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Luxembourg's Patent Box Regime Now Law

Luxembourg's Patent Box Regime Now Law

Luxembourg's new intellectual property (IP) regime is effective as of January 1, 2018.


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This recently enacted regime reinforces research and development (R&D) activities inside Luxembourg and also encourages foreign investors to consider R&D spending within the country. It introduces an 80% tax exemption on income derived from patents (including IP assets functionally equivalent to patents) and copyrighted software, among other things. Taxpayers are only eligible for the exemption if they can establish a direct nexus between the qualifying income, assets and expenditures. As a result, this IP regime is in line with the "modified nexus approach" developed by the OECD (in particular, BEPS Action 5.)

Marketing-related IP assets are excluded from this regime (i.e., trademarks and domain names).

Luxembourg's IP regime will coexist with the repealed "old" IP regime, which is still applicable during the grandfathering period (subject to certain conditions), until June 30, 2021.

Qualifying foreign R&D expenditures
Notably, the regime allows certain R&D expenditures incurred by a foreign permanent establishment of a Luxembourg head office to qualify, provided they meet the following conditions:

  • The expenditures are allocated to the head office of the foreign permanent establishment according to the provisions of a double tax treaty
  • The foreign permanent establishment is situated in the European Economic Area (i.e. EU Member States plus Iceland, Liechtenstein, and Norway) and not Luxembourg
  • The foreign permanent establishment is operational at the time the qualifying IP income is generated
  • The foreign establishment does not benefit from a similar IP regime in the country where it is situated.

For an expense to qualify, the Luxembourg head office must perform and control all significant functions related to the R&D activities carried out by the foreign permanent establishment that generated the expenses. The Luxembourg head office must also bear all the risks related to those functions.

For more information, contact your KPMG adviser.

Information is current to April 10, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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