I. Luxembourg's tax regime (IP-Box)

The so-called IP-Box (Intellectual Property Box) is a special tax regime in which income from intellectual property rights is subject to preferential taxation. In Luxembourg, such a tax regime takes the form of tax relief for income from intellectual property rights. In Luxembourg, net income and capital gains from the use, licensing and sale of intellectual property rights are accordingly only subject to corporate taxation at a rate of 20%. This results in 80% of the said income being exempt from tax.  The effective tax burden of the said income subject to preferential taxation is therefore 5.84%.

The following criteria must be satisfied for Luxembourg's tax relief to apply:

Firstly, the intellectual property rights must have been acquired or developed after December 31st, 2007. Secondly, the intellectual property rights and the development costs already spent must have achieved a favourable trade balance. Furthermore, proof is required when intellectual property rights are acquired that they were acquired for reasons unrelated to taxation. The transfer of intellectual property rights between parent and subsidiary companies with a shareholding exceeding 10% and by subsidiary companies with common shareholders is not permitted.

II. Intellectual property rights (IP) in Luxembourg

In accordance with Luxembourg's tax relief, the following constitute intellectual property rights (IP): patents; copyright; software; trademarks; industrial designs and utility models; models; domain names; brands for services and goods such as production and marketing know-how.

III. IP-Companies in Luxembourg: tax optimisation instrument

The value of a Company for Intellectual Property Rights (IP) can increase through having a tax efficient structure. Foreign IP-Companies are therefore used and their intellectual property rights transferred to be managed and exploited. The resulting gains are subsequently subject to preferential taxation at the residence of the company to which the said rights are transferred. By so doing, it can be ensured that income from the use and exploitation of one's own or third-party intellectual property rights is taxed efficiently.

Accordingly, if intellectual property rights are transferred to an IP-Company formed in Luxembourg,  gains made from the intellectual property rights can be preferentially taxed in accordance with Luxembourg's tax relief. To do so, it is required that the IP-Company has a business address in Luxembourg and that at least one of its directors be resident in Luxembourg.

In respect of the use of such IP-Companies in practice in Luxembourg, the structure of the IP-SOPARFI-Holding Company, which belongs to a group of companies, is chosen. The IP-SOPARFI-Holding Company is within the scope of application of the parent subsidiary Directive and which, among other advantages, can profit from dividend distributions being tax-free. An IP-SOPARFI-Holding Company in Luxembourg is formed in the legal form of a corporation and thus as a Public Limited Company (PLC., Corp./SA); a Limited Liability Company (LLC., Ltd./SARL); a Partnership Limited by Shares or as a Cooperative in the form of a Public Limited Company (SCOSA). The particular formation requirements will be determined by the legal form the said company takes.

IV. Further tax advantages in Luxembourg

1. Tax exemptions

In Luxembourg, intellectual property rights are not subject to the net wealth tax. Similarly, gains made from liquidation, royalties payments or interest payments are exempt from taxation.

2. Further advantages

Luxembourg's tax assessment framework in the form of the so-called “tax rulings” is flexibly administered. Questions on the scope of tax liability and undertakings relating to the taxation can be sought from Luxembourg's tax authority prior to the tax being due. In principle, these can be relied upon by both sides. In Luxembourg, such tax ruling procedures can be completed within weeks.

Luxembourg is a signatory to several double taxation agreements (DTA's) which prevent the double taxation of IP- Companies.

LEGAL and TAX ADVICE and SUPPORT

Our lawyers and tax experts stand ready to advise you personally and free of charge during the decision-making process and throughout the formation/incorporation/setting up process of a Company for Intellectual Property Rights (IP-Box) in Luxembourg.

Please contact us by telephone through the following telephone number

00352 250 345 27

(Monday - Friday between 9am and 4pm)

or by e-mail at the following e-mail address
info(at)startup-luxembourg.com

or simply use our online contact form.

TIME REQUIRED FOR FORMATION/INCORPORATION/SETTING UP

The formation/incorporation/setting up of a company in Luxembourg takes place within a few days.

ELECTRONIC SUBMISSION OF VALUE-ADDED TAX (VAT) RETURNS

From January 1st, 2013, all value-added tax (VAT) returns must be submitted electronically  through the eTVA system of Luxembourg's Land Registration and Estates Department (Administration de l ́Enregistrement et des Domaines). This applies to all liable to value-added tax (VAT) in Luxembourg and subsequently subject to the monthly or quarterly tax regulations with regard to the value-added tax (VAT) return.