Luxembourg explains revised taxation method through updated Circular policy
Luxembourg's tax authorities have published Circular L.I.R. n°168quater/2 on August 22, 2025, providing guidance on the collective investment vehicle (CIV) carve-out from the reverse hybrid rule. This development offers significant implications for market practice, as discussed in a comprehensive article by Guilhèm Becvort, a partner at White & Case in Luxembourg.
The article, reproduced with permission from AGEFI Luxembourg, delves into the implications of the Circular and its impact on various types of funds, including UCITS, Part II UCIs, SIFs, and RAIFs, which are now automatically treated as CIVs according to the Circular.
One of the key clarifications provided by the Circular is its broad interpretation of a "diversified portfolio" to include loans alongside other securities. This broadening of the definition is expected to strengthen Luxembourg's position as a leading European fund domicile, as it provides greater flexibility for fund managers.
The Circular also clarifies the "widely held" condition and its application to unregulated partnerships. This clarification addresses key areas of uncertainty for Luxembourg funds, enabling them to navigate tax rules with greater confidence.
Guilhèm Becvort, a lawyer specialising in corporate law, commercial law, and contract law, analyses the implications of the Circular in the article. He emphasises the importance of the Circular's clarifications in further strengthening Luxembourg's position as a leading European fund domicile.
For readers seeking more information and resources on this topic, AGEFI Luxembourg offers a wealth of news, information, and resources related to the financial industry in Luxembourg. Their website, www.agefi.lu, is a valuable resource for those interested in staying informed about developments in the Luxembourg financial sector.
It is important to note that this article is not intended as legal advice, and it is protected by copyright. For specific advice tailored to your situation, it is recommended to consult with a qualified legal professional.
In conclusion, the new tax Circular published by Luxembourg's tax authorities provides valuable clarifications for funds operating in Luxembourg, broadening the definition of a diversified portfolio and clarifying the "widely held" condition. These clarifications are expected to further strengthen Luxembourg's position as a leading European fund domicile.
For more information, please contact Guilhèm Becvort, a partner in the areas of Tax, Investment Funds, Private Capital, and Luxembourg, who is the contact for this article.
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