Economy & Politics

Tax fairness, on behalf of the FIS

To support the 21.7 billion euros of his budget proposal for next year, the Minister of Finance has decided to put an end to “tax abuse” relating to specialized real estate investment funds. Nice gesture but whose real impact is unknown.

Patrick JACQUEMOT

To support the 21.7 billion euros of his budget proposal for next year, the Minister of Finance has decided to put an end to “tax abuse” relating to specialized real estate investment funds. Nice gesture but whose real impact is unknown.

To touch investment funds, in the Grand Duchy, is to attack a colossus. This management activity alone counts for a third of the 46,000 jobs in the financial sector. It also accounts for nearly two billion euros in revenue for the state budget, or 11% of the country’s tax revenue. However, by presenting his 2021 budget proposal, Pierre Gramegna (DP) decided to attack one of the components of this fruitful activity: the Specialized Investment Funds (SIF), more especially those related to real estate. national and Luxembourg investors.

Of course, the covid crisis motivated the liberal finance minister to go on the offensive by creating a new tax. A source of income not to be neglected in these delicate times for public finances. But readjust the taxation applied to this part of SICAV-FIS is not a surprise attack. Indeed, the measure was already included in the 2018-2023 coalition agreement. No doubt the campaign promise materializes earlier than in the timing initially warned. This time, the device is expected to enter service at January 1, 2021.


While the covid crisis is mistreating public finances, the CGFP and the Robert-Krieps Foundation are arguing for higher taxation of specialized investment funds. Investment entities that manage more than 596 billion in assets but generate only (very) little revenue for the State.


In the spirit of the reform announced by Pierre Gramegna, it is as much a question of acting “in favor of tax fairness” as of “countering the abuses resulting from the use of the tax regime applicable to SIFs and other funds for investments in the real estate sector in Luxembourg ”. It is true that since their establishment in 2007, these real estate SIFs benefited from a more than light taxation.

Until now, owners of this type of fund only had to pay a (ridiculously) minimal subscription tax: 0.01% of net assets. About what bring in barely 60 million euros per year in national funds, according to the Ministry of Finance. This while the few 1,447 FIS declared in the Grand Duchy manage nearly 593 billion euros in assets.

From next year therefore, the administration of direct contributions will ensure the payment of a real estate levy heavier than the subscription tax alone. Real estate income – rents and real estate capital gains – Luxembourg realized by investment funds will thus be taxed at the rate of 20%. This “without the possibility of claiming deductions,” clarified the government treasurer.

For now, no one at the Ministry of Finance is advancing the additional amount that will be collected next year. Secretary General of the Robert-Krieps Foundation – which published a report on the issue of FIS this summer – Max Lener also admits that he is difficult to measure the impact of this change. “No one knows how many Luxembourg buildings are parked within the FIS established in the country, and it is only on this that the new measure will weigh. So impossible to quantify the benefit to be expected ”.


Illu - Finanzplatz - Place financiere - Luxembourg - Photo: Pierre Matge

Corinne Lamesch, President of Alfi, takes stock of one of the sectors among the important and dynamic pillars of the Luxembourg economy.


But in one example, Max Lener suggests the extent of the inflow of euros that this tax could generate. And to cite the example of the FIS baptized Cluster owned by several big names in the Luxembourg economy. “In 2019, the only rental income from buildings located in Luxembourg from this fund generated € 19.8 million in income.

To this must be added the capital gains generated with real estate in Luxembourg – nearly 34 other million -. Result in terms of tax that year, Cluster got away with a check for 62,511 euros ”. If the assembly has not changed, next year it will have to pay … ten million euros. Is 159 times more tax revenue than previously.

No doubt, this is the end of a glorious decade for real estate SIFs integrating Luxembourg properties. A time when these funds could prosper in peace, participate in their own way in real estate speculation and without being liable for income tax, commercial tax or wealth tax. “Unfortunately, I am sure that we will still observe a lot of transactions in the SIF in order to minimize the taxes that must be paid by June 10, 2022 as indicated in the budget law “, grimaces Max Lener.


Wirtschaft, Börse Luxemburg, Foto: Lex Kleren / Luxemburger Wort

Only a few days after having defined a strict framework for durable bonds, Pierre Gramegna announced Monday evening a durable loan at negative rate.


For the Luxembourg Association of Investment Funds, the new situation is not open to dispute. Far from Marc-André Bechet, deputy director general of ALFI, the wish to express the slightest reservation on this predictable government choice. “The tax response was expected but the targeted device, it should be remembered, was not not a tax loophole, not an abuse of rights but just a space not covered by the details of the law that allowed these real estate SIFs to develop on our soil. Moreover, benefiting more to foreign investors than to nationals. “

It is, however – certainly – with relief that the Place noted that the State was only attacking this limited part of the only FIS in relation to the holding of real estate in Luxembourg. “Apart from this specific scenario, the tax regime for investment funds therefore remains unchanged,” notes ALFI.

In the eyes of Marc-André Bechet, the attractiveness of Luxembourg in terms of fund management “should not therefore have to suffer from this measure which could be described as purely domestic”. For the structure representing more than 1,500 investment funds, asset management companies and various service providers domiciled in the Grand Duchy, the essential is preserved.

Even better, the ALFI welcomes another reform introduced by Pierre Gramegna on the occasion of his presentation of the draft budget. The minister wanted to introduce “a reduced subscription tax for sustainable investment funds”. Enough to stimulate green and social investments, and consolidate the leading position of the financial center in terms of sustainable finance.


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