An extract from The Corporate Tax Planning Law Review - Edition 3
Local developmentsi Entity selection and business operationsEntity forms
Corporate law provides a wide range of legal forms of companies and partnerships. Historically, Luxembourg entrepreneurs have used commercial partnerships to carry out their activities. However, in the past decade this trend has shifted towards the more frequent use of corporate vehicles in this context. Inversely, in the funds area, the new common and special limited partnerships (CLPs and SLPs) have gained substantial recognition in the market.Limited liability companies
Luxembourg-resident companies are fully subject to corporate income tax (CIT), municipal business tax (MBT) and net wealth tax (NWT). Depending on the needs of their shareholders, they generally adopt a corporate form such as a public limited company, a limited liability company or a corporate partnership limited by shares.
A limited liability company is subject to CIT, MBT and NWT if it is considered a Luxembourg resident under Luxembourg law. Luxembourg law considers a company to be a Luxembourg resident if its registered office (i.e., the company's statutory office as determined by its articles of incorporation) or its central administration (usually the place from which the company is effectively managed) is located in Luxembourg. From a pure Luxembourg tax law standpoint, one of these two criteria is sufficient to consider a company as a Luxembourg resident and, generally, there are no additional economic substance requirements for the company to be considered as a Luxembourg resident.2 In an international context, however, a lack of sufficient economic substance in Luxembourg or maintaining close ties with another foreign jurisdiction may entitle foreign tax authorities to challenge the company's Luxembourg tax residency. Therefore, in an international context, Luxembourg companies should maintain at least a minimum level of economic substance in Luxembourg.Limited partnerships
There are two main types of limited partnership under Luxembourg law: the CLP and the SLP. The particularity of CLPs and SLPs is that they are transparent for Luxembourg tax purposes. The main difference between them is that unlike a CLP, an SLP is not vested with legal personality. Both limited partnership regimes have proven to be widely accepted and used by persons wishing to have an onshore European-domiciled partnership with similar features to Anglo-Saxon types of partnership structures (such as a Cayman Island or a Delaware limited partnership).
Owing to their tax transparency, they are not subject to CIT or NWT. However, a CLP or SLP may be subject to Luxembourg MBT if it carries out a genuine business activity in Luxembourg pursuant to Article 14(1) of the Luxembourg income tax law (ITL)3 or if it is tainted by business based on the Geprägetheorie according to Article 14(4) of the ITL – namely where the general partner is a Luxembourg limited liability company that owns at least 5 per cent of the interests in the CLP or SLP. As regards this business activity, Circular letter L.I.R. No. 14/4, dated 9 January 2015, provides that CLPs and SLPs that qualify as alternative investment funds within the meaning of the Alternative Investment Fund Management law of 12 July 20134 are deemed not to be conducting a business activity.
Beyond that tax liability, where a CLP or SLP is subject to MBT, each of its non-resident limited partners will be considered to operate a permanent establishment (PE) in Luxembourg, as their interest in the CLP or SLP will generally be attributable to the PE in Luxembourg (unless different provisions in a double tax treaty would apply). With regard to withholding tax (WHT), any 'distributions' by the partnership are, as a rule, made free of WHT in Luxembourg. Distributions are performed for corporate reasons only, but are disregarded from a tax perspective, as any income and loss derived at the level of the partnership is directly attributable to the partners.
Given their tax transparency, CLPs and SLPs may not benefit from double tax treaties, but their partners may generally claim treaty benefits from the source state.Investment vehicles
Under Luxembourg law, a full range of different vehicles is available to structure investments, including, inter alia:
- tailor-made investment funds (i.e., undertakings for collective investment (UCIs), special investment funds (SIFs) or reserved alternative investment funds (RAIFs) opting for the SIF-like regime), which can take different corporate forms;
- companies investing in risk capital (SICARs), and RAIFs opting for the SICAR-like regime, which can take different corporate forms;
- common funds (UCITs);
- securitisation undertakings;
- pension funds; and
- family wealth management companies.
The investment vehicles mentioned in points (a), (c) and (e) may be established as entities that are treated as opaque or as transparent for direct tax purposes. Capital companies like the private limited liability company (société à responsabilité limitée), the public limited company (société anonyme) or the partnership limited by shares (société en commandite par actions) are treated as opaque for Luxembourg tax purposes. These investment vehicles are, however, income tax exempt. Merely a subscription tax varying from 0.01 per cent to 0.06 per cent computed on the net asset value applies. The most common tax-transparent entities are the Luxembourg partnership (société en nom collectif), the simple limited partnership (société en commandite simple) and the special limited partnership (société en commandite spéciale). Contractual types of funds as the fonds commun de placement are also treated as transparent from a Luxembourg tax standpoint. Subscription tax applies as for opaque vehicles.
