Fund Domicile Guide: Ireland vs Luxembourg Investment Funds

For most retail investors, I don’t think we need to worry too much about whether a fund is domiciled in Ireland or Luxembourg. Why does this exist? If you are a fund manager and want to sell your funds across Europe, it can be easier to domicile them in Luxembourg or Ireland, and then get a fund ‘passport’ to sell these in other European markets. So you don’t have to go through the rigamarole of registering a fund in Spain, Germany, Italy, etc. So it’s an easier way to do business which is often more sensible, particularly for funds which aren’t from the big global giants.

There can be tax differences. It doesn’t always follow that UK listed funds are better – some funds will be listed here for international investors as it’s a popular trading venue, not because it’s better for any retail investor.

Check that a fund has UK tax-reporting and distributing status. Most brands will, and if you’re buying on a UK based platform you should be fine. This means potential capital gains will be taxed as such, and not income. It should be clarified on a factsheet.

Funds with shares in have to pay tax on the dividends. Dividend withholding tax varies across jurisdictions, depending on tax treaties. So Irish domiciled Exchange-traded Funds, for example, get the US/Ireland double taxation treaty which reduces withholding tax rates on US dividends from 30% to 15%, whereas Luxembourg ones get the full 30% tax.

This is all about governing laws and tax and efficiencies. There is no brain drain as the fund manager will likely still sit in his or her London office. It’s just the ‘box’ that the fund is put in. Which for the majority of us really doesn’t make that much difference and is typically a way for fund managers to navigate the complexities and costs of selling funds across lots of different jurisdictions.