On 17 April 2018, the law introducing the new IP Box Regime was enacted. A new article 50ter was introduced in the Luxembourg income tax law (LITL), which replaces former article 50bis LITL that had been repealed on 18 December 2015.
The new IP Box regime remains in line with the Bill of Law (n°7163) submitted on 4 August 2017, on which you can find more details in our previous tax alert. The only change compared to the initial Bill of Law (n°7163) is the clarification of the definition of “eligible expenditure”, in order to avoid R&D expenditures, incurred by and attributable to a permanent establishment (PE), located within the European Economic Area, to be qualified simultaneously as “eligible expenditure” both in Luxembourg and the jurisdiction where the PE is located.
The new IP Box regime is applicable retroactively as from fiscal year 2018 onwards, while the former regime remains applicable until 30 June 2021 to IP rights created or acquired before 1 July 2016. Indeed, the law that abolished the former regime included a grandfathering period of 5 years starting 1 July 2016. During a transitional period, running from fiscal year 2018 to fiscal year 2021, taxpayers can either opt for the application of the former IP Box regime or for the new provisions, keeping in mind that the option is irrevocable. It applies without distinction to all IP rights owned by the taxpayer, as from the fiscal year the choice is made in the tax returns.
The new IP Box regime is in line with the Base Erosion and Profit Shifting BEPS Action 5 report (Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance). It demonstrates Luxembourg's commitment to comply with the new international tax standards, while ensuring that the country remains an attractive centre for intellectual property and research & development activities.