Finally, Luxembourg has managed to issue new tax rules on IP held through Luxembourg companies. A draft bill waited for desperately.
Even though the tax benefit is 80% of net income (a known percentage), there have been some amendments, to ensure the new regime is in line with the OECD’s Nexus Approach.
Indeed, the new regime will be more restrictive with regard to the scope of IP benefitting from the tax advantage. Thus, trademarks, domain names and other marketing related rights will no longer benefit from the specific tax advantage.
Also, the basis for the exemption will be different, as a very specific basis for the 80% exemption is defined, not only referring to the “net income”, but also to a coefficient of directly IP-related expenses to total expenses.
This implies, that R&D related expenses need to be rather significant. Also, R&D expenses will not be allowed if in favor of a related party. Consequently, the R&D provider needs to be unrelated.
Considering the geographic size of Luxembourg, qualifying R&D can be performed outside of Luxembourg (but: final service to be provided by unrelated party).
The new IP regime (still a draft, but ….) will require significant planning work with regard to the new expense-related tax regime, but also with regard to the transition of grandfathered IP which benefits from the old rules up to 30 June 2021.
For more technical details please also read the corresponding Newsflash on our homepage.