On 17 April 2018, the Luxembourg Law containing the new intellectual property ("IP") tax regime was enacted. This law introduces a new Article 50ter in the Income Tax Law which will be applicable as from fiscal year 2018.
Since 2008, Luxembourg has offered a tax incentive providing for an 80% exemption from corporate income tax and municipal business tax on eligible income and capital gains derived from certain IP rights (the so-called IP Box regime). In addition, from 1 January 2009, a 100% exemption from net wealth tax was applied to qualifying IP rights.
Following the consensus reached in February 2015 by all OECD and G20 countries on the application of the modified nexus approach for IP regimes, Luxembourg decided to abolish its IP Box regime as of 1 July 2016 (with a grandfathering period of five years).
As was the case in the previous regime, under the new IP tax regime, eligible income and capital gains from qualifying IP assets will benefit from an 80% exemption from corporate income tax and net wealth tax, resulting in an effective tax rate of approximately 5.2%, and a full exemption from Luxembourg NWT.
The new IP tax regime, which is based on the modified nexus approach developed by the OECD in the final BEPS report of Action 5 "Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance", brings modifications in terms of qualifying IP rights and eligible income.
For further insight into the key features brought by this law, see the article " New Luxembourg IP regime" on our website.
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