Distributions to investors are WHT exempt.
The applicability of double tax treaties to these vehicles must be assessed on a case-by-case basis. Several double tax treaties with Luxembourg include explicit provisions allowing under certain conditions treaty benefits for Luxembourg collective investment vehicles (e.g., Germany,5 France6 and Singapore7) and with certain countries, agreements between the competent tax authorities are in place (e.g., Denmark, Spain and Ireland).8
SICARs, such as mentioned in point (b), are fully subject to income taxes, but the income arising from assets held in risk capital is exempt. As the purpose of a SICAR is limited to investments in risk capital, all of its income should theoretically be exempt from income taxes. If SICARs opt for an opaque entity form, double tax treaties should, in principle, be applicable to them.
The legal form of the investment vehicle should be chosen according to the tax treatment of the investors' jurisdiction and the jurisdiction(s) of the investments.9 Under certain circumstances, some European jurisdictions grant lower withholding taxes on dividends or interest payments if paid to a regulated entity.
The family wealth management company is an appropriated tool for private estate management; it can only be held by private persons or estate entities. This type of company is income tax exempt and is merely liable to a subscription tax of 0.25 per cent. No withholding tax is levied on dividend payments. Interest payments made to Luxembourg-resident individuals are subject to a final 20 per cent WHT; see the subsection on 'Withholding taxes'.Domestic income taxCIT and MBT
The taxable profit as determined for CIT purposes is applicable, with minor adjustments, for MBT purposes. MBT rates vary depending on the municipality in which the company's registered office or undertaking is located.
In 2021, CIT is levied at an effective maximum rate of 17per cent (18.19 per cent, including the 7 per cent surcharge for the employment fund) for net profits above €200,000. An intermediary rate of €26,250 plus 31 per cent of net income exceeding €175,000 is also available for corporate income between €175,000 and €200,000. Finally, a lower rate of 15 per cent for net profits below €175,000 may also be applicable. MBT is levied at a variable rate according to the municipality in which the company is located (6.75 per cent for Luxembourg City in 2021). The aggregate CIT and MBT rate consequently amounts to 24.94 per cent in 2021 for companies located in Luxembourg City.NWT
Luxembourg imposes NWT on Luxembourg-resident companies at the rate of 0.5 per cent (or 0.05 per cent for the upper tranche of net worth exceeding €500 million), applied on net assets as determined for NWT purposes. Net worth is referred to as the 'unitary value', as determined in principle on 1 January of each year. The unitary value is calculated as the difference between assets estimated at their fair market value and liabilities. In that respect, liabilities in relation to exempt assets are not deductible when calculating the unitary value.
Furthermore, Luxembourg-resident companies are subject to a minimum NWT. This is set at €4,815 for Luxembourg companies whose financial assets, receivable against related companies, transferable securities and cash deposits, cumulatively exceed 90 per cent of their total balance sheet and €350,000. All companies that do not meet the aforementioned conditions are subject to a minimum NWT on the basis of their total balance sheet at year end, according to a progressive tax scale ranging from €535 to €32,100 for a total balance sheet from €350,000 to at least €30,000,001, respectively.WHT
Dividends paid by a Luxembourg company to its shareholders are, as a rule, subject to WHT at a rate of 15 per cent.
Arm's-length interest paid by a Luxembourg company is generally not subject to WHT. However, a payment of interest or similar income made by a paying agent established in Luxembourg (or, under certain circumstances, in the European Union or the European Economic Area (EEA)) to, or for the benefit of, an individual owner who is a resident of Luxembourg will be subject to WHT of 20 per cent. This WHT will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his or her private wealth. Responsibility for WHT is assumed by the Luxembourg paying agent.
Liquidation proceeds (deriving from a complete or partial liquidation) paid by a Luxembourg company are not subject to WHT.
Royalties paid by a Luxembourg company are generally not subject to WHT.
