HOLDINGS FOR BRANDS, PATENTS, DESIGNS AND MODELS : LUXEMBOURG TAXATION ON INCOME FROM INTELLECTUAL PROPERTY
Luxembourg has sought to foster innovation and competitiveness by making itself more attractive in terms of taxation on income from intellectual property (IP) with a partial exemption on income earned from patents, brands and software.
As a complement to its participation exemption for Soparfi holding companies, Luxembourg also offers a complete solution in terms of the holding's assets (brands, patents and financial investments).
Net gains for all income received as payment for usage (or royalties) of IP are 80% exempt in the following cases:
- Copyright on computer software
- Brand names or trademarks
Net income is defined as gross income minus expenditures in direct economic connection to that income (including annual depreciations and write-downs).
Similarly, capital gains earned from the transfer of intellectual property rights (copyright on software, patent, trademark or brand name, design or model) are also 80% tax exempt.
Notwithstanding and to prevent the possibility of double exemptions, capital gains are still taxable up to 80% of total expenditures such as amortization and provisions which effectively reduce the taxable base.
The conditions for applying the exemption are the following:
- intellectual property rights must have been constituted or acquired after December 31, 2007;
- intellectual property rights must not have been acquired through a related company;
- expendtures (including write-downs and depreciation provisions) must be immobilized and integrated into the bookkeeping the first year that the income exemption is requested.
This tax is compatible with European directives and allows tax payers to benefit from the reduction in withholding tax provided by the various tax treaties signed by Luxembourg.
Source: article 50 bis of the law on income tax.