Luxembourg's New IP Tax Regime For 2018

Following Luxembourg's 2018 budget law approval, IP owners are eagerly expecting the draft law on the new IP regime to be voted during the first trimester of 2018. If approved, the new rules are expected to apply as from 2018, so let's have a look over the outline of this new exemption regime and how to be prepared for it!

This bill, which was initiated by the Finance Minister and drafted in collaboration with the direct contributions department, is going to redefine and specify the outlines of Luxembourg's tax regime in favor of Intellectual Property, such as to comply with new international and European principles relating to tax. It will also make possible to provide Luxembourg with a tax environment designed to protect the Grand Duchy's competitiveness and attractiveness.

The most significant change brought on by this bill is the addition of Article 50ter to Article 50bis - which deals with partial exemption (up to 80%) of revenue generated by certain IP rights. For new IP players, it will no longer be necessary to think in terms of the system corresponding to the abridged Article 50bis but, from now on, in terms of the Article 50ter system.

Why should there be a bill for income generated by IP?

It is agreed that Intellectual Property represents a key factor in the economic growth. In fact, it is estimated that between 2011 and 2013, the fields of activity frequently concerned with Intellectual Property rights generated 42% of the European Union's GDP, representing a total value of 5.7 trillion euros.

Nowadays, while extending a tax concession relating to the efforts put in by any given research and development company, the intention of the Government of Luxembourg is to incentivize companies to devote resources to innovation activities. This measure will achieve a direct and lasting benefit to the country's economic growth.

What is introduced by this new regime?

Any reform will inevitably bring both welcome and unwelcome innovations. Under this bill, it will still be possible to anticipate the partial exemption of patents, utility models, additional protection certificates under a patent for certain drugs or phytopharmaceutical product and extensions of additional protection certificates in the context of a drug used for pediatric purposes. Copyrights concerning IT software have also been kept in, although the ownership of rights over them is still difficult to prove.

Furthermore, the scope of application of the new system has been...