Fees paid to directors or statutory auditors are subject to WHT levied at the rate of 20 per cent on the gross amount paid (25 per cent if the withholding cost is borne by the payer). WHT is the final tax for non-resident beneficiaries if their Luxembourg-sourced professional income is limited to directors' fees not exceeding €100,000 per fiscal year.International tax – double taxation elimination method
Luxembourg has an extensive double tax treaty network and has signed, as at the time of writing, double tax treaties with 85 countries, and is in negotiation to sign a double tax treaty with 14 more countries.
In the absence of a double tax treaty, resident taxpayers are generally subject to Luxembourg income tax on their worldwide income, but unilateral credit relief is usually available.
Under treaties concluded by Luxembourg, double taxation is generally avoided by way of an exemption method with a progressivity clause that permits the inclusion of foreign income into the Luxembourg tax base to determine the global tax rate. As an exception, Luxembourg generally relies on the credit method regarding dividends, interest and royalties. Some double tax treaties concluded by Luxembourg provide tax-sparing clauses, which may also apply to Luxembourg PEs of non-resident companies (e.g., US companies).Capitalisation requirements
Pursuant to §171 of the Luxembourg General Tax Law, Luxembourg companies must be able to justify upon request of the Luxembourg tax authorities that their finances provided by related parties comply with the arm's-length principle. If the Luxembourg company is not able to demonstrate that the applied ratio and the interest rate on the debt comply with the arm's length principle, the Luxembourg tax authorities may requalify:
- the portion of the debt deemed in excess of an arm's length amount into equity, which would be non-deductible for net worth tax purposes, and
- the portion of interest deemed in excess of an arm's length amount into a hidden dividend distribution, which would be non-deductible for income tax purposes and potentially subject to withholding tax.
In accordance with the OECD's transfer pricing guidance on financial transactions,10 the transfer pricing documentation should cover the following:
- the qualification of the purported debt (economics of the debt, as well as the circumstances of the financing);
- the quantum thereof (i.e., debt/equity ratio); and
- the interest rate applied thereon.
Regarding more specifically companies that are engaged in intragroup financing activities, a circular letter11 issued by the head of the Luxembourg tax authorities (LTA) provides for the determination of the minimum equity at risk that a Luxembourg company must maintain in order to be able to assume the risks related to the financing activities.ii Common ownership: group structures and intercompany transactionsOwnership structure of related parties – fiscal unity
Under certain conditions, Luxembourg-resident companies of the same group are allowed to consolidate their taxable profits and losses for CIT and MBT purposes.
The main conditions of the fiscal unity regime can be summarised as follows:
- the consolidating parent company must be either a fully taxable resident company or a Luxembourg PE of a non-resident company liable to a tax corresponding to Luxembourg CIT;
- the consolidated subsidiaries must be either fully taxable resident companies or Luxembourg PEs of non-resident companies liable to a tax corresponding to Luxembourg CIT;
- the consolidating parent company must hold, either directly or indirectly, a participation of at least 95 per cent in the share capital of the consolidated subsidiaries. Participation of at least 75 per cent may also qualify for fiscal unity, but is subject to the approval of the Ministry of Finance and of at least three-quarters of the minority shareholders. Indirect participation of at least 95 per cent may further be held through non-resident companies liable to a tax corresponding to Luxembourg CIT. The participation condition must be uninterruptedly satisfied as of the beginning of the first accounting period for which the fiscal unity is requested; and
- the regime is granted upon written application filed jointly by the consolidating parent and the consolidated subsidiaries for at least five years. The application must be filed before the end of the first accounting period for which fiscal unity is requested.
Horizontal fiscal unity is also allowed between qualifying companies that are held by a common qualifying parent company.12
Under the law of 19 December 2020, a group benefiting from 'vertical consolidation' is allowed to form a new group integrated through 'horizontal consolidation', without any negative tax consequences for the individual members of the tax consolidation group, subject to conditions and up to the 2022 fiscal year.Intercompany transactionsParticipation exemption regime and other exemptions applicable to dividends, liquidation proceeds and capital gainsDividends and liquidation proceeds
To qualify for the participation exemption on dividends and liquidation proceeds, the following conditions must be met (Article 166 ITL):
- the parent company must be either:
- a Luxembourg-resident fully taxable company;
- a Luxembourg PE of a company covered by Article 2 of the amended EU Parent-Subsidiary Directive13 (PSD);
- a Luxembourg PE of a company resident in a country having a tax treaty with Luxembourg; or
- a Luxembourg PE of a company that is resident in a member state of the European Economic Area, other than an EU member state;
- the parent must hold a direct participation in the share capital of an eligible entity (the eligible entity), namely:
- a Luxembourg-resident fully taxable company;
- a company covered by Article 2 of the PSD; or
- a non-resident company liable to a tax corresponding to Luxembourg CIT; or
- at the time the income is made available, the parent company must have held, or must commit itself to hold, a participation in the eligible entity of at least 10 per cent or an acquisition price of at least €1.2 million for an uninterrupted period of at least 12 months. Holding a participation through a tax-transparent entity is deemed to be a direct participation in the proportion of the net assets held in that entity.
