Since January 1 2008 Luxembourg has
offered a very favorable tax regime for royalty
income and relating capital gains and
exempts 80% of qualifying income, resulting
in an effective tax rate of 5.72%.
The rules can be summarized as follows:
• The 80% exemption is applicable to
certain type of IP rights including
patents, trademarks/service marks,
design/models, internet domain
names and software copyrights relating
to standard software.
However, copyrights of literary or artistic
work, plans, secret formulae and processes
remain outside the scope of the new IP
• This 80% exemption applies to the net
positive income (gross revenue from
the IP less directly connected expenses,
depreciations and write-downs).
In case of disposal of the IP, 80% of
the capital gains realised on this
transfer are exempt from tax. For this
purpose, a recapture system is foreseen.
The reduced basis for the computation
of the capital gains (20% of
the gain) will be increased by 80% of
the net negative result derived from
the IP rights incurred during the tax
year of disposal or any previous year,
provided that such negative result has
not been offset as a result of its capitalisation.
• 80% deemed income deduction for selfdeveloped
• The law provides for an 80% deemed
income deduction for self-developed
patents that are used by the taxpayer
himself. This notional deduction is
calculated in terms of what the arm’s
length patent royalty would have been
had such a patent been licensed to a
• The law also applies to qualifying IP
that has not yet been patented but for
which the process has been started.
However, when an application is
denied, deductions affected during
the application process must be addedto the taxable income of the year of
In order to benefit from the new IP tax
regime, the following conditions must be
• The IP right must have been acquired
or developed after December 31 2007;
• The IP right may not have been
acquired from specified “directly”
related companies, and
• Expenses, amortisations and writedowns
economically related to the IP
must be activated, if these exceed
qualifying IP income in a given year.
The burden of proof is on the taxpayer for
the fulfillment of the cumulative conditions.
Finally, it is important to note that IP
assets qualifying for article 50 bis
Luxembourg Income Tax Law are exempt
from net wealth tax based on article 60 bis