On 28 June 2019, the Luxembourg tax authorities issued Circular 50ter/1 ("IP Circular") which provides further guidelines on the application of the law dated 17 April 2018 introducing a new intellectual property ("IP") regime in Luxembourg ("IP Law").
As a reminder, the IP Law provides for an 80 percent exemption on income derived from the marketing of certain IP rights, as well as a full exemption from net wealth tax. Eligible assets are patents, utility models, and other IP rights that are functionally equivalent to patents as well as software protected by copyright. The new IP regime is based on the "modified nexus approach" in line with the recommendations of the BEPS final report on action 5, following which only revenues that are directly related to qualifying expenditure can benefit from the exemption.
For further insight on the key features introduced by the IP Law, please refer to our article " New Luxembourg IP regime" dated 20 December 2017, which is published on our website.
The IP Circular now brings further clarifications on certain concepts laid down in the IP Law (such as eligible IP assets, research and development activities, the date of constitution of the eligible asset, eligible expenditures, etc.) and provides a series of examples on the determination of the exempt amount in various situations (for instance, when the expenditure has been capitalised, after a migration to Luxembourg or in the transition period from the former IP regime to the new one).
More detailed information on the IP Circular can be found in our related article " New IP Circular" published on our website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.