If the conditions for the participation exemption are not satisfied, dividends are, as a rule, taxable at the ordinary rate. As an exception, a 50 per cent exemption is available for dividends derived from a participation in one of the following entities:
- a Luxembourg-resident fully taxable company limited by share capital;
- a company limited by share capital resident in a state with which Luxembourg has concluded a double tax treaty, and liable to a tax corresponding to Luxembourg CIT; or
- a company resident in an EU member state and covered by Article 2 of the amended PSD.
Following the European Court of Justice (ECJ) ruling of 2 April 2020 in case C-458-18, the Luxembourg tax authorities issued a circular letter on 1 December 2020 regarding the non-application of Council Directive 2011/96/EU to companies established in Gibraltar. As from 1 January 2021, dividends paid by a company incorporated in Gibraltar to a Luxembourg company or qualifying PE may nevertheless be exempt from CIT and MBT where the Gibraltar company is a company limited by share capital and subject to a tax that is comparable to Luxembourg CIT – levied at an effective rate comparable to the Luxembourg CIT (at least 8.5 per cent) – on a mandatory basis and on a similar tax base, provided that the above other conditions of the participation exemption are fulfilled.Capital gains
Capital gains realised on the transfer of participations are exempt under the following conditions (Article 166(9)(1) ITL and Grand-Ducal Decree of 21 December 2001):
- the parent and the entity in which the participation is held must satisfy the same conditions as those applicable for the exemption of dividends (see the subsection on 'Dividends and liquidation proceeds'); and
- the parent must have held, or commit itself to hold, a direct participation in the share capital of the eligible entity for an uninterrupted period of at least 12 months, with a participation size of at least 10 per cent or an acquisition price of at least €6 million. Holding a participation through a tax-transparent entity is deemed to be a direct participation in the proportion of the net assets held in this entity.
If the above-mentioned conditions are not met, capital gains are, as a rule, taxable at the ordinary rate.
The participation exemption regime contains some rules intended to avoid a double benefit – namely the exemption of capital gains realised by a Luxembourg company upon disposal of its participation would not apply to the extent of the algebraic sum of related expenses and value adjustments that have decreased the tax result of the current or preceding years.Outbound dividend distribution
Dividends paid by a Luxembourg company to its shareholders are, as a rule, subject to 15 per cent WHT, unless a reduced rate or an exemption applies under a double tax treaty or because of the participation exemption regime.
Under Article 147 of the ITL, dividend payments made by a fully taxable Luxembourg company may be exempt from WHT provided that, at the time the income is made available:
- the distributing entity is a Luxembourg-resident fully taxable company;
- the recipient is one of the following:
- a Luxembourg-resident fully taxable company;
- a company covered by Article 2 of the PSD or a Luxembourg PE thereof;
- Luxembourg, a municipality, or a syndicate of municipalities or local corporate bodies governed by public law;
- a company liable to a tax corresponding to Luxembourg CIT that is resident in a country with which Luxembourg has a double tax treaty, or a Luxembourg PE thereof;
- a company resident in an EEA member state other than an EU member state and liable to a tax corresponding to Luxembourg CIT, or a Luxembourg PE thereof; or
- a Swiss-resident company14 that is effectively subject to CIT in Switzerland without benefiting from an exemption; and
- at the time the income is made available, the recipient holds, or commits itself to hold, directly, for an uninterrupted period of at least 12 months, a participation of at least 10 per cent or having an acquisition price of at least €1.2 million in the share capital of the distributing entity. Holding a participation through a tax-transparent entity is deemed to be a direct participation in the proportion of the net assets held in that entity.
