Luxembourg announces new IP tax regime

by DLA Piper

DLA Piper

Luxembourg has announced a new regime that offers a special tax incentive for certain income from intellectual property rights.

The bill containing the new IP regime, which is expected to come into effect as of the 2018 tax year, was tabled in the Chamber of Deputies on August 4, 2017.


Until June 30, 2016, Luxembourg taxpayers could enter, under certain conditions, into the so-called IP box scheme. This scheme allowed taxpayers to enjoy an exemption for 80 percent of their income from certain intellectual property rights.

As part of the OECD / G20 BEPS Action Plan, however, countries agreed that any IP box regime offering preferential tax treatment should only be available for IP income to the extent that there are corresponding substance requirements, in order to align the taxation of profits with the place of origin of economic activities. For IP box regimes, consensus was reached to adopt the nexus approach, which considers R&D activities and their associated expenditures as pre-conditions that taxpayers need to meet in order to benefit from a specific low tax regime.

This regime has largely been outlawed following Action 5 of the OECD/G20 BEPS Action Plan because it did not require taxpayers to meet appropriate substance requirements in order to qualify for the preferential tax treatment.

Proposed IP box regime

The proposed Luxembourg IP box regime has been developed to conform with the nexus approach under the BEPS guidelines. The 80 percent exemption rate under the old rules remains unchanged (leading to an effective tax rate of approximately 5.2 percent. However, under the proposed rules, the conditions regarding eligible assets and income have been amended.

Eligible assets

Under the proposed rules, a wider set of patents and copyrights on computer software will be eligible assets for the preferential tax treatment. On the other hand, contrary to the previous regime, trademarks and designs will no longer be eligible.

Eligible revenue that will qualify for preferential tax treatment include net income from direct use, royalties from the granting of licenses, or income from the sale, of eligible IP assets. It should be noted here that the notion of "net income" is used - thus, expenses for the year and, if applicable, prior tax losses in relation to eligible IP assets will be deducted to determine the net amount eligible for the exemption.

Eligible income

The proportion of net income qualifies for preferential tax treatment will be determined based on the nexus ratio, which is the proportion of eligible expenditure to total expenditure.

Eligible expenditure includes R&D expenditure directly related to eligible IP assets incurred by the taxpayer. It should be noted that outsourcing costs for R&D are eligible, as long as these activities are carried out by unrelated parties.

All costs not directly related to an eligible IP asset, as well as certain expenses, such as real estate costs, interest and other financing costs and acquisition costs of IP assets, are not eligible.

Total expenditure under the proposed rules includes eligible expenditure, acquisition costs and research expenditure outsourced to related parties.

In order to remain competitive, and in accordance with the BEPS guidelines, Luxembourg allows the eligible expenditure to be uplifted by 30 percent. This uplift is allowed as long as the eligible expenditure does not exceed the total amount of expenditure.

An interesting option

This new tax regime, together with other commercial, regulatory and tax features available in Luxembourg, provides an interesting option for taxpayers looking to onshore their intangible property in order to address concerns that may result from the BEPS guidelines.

While more constraining than the previous regime, this bill of law (if enacted) would undoubtedly offer to taxpayers new opportunities in terms of structuring their R&D activities through Luxembourg.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.