Luxembourg money market funds/sub-funds: abolishment of the “Taxe d’Abonnement” for institutional funds/sub-funds and institutional classes
The Luxembourg law of 19 December 2003, published in the Official Gazette on 31 December 2003, regarding the budget of revenues and expenses of the Luxembourg State for the year 2004, has amended the laws of 30 March 1988 and 20 December 2002 (the “Laws”) relating to undertakings for collective investment so as to exempt Luxembourg institutional money market funds or sub-funds and institutional classes of shares/units thereof (a “fund”) from the annual subscription tax (“taxe d'abonnement”) set at 0.01% of net assets.
The exemption is effective as of 1 January 2004, and requires compliance with each of the following conditions:
- shares/units of the fund must be available exclusively to institutional investors;1
- the exclusive investment objective of the fund must be investment in money market instruments and the placing of deposits with credit institutions;
- the weighted residual maturity2 of the fund’s portfolio must not exceed 90 days; and
- the fund must have received the highest rating from a recognized rating agency.
If a fund has several share/unit classes, the exemption will be available only to classes the shares/units of which are available exclusively to institutional investors.
1) Institutional investors for this purpose include financial professionals (including banks, insurance companies, investment funds, pension funds, local authorities, industrial and financial groups) acting for their own account, and financial professionals investing in their own name but on behalf of others, subject to the investments being made pursuant to a discretionary asset management mandate and the client of the financial professional not having any right or claim directly against the fund. High net worth individuals are not institutional investors.
2) The amended Laws do not define the meaning of the term “weighted residual maturity.” Although this term may imply that weighted average residual maturity should be the proper standard, further regulatory guidance on this point may be necessary.