Such an application of the national participation exemption could be envisaged in the case of dividends distributed by a Luxembourg-resident company to its eligible shareholder in the form of a US real estate investment trust.NWT
The participation of a Luxembourg company in another company will be considered as an exempt asset for NWT tax purposes to the extent that the conditions of the Luxembourg participation exemption regime, as described above for dividends and liquidation proceeds, are met (except that the Luxembourg company must merely hold the qualifying participation at the end of the previous accounting year).Transfer pricing considerations
As a general rule, Luxembourg does not levy any WHT on arm's-length interest payments. However, companies engaged in intra-group financing activities need to evidence that their remuneration complies with the arm's-length principle. According to the OECD's arm's-length principle, activities that are carried out between affiliated companies must comply with market conditions, namely the same conditions that would apply between independent companies.
To provide practical guidance to companies engaged in intra-group financing activities and following the implementation of the new Article 56bis of the ITL, the Luxembourg tax authorities issued a circular letter,15 dated 27 December 2016, which follows the OECD guidelines in transfer pricing matters.
On 11 February 2020, the OECD released a report16 containing transfer pricing guidance on financial transactions. The report is significant for Luxembourg transfer pricing considerations because it is the first time the OECD Transfer pricing guidelines include guidance on the transfer pricing aspects of financial transactions, which will contribute to consistency in the interpretation of the arm's-length principle with regard to financial transactions and help avoid transfer pricing disputes and double taxation.Scope
Transfer pricing considerations, inter alia, apply to all companies engaged in intra-group financing transactions.Determination of the arm's-length price
The comparability analysis is the main determinant in the application of the arm's-length principle: the arm's-length principle is based on a comparison of the conditions of a controlled transaction with the conditions that would have existed had the parties been independent, and had they undertaken a comparable transaction under comparable circumstances.Equity at risk
Companies engaged in intra-group financing activities must have the financial capacity – or equity at risk – to assume the risks related thereto. The amount of equity at risk must thus be determined by an appropriate transfer pricing analysis on a case-by-case basis. While no specific methodology is provided for, equity at risk needs to be determined based on a credit risk analysis, including a market analysis, a balance sheet analysis and all other elements relevant to the determination of the risks linked to a financing activity.Economic substance
To be able to control the aforementioned risks, an intra-group financing company must have a genuine presence in Luxembourg. The minimum economic substance in Luxembourg required is as follows:
- the majority of the members of the board of managers, directors or managers having power to bind the company must be (1) Luxembourg residents or (2) non-residents who pursue a professional activity (i.e., a business or agricultural, forestry, independent or salaried activity) in Luxembourg and who are taxable in Luxembourg on at least 50 per cent of their professional revenue. If a company is part of the management board, it must have its legal domicile and head office in Luxembourg;
- the company must have qualified personnel able to control the transactions performed. The company may, however, outsource functions that do not have a significant impact on the control of the risks;
- key decisions regarding the management of the company must be taken in Luxembourg. Companies that are required by corporate law to hold shareholder meetings must hold at least one annual meeting at the place indicated in the articles of incorporation; and
- the company must not be considered as a tax resident of another state.
Under the law of 10 February 2021, interest and royalties due to a related party established in a country or territory appearing on the EU list of non-cooperative jurisdictions (EU list) will be non-tax deductible. The new measure will apply to accruals made as of 1 March 2021, based on the version of the EU list published in the Official Journal of the European Union on that date. The current EU list, which was last revised on 22 February 2021, includes the following jurisdictions: American Samoa, Anguilla, Dominica (new), Fiji, Guam, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, the US Virgin Islands and Vanuatu. Barbados was removed from the list. The next revision is due to be performed in October 2021. Importantly, where the taxpayer provides evidence that a transaction was made for valid business reasons that reflect economic reality, the relevant accruals remain tax-deductible.iii Indirect taxesGeneral considerations
In 2021, the standard value added tax (VAT) rate in Luxembourg is 17 per cent. Reduced rates of 3 per cent, 8 per cent and 14 per cent apply to supplies of goods and services that are specified in three appendices to the Luxembourg VAT Law.17 These appendices cover the specific scope of application of the reduced rates and must be strictly interpreted.
