Luxembourg Gazettes New IP Box Regime
Credit: Tax News
The Government of Luxembourg has published in its Official Gazette the law for the introduction of the new intellectual property tax regime.
The Act of April 17, 2018, amending the law of December 4, 1967, concerning the tax treatment of intellectual property was signed on April 17, 2018, and published in the Official Gazette on April 19, following approval by parliament on March 22, 2018.
The new IP box retains the 80 percent tax exemption for IP income, as under the similar regime repealed on June 30, 2016 (which is subject to grandfathering provisions), reducing the effective corporate tax rate on such income to around five percent. However, the new law alters the scope of the regime by permitting a wider variety of patents and copyrights on computer software, and excluding trademarks and designs.
Eligible income is determined by the ratio of eligible expenditure to total expenditure. Eligible expenditure includes spending on research and development activities directly related to the intellectual property. Outsourcing for R&D is permitted, provided an unrelated party is engaged.
Ineligible costs include those not directly related to the intellectual property, in addition to real estate, and interest and other financing costs, among other expenses.
The bill is also designed to be compatible with the “modified nexus” approach to special IP tax regimes agreed by countries under Action 5 of the OECD’s base erosion and profit shifting project.