Docs
Finance
ETF
ETF Selection
Fund Domicile

Fund Domicile

💡Take Away

  • The fund domicile of an ETF can usually be identified by the International Securities Identification Number (ISIN). A country code at the beginning of the ISIN marks the domicile, such as “IE” for Ireland or “LU” for Luxembourg.

  • ETFs that include UCITS in their name are launched within the EU and are subject to EU regulations. These funds adhere to a uniform standard.

  • Within the EU, the significance of the fund domicile has somewhat decreased. Many of the ETFs offered in Germany are also domiciled in Germany.

  • Luxembourg and Ireland play a special role here. Luxembourg’s status is attributed to its strong infrastructure, transparent financial legislation, and its history as a hub for funds. Ireland, on the other hand, offers tax advantages when holding physical stock shares from the USA.

  • Overall, tax benefits due to the fund domicile are not primary criteria when selecting an ETF, while European origin is more important. For exotic funds, the German tax data is often not maintained, leading to higher tax burdens for investors.

ETF Fund Domicile Explained

The place where an ETF is launched is called the fund domicile.

  • Many ETFs already include a hint about their place of origin in their name.
    • The addition of “UCITS” means that the fund was launched and is operated according to EU regulations. This also implies that the fund is domiciled in an EU country. The national financial supervisory authority is responsible for overseeing the fund.
  • The fund domicile can also be identified by the ISIN, which is the 12-digit International Securities Identification Number.
    • This can be found on every ETF’s factsheet.
    • The first two characters are an abbreviation representing the fund domicile. For example, “DE” stands for Germany and “LU” stands for Luxembourg.

Common Fund Domicile: Luxembourg and Ireland

It is noticeable that certain countries appear frequently when scrolling through the lists of available ETFs. One of them is

Luxembourg
  • Luxembourg has earned its good reputation as the home of many funds over several decades
  • Arne Scheehl from Lyxor ETF also emphasizes the importance of institutional investors who are familiar with the regulations in Luxembourg and, therefore, save a lot of work by investing there.
Ireland
Mainly due to tax reasons: This is especially true for physically held U.S. stocks, and it is related to the double taxation agreement with the United States. This agreement provides slight tax advantages for funds, which can be passed on to investors, giving them a competitive edge.

Fund Domicile as a Decision Criterion

The fund domicile can be considered as one of several quality criteria

  • In particular, UCITS funds established in Europe offer the benefits of a unified European regulatory framework.
  • Non-European ETFs are rarely offered by online brokers, which is due to European regulations. However, caution is required: Some of these “exotic” funds are listed on exchanges in the less-regulated over-the-counter (OTC) market.

When it comes to quality features, factors such as cost (TER), fund size, or additional data like tracking difference may be more decisive.

Reference