New Luxembourg IP tax regime in Luxembourg
The Law of 17 April 2018 adopted by the Luxembourg Parliament lays down a new intellectual property (“IP”) tax regime effective as of the 2018 tax year. As was the case under the previous regime, the new regime provides for an 80% exemption from corporate income tax on the net income derived from eligible IP assets, and a 100% exemption from net wealth tax.
However, the Law of 17 April 2018 modifies the scope of the regime, bringing modifications with respect to qualifying income and eligible IP rights. While a wider variety of patents and copyrights on computer software are included in the list of eligible assets, trademarks and designs are no longer be eligible for the tax incentive. This new IP tax regime was designed to be consistent with the recommendations of the OECD and the European Union on taxation related to intellectual property. 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 and development activities.
Luxembourg bill of law to implement Anti-Tax Avoidance Directive
On 20 June 2018, the Luxembourg Government filed bill of law 7318 implementing Directive (EU) 2016/1164 (the “Anti-Tax Avoidance Directive” or “ATAD I”).
The bill of law lays down rules against tax avoidance in the following fields: (i) the limitation on interest deductibility, (ii) exit taxation, (iii) general anti abuse provisions, (iv) controlled foreign company (CFC) rules and (v) prevention of hybrid mismatch arrangements.
Luxembourg bill of law on Multilateral Instrument ratification
On 3 July 2018, the Luxembourg Government submitted to Parliament bill of law 7333 for the ratification of the Multilateral Instrument (“MLI”). As a reminder, the MLI, which was signed by Luxembourg in June 2017, was developed by the OECD to implement Base Erosion and Profit Shifting (BEPS) measures into double tax treaties.
Bill of law 7333 contains two articles. While the first one approves the text of the MLI, the second includes the reservations and notifications made by Luxembourg to the OECD on 7 June 2017 when signing the MLI.
If the Luxembourg Parliament votes to approve this bill of law, the formal ratification of the MLI by Luxembourg will be made possible.
New tax treaty between Luxembourg and France
On 20 March 2018, a new double tax treaty and an associated protocol (“New DTT”) were signed by the French and Luxembourg governments. The New DTT will replace the current double tax treaty (dated 1 April 1958) and it will enter into force at the earliest on 1 January 2019, after the completion of the ratification process by each State.
The text of the New DTT can be found in French. It takes into account the latest OECD standards reflected in the 2017 OECD Model Tax Convention. The main changes brought by the New DTT pertain to the persons covered, the definition of permanent establishment, the withholding tax rate on dividends paid by real estate investment funds, the taxation of employment income, and the method to be used by France to eliminate double taxation.
Law implementing double tax treaty with Cyprus
The double tax treaty signed by Luxembourg and Cyprus entered into force on 21 May 2018 its provisions will apply as of 1 January 2019. This double tax treaty takes into account the latest international standards regarding avoidance of double non-taxation and exchange of information, such as the Erosion and Profit Shifting (BEPS) recommendations of the OECD.
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