Luxembourg IP Box: preferential taxation of royalties and intellectual property

Apart from Malta, Luxembourg is a pretty famous European country for tax planning, because it offers great allowances for royalties and intellectual properties, and it’s also an EU member state.

Our previous articles about intellectual properties:

– Offshore taxation of copyrights, patents and intellectual property

– Taxation of Intellectual Property in Malta

– Taxation of Intellectual Property in Cyprus

In Luxembourg, 80 percent of your Intellectual Property (IP) related income is free from taxes. These options are available for companies, had been established since the first of December 2007.  The income from selling or giving away IP is completely tax free. The only exceptions from this is, if the IP had been acquired directly from the concerned party (in form of: copyrights, franchises, etc.). ” If the Intellectual Property is self-developed, than a tax deduction of 80% can be achieved, when the income is generated through a third party.  This  goes on every directly or indirectly IP related income, such as software rights, domain names, patents, designs and different type of models or brand names. In addition, these things get full property tax exemption. Because of these commissions, there are only 5.84 percentage of tax on all the IP related activities managed in Luxembourg.

In Luxembourg, there are also remarkable possibilities for tax deduction on IP related businesses. Depreciation, losses, interests, registration taxes, some gifts, taxation expenses and pension fund contributions are all deductible from tax. Profit distribution related expenses, rates, property-tax,
and the salaries of the directors, are not deductible.

These taxation options made Luxembourg so popular for tax planning, that nowadays many foreign companies moving their headquarters to Luxembourg, or managing their intellectual properties there. If someone want to migrate their company to Luxembourg, they must have a business address first.

And it’s also important not to forget, that to establish a company in Luxembourg, at least one director of the company has to live there.

It’s also an admirable taxation advantage in Luxembourg, that intellectual property is free from
property-tax, just like copyrights and interests. As part of the EU, Luxembourg has established many agreements to avoid double taxation.  So the preferential taxation can work successfully, and legally, on an international level.