Luxembourg launches fund counter attack on Ireland
Raunaq Mohammad Asset Management
1st March 2025
Written by Raunaq Mohammad
Luxembourg has launched a counterattack as part of its battle to retain its crown as Europe’s largest investment fund domiciled as exchange traded funds in which Ireland is dominant.
The tiny nation has exceeded all expectations in the fund industry with its low taxes, business friendly regulatory environment and multilingual workforce which has allowed it to assert itself as a leader in the European industry despite its lack of domestic investors.
Ireland however has seized first place in the fund industry courtesy of its initiative of rolling out its own package of tax efficiency, regulatory support and an ecosystem of fund administrators, custodians ad legal firms.
Ireland was home to more than 1.6 trillion euros of fund assets at the end of 2024 compared with just 266 billion euros in Luxembourg.
Despite this huge disparity in funds assets, Luxembourg has managed to retain its role as the European domicile of choice for mutual funds with 3.7 trillion euros in assets compared to Ireland’s 1.6 trillion euros.
Ireland’s asset management industry contributed nearly 1 billion euros in direct tax revenue in 2023 from only around 20000 people being directly employed in this industry according to a report commissioned by Irish funds, the industry body,
Luxembourg’s financial sector is even more central to its economy than Ireland’s is to its own economy. Luxembourg’s financial sector accounts for more than 30% of the country’s GDP, 11% of employment and 20% of direct tax revenues according to the European Commission.
In October, the central bank of Ireland, the country’s financial regulator said that it would scrap its bizarre naming rule that forced any fund manager that launched and ETF share class of a Dublin-domiciled mutual fund to label all the share classes as “ETF” even those that were mutual funds.
Luxembourg however has now hit back with two moves of its own.
Firstly, in January it scrapped a subscription tax which was equivalent to 5 basis points a year for actively managed ETFs and retail share classes of active mutual funds.
Secondly, the regulator has given the green light for active ETFs to adopt the style of semi-transparent portfolio shielding structures that have long been permitted in the US.
These structures mean an ETF does not have to publish its full portfolio every day which is a scenario some active managers fear due to it allowing other market participants to gain the advantage over them and steal their ‘unique selling point’.
