Much to the relief of fund managers in Luxembourg the country’s tax authority issued a Circular confirming that general partnerships which have less than a 5 percent holding in the underlying fund will not be charged income tax on profits from the fund.
The Circular states that partnerships which qualify as alternative investment funds under the Luxembourg’s Alternative Investment Fund Managers Directive (AIFMD) law are never considered as carrying on a business activity in Luxembourg and are therefore not subject to income taxes levied in Luxembourg.
The tax authority goes on to say that foreign alternative investment funds managed by Luxembourg-based managers are not subject to Luxembourg income taxes either, as long as they hold less than 5 percent of the underlying fund’s interests.
The confirmation will be a relief to the popular fund domicile’s industry as more GPs are looking at establishing their funds within Europe to take advantage of the AIFMD’s marketing passport, according to a recent report by management consultancy firm Oliver Wyman.
Since 2010 the number of alternative investment funds domiciled within Europe has increased by 10 percent, and these funds’ assets under management have risen by 13 percent, the report said.