On 23 December 2022, the Law of 23 December 2022 concerning the State revenue and expenditure budget for the year 2023 (the "Law") was published.
As a reminder, under the Law on the State revenue and expenditure budget for the year 2021, a reduced subscription tax was introduced for investment funds, with a share of invested assets corresponding to the criteria of the European taxonomy, defining economic activities which are considered sustainable.
Through an amendment to Annexes I and II of the Delegated Regulation (EU) 2021/2139, which was published in the Official Journal of the EU on 15 July 2022, the European Commission decided to define natural gas and nuclear power as sustainable economic activities in the taxonomy.
Nevertheless, the Government of the Grand Duchy of Luxembourg has long pursued a policy of opposition to nuclear power, so that the purpose of this Law is to exclude natural gas and nuclear investments from the tax benefit of the reduced subscription tax for investment funds by the amendment of Article 174(3) of the amended Law of 17 December 2010 (regarding undertakings for collective investment).
How to benefit from the new reduced subscription tax?
If the proportion of the net assets of an undertaking for collective investment ("UCI") or of an individual compartment of an umbrella UCI, invested in sustainable economic activities represents:
- at least 5% of the total net assets of the UCI or of the individual compartment of an umbrella UCI ► this rate is 0.04% for the share of net assets invested in such sustainable economic activities;
- at least 20% of the total net assets of the UCI or of the individual compartment of an umbrella UCI ► this rate is 0.03% for the share of net assets;
- at least 35% of the total net assets of the UCI or of the individual compartment of an umbrella UCI ► this rate is 0.02% for the share of net assets;
- at least 50% of the total net assets of the UCI or of the individual compartment of an umbrella UCI ► this rate is 0.01% for the share of net assets.
As a reminder, an economic activity qualifies as environmentally sustainable where that economic activity:
- contributes substantially to one or more of the following environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems,
- does not cause significant harm to any of these environmental objectives;
- is carried out in accordance with the minimum safeguards of the procedures that a company engaged in economic activity implements to comply with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights; and
- complies with the technical screening criteria established by the Commission.
When is the benefit of a reduced subscription tax excluded?
By way of exception, the following will not benefit from a reduced taxe d’abonnement. The share of the net assets of the UCI or of an individual compartment of an umbrella UCI invested in:
- economic activities which concern natural gas and nuclear power. This includes economic activities based on:
- the pre-commercial stages of advanced technologies for the production of energy from nuclear processes with minimal waste from the fuel cycle;
- the construction and safe operation of new nuclear power plants, for the generation of electricity or heat, including for hydrogen production, using best-available technologies;
- the electricity generation from nuclear energy in existing installations;
- the electricity generation from fossil gaseous fuels;
- the high-efficiency co-generation of heat/cool and power from fossil gaseous fuels;
- the production of heat/cool from fossil gaseous fuels in an efficient district heating and cooling system,
- and if this economic activity does not cause significant harm to any of the other environmental objectives.
When is the new reduced subscription tax to be implemented?
The law enters into effect as of January 1, 2023. However the legislator clarified:
- certified certificates, which have already been submitted by UCIs to the relevant tax administration, before the entry into force of this amendment (before 1st January 2023) remain valid, i.e. the tax rate resulting from the percentage of the net assets stated in the submitted certificate remains applicable for a total of four quarters;
- tax returns for the subscription tax filed after the entry into force of this amendment (after 1st January 2023) shall take into account the exclusion of economic activities involving natural gas and nuclear power.