All supplies of goods and services carried out (or deemed to have been carried out) in Luxembourg, for consideration, and by a person carrying out an economic activity, fall within the scope of the Luxembourg VAT Law. While located in Luxembourg, certain supplies of goods and services may benefit from a VAT exemption. The most frequently used VAT exemptions relate to: the supply and letting of real property, except where taxation is opted for; financial transactions; insurance and reinsurance, and connected services; and the management of regulated UCIs, SICARs, SIFs, alternative investment funds, pension funds and Luxembourg securitisation undertakings.VAT group
Persons that are closely bound by financial, economic and organisational links (cumulative conditions) can constitute a VAT group. A VAT group does not provide for any limitation as regards the status of the person (i.e., VAT taxable or not), or the nature or type of activity (e.g., VAT-exempt or taxable supply of services or goods). However, persons may only be members of one VAT group, and all members of a VAT group must be established within the same EU member state (no cross-border VAT groups). Members of a VAT group are considered as a single entity for VAT purposes, with the result that supplies and services provided among members of a VAT group (i.e., internal transactions) are outside the scope of VAT.Quick fixes
The EU Directive 2018/1910 of 4 December 2018 and the Implementing Regulation 2018/1912 regarding harmonisation and simplification of certain rules in the value added tax system for the taxation of trade between EU member states, known as 'quick fixes', have been implemented into Luxembourg VAT law, in force as of 1 January 2020.
The quick fixes aim at tackling specific VAT issues concerning intra-community supplies of goods. In particular, the new measures relate to the conditions for the application of the VAT exemption to intracommunity supplies of goods, the evidence of intracommunity transport of goods, simplification measures for the call-off stock regime and the harmonisation of rules applicable to chain transactions.Brexit
On 1 January 2021, the United Kingdom officially became a third country with respect to the EU, implying that the EU VAT Directive ceased to apply to it. The main changes concern cross-border supply of goods and services as well as the VAT refund procedure.
Since 1 January 2021, any supply of goods between businesses (B2B) and transported from Luxembourg to the UK qualifies as an export of goods, instead of an intra-community supply of goods. Furthermore, the distance sales regime ceases to apply with regard to business-to-consumer (B2C) supplies of goods.
With regard to the supply of services, the general B2B place of supply rule remains unchanged, namely services remain taxable in the country of the recipient. In this respect, Brexit had a positive impact on the input VAT recovery right of Luxembourg companies rendering financial and insurance services to UK companies because the Luxembourg companies concerned are now entitled to deduct input VAT on related costs. In a B2C scenario, the place of taxation is still the country of the supplier; however, Luxembourg suppliers are not required post-Brexit to apply Luxembourg VAT to supplies of services such as advertising, IT, consultancy, banking, financial and insurance transactions.
Regarding the VAT refund procedure, UK-based taxable persons are required to use the VAT refund procedure under the 13th VAT Directive, whereas the Luxembourg companies concerned must contact the UK VAT authorities for VAT refund purposes.iv Other tax measuresAdvance tax confirmations
Since the end of the 2019 financial year, advance tax confirmations (ATCs) granted by the Luxembourg tax authorities before 1 January 2015 (i.e., under the administrative procedure in force until 31 December 2014) are no longer binding. Taxpayers that are concerned by this measure will be able to introduce a new request in compliance with the current administrative procedure. With respect to taxpayers that have a diverging financial year end (i.e., those taxpayers that have a financial year end diverging from the calendar year end), the tax authorities allow an ATC request to be filed before the closing date of their 2020 financial year end. However, a new request will only be successful if the transactions will not have produced their full effect at the time of expiry of the ATC.Investment tax credits
Investment tax credits are available to Luxembourg companies and Luxembourg PEs of non-resident companies for their qualifying investments that are physically used in a country of the European Economic Area. As a general rule, qualifying investments include, among others, tangible depreciable assets other than buildings and livestock, as well as mineral and fossil deposits. As such, tax credits are available to Luxembourg companies to finance certain assets; for example, aeroplanes or software that has been acquired (as opposed to developed in-house), and can be extended, inter alia, to the shipping industry under specific rules.IP regime
Since 1 January 2018, a new intellectual property box regime (the IP Box Regime) following the modified nexus approach (as proposed under the Base Erosion and Profit Sharing (BEPS) Action 5) is in force. Eligible IP assets are mainly limited to patents, software protected by copyright under national or international provisions in force and utility models. IP assets of a commercial nature are excluded. Taxpayers that carry out an economic activity in Luxembourg, including certain PEs, are entitled to use the IP Box Regime (80 per cent exemption from CIT and MBT) according to a nexus approach on the net income from the eligible IP asset. Eligible IP assets are 100 per cent exempt from NWT.