Luxembourg is known for its favorable intellectual property regime. Its legislation is also one of the main reasons why foreign investors are highly interested in opening intellectual property holding companies in the Grand Duchy.
This new IP or patent box regime would aim to reinforce research and development (R&D) activities in Luxembourg and stimulate the R&D spending of foreign investors in Luxembourg. From 2018, income derived from a patent or software can benefit from a tax rate of 5.2 % (on royalties and capital gains).
This tax regime is a real revision of the system of exemption from the income of IP.
The purpose: re-align the imposition of profits with the place of origin of economic activities.
This new regime involves obligations of follow-up of the spending and the valuable documentation of transfer.
In this new plan, the income from an asset and the company can benefit from a tax rate of staff about 5.2 % in the phase of marketing of the product or service stemming from the R&D.
Thus the IP Box diet was repealed, not being online with the approach nexus. So, the patent box / IP regime would need to be in line with international tax standards as set by the EU and OECD in particular, BEPS Action 5.
Will be eligible:
- Patents in the broad sense
- Copyright on the computing software
(EXIT thus the protection of the brands, the drawings or the models or internet domain names).
The eligible income will include:
- The net income pulled from the use
- The net income pulled from the concession of the use
- The net income pulled from the sale of the asset of eligible IP
The eligible spending:
- The expenses of R&D in direct link with the asset of eligible IP incurred by the taxpayer
- The expenses of outsourcing of the R&D
- All costs not directly related to an eligible IP asset
- Costs related to real estate linked with the IP
- The interests
- Financing costs
- The acquisition costs of IP assets
Luxembourg will allow a 30% increase in eligible expenditure (BEPS Action 5 allows it). The 80% exemption rate remains unchanged.
In an intragroup context, the price rules for transfers of Articles 56 and 56a will apply to all flows in line with Actions 8 to 10 of the BEPS Plan.
The aim of this law is to encourage companies to invest more in research and development and will increase Luxembourg’s appeal for holding of intellectual property.