UCITS funds are taxed more favourably than harshly treated offshore hedge funds in most European countries.
The investor pays tax according to their country of residence and the taxation of funds falls into three different systems:
1) Funds that are out of scope of income tax law by definition; or
2) Funds that are subject to tax but are exempt; or
3) Funds that are taxed but at very low levels
The investment fund structure is intended to offer a service to consumers, according to Georges Bock, partner and head of tax for KPMG in Luxembourg.
One of the advantages of putting money into a fund is that it gives consumers economies of scale – and therefore funds pay little or no tax.
Bock says: “UCITS funds domiciled for example in Germany, Ireland, UK and Luxembourg fall under category two...