Ireland vs Luxembourg : The key differences when domiciling ETFs
Ireland houses over three times the assets under management than Luxembourg due to its powerful tax benefits , however , the two domiciles also differ on regulatory and operational fronts
By Theo Andrew
Ireland ’ s dominance over Luxembourg in ETFs has steadily grown over the past few years as the powerful withholding tax advantage on US equities has propelled assets domiciled in the region to over $ 1trn .
While tax is certainly the main differentiator between the two domiciles , and despite Luxembourg also having a favourable tax benefit for ETFs , the two regions have other fundamental differences in their regulatory and operational approach to housing the ETF wrapper .
The Double Taxation Treaty with the US – which sees ETFs with US equity exposure are subject to a 15 % rather than 30 % withholding tax on dividends – has driven assets and also led both Amundi and BNP Paribas Asset Management ( BNPP AM ) to create Irish Collective Asset Management Vehicles ( ICAVs ) within the past year .
IRELAND ' S SUPERIOR TAX BENEFITS
Tax Reduction Annual tax saving
Subscription tax exemption
30 % reduced to 15 %
0.05 % reduced to 0 %
This has compounded Ireland ’ s advantage , which now houses roughly $ 1.1trn assets under management across 2,722 exchange-traded products ( ETP ) versus $ 305m across 1,364 ETPs in Luxembourg , according to data from ETFbook .
Despite this , ETFs are not without their tax advantage in Luxembourg , and are exempt from paying an annual subscription tax of five basis points ( bps ) which still applies to mutual funds .
Notable differences have also arisen between the way the two regions interpret the European Securities and Market Authority ( ESMA ) guidelines – such as the UCITS ETF naming convention and portfolio transparency requirements – which suggest Luxembourg could be creating a more relaxed regulatory environment in a bid to attract more assets .
Luxembourg too could be looking to leverage its huge mutual fund industry and potentially gain ground by harnessing growing segments of the market such as active ETFs , however , questions over its political willpower to close the gap remain .
Ireland ’ s march
Ireland ’ s first-mover advantage in ETFs established its early dominance when Merrill Lynch
20 ETF INSIDER | NOVEMBER 2023