Intellectual Property Rights And Luxembourg Holding Company

DEFINITION

Luxembourg taxpayers owning Intellectual Property Rights (IP rights) may benefit from a special tax regime introduced in 2008. A company may benefit from a tax exemption of 80% on the net income derived from royalties for the use and/or exploitation of IP rights as well as a tax exemption of 80% on revenue derived from a sale or an alienation of IP rights in Luxembourg.

Therefore this regime adequately combines two objectives: it allows for a full deduction of all R&D expenses for projects that do generate any commercial results.

However, successful R&D projects are not penalized through excessive taxation once they are applied in real life.

LEGAL BASIS

The IP rights tax regime was introduced by the Law of 21 December, 2007, which introduced new provisions of Article 50bis §1 and 3 LIR. On March 5, 2009

Luxembourg tax authorities issued a Circulaire on the Luxembourg IP tax regime, which includes guidance on interpretation of the new provisions.

APPLICABLE INTELLECTUAL PROPERTY RIGHTS

The tax regime applies to the following IP rights acquired by a Luxembourg company after January 1st, 2008:

Copyrights on software; Domain name; Patents; Trademarks; Designs; and Models. The following rights do not fall under the scope of the Luxembourg IP tax regime: copyrights of literary or artistic works, secret formulas and/or processes.

Expenses in direct economic connection with the IP must be recorded as an asset in the balance sheet during the first year for which the benefit of this tax regime is claimed.

An IP right may not have been acquired from a person that is assimilated to an "affliated company". A company A is considered as affliated to company B within the meaning of the law if:

it directly holds at least 10% of the share capital of B; or B holds at least 10% of its share capital; or at least 10% of the share capital of A and of B is directly held by a third company. ENTITIES THAT MAY BENEFIT FROM THE IP TAX REGIME

All Luxembourg taxpayers that derive income from the stated IP rights are entitled to claim the tax exemption. In addition, taxpayers that themselves develop and use IP rights (patent) are also entitled to claim the exemption.

Unlike other jurisdictions Luxembourg allows that economic ownership of IP rights is used to claim the tax exemption in addition to actual legal ownership.

TAX TREATMENT

An exemption of 80% is applied to net income derived from the use, exploitation and disposal of qualifying intellectual property...

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