Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regula - tion (EU) 2019/2088). For instance, the tax rate is reduced to 0.04% if the retail fund invests at least 5% of its net assets in qualifying activities.
Furthermore, the annual subscription tax will be reduced to zero in the case of institutional mon - ey market cash funds, special pension funds, exchange-traded funds (ETFs) and microfinance funds, and for retail funds investing in other Luxembourg funds that are already subject to a subscription tax. These exemptions apply to the whole retail fund, the sub-fund or the class of shares qualifying for the exemption. Investors located outside Luxembourg are not subject to Luxembourg capital gains tax. Luxembourg withholding tax does not apply to distributions made by these entities to investors. These entities also benefit from a VAT exemption on management services. These entities may not benefit from the EU Par - ent-Subsidiary Directive. In addition, these enti - ties in a corporate form may benefit from the double tax treaties that have been concluded by Luxembourg. 4. Legal, Regulatory or Tax Changes 4.1 Recent Developments and Proposals for Reform At the European level, Directive (EU) 2024/927 amending the AIFMD Directive (AIFMD II) was published on 26 March 2024. It entered into force on 16 April 2024, and EU members states have two years to transpose it. The level 2 meas - ures and guidelines are expected to be adopted during 2025 on specific topics that will have an impact on the fund regulatory environment in Luxembourg, in particular in relation to: (i) liquid - ity management tools, (ii) supervisory reporting, (iii) delegation, (iv) ESG, (v) leverage, (v) loan originating funds, (vi) white-labelling (or the use
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