Ever since the abolition of the Luxembourg IP regime, businesses and international investors have been eagerly awaiting news about what the future would hold for Research and Development (R&D) activities. The government will be phasing out the old regime as from July this year, as the existing rules run counter to the new international framework endorsed by both the EU and OECD, known as the "nexus" approach. The repeal of the current IP regime left the business community wondering what the Government might propose as an alternative solution. So when Luxembourg Finance Minister Pierre Gramegna revealed his plans for a new-look regime last week, we leant in and read closely.
In response to a parliamentary question, Minister Gramegna confirmed that the Luxembourg government is already working on the finer details of an alternative IP measure. Although several options are under consideration, all share the same clear objective of setting rules that would both be compliant with the "nexus" approach while also acting as an incentive for R&D.
As the news about the announcement came in last week, we have good reason to believe that it will be genuinely welcomed by Luxembourg businesses and international investors. It's confirmation that the government is committed to maintaining the attractiveness of Luxembourg. What's more, it also shows that they're serious about finding ways of promoting sustainable investments that are in line with the new international rules.
The changes come as part of a comprehensive tax reform package that the government will set out by the end of the year, and that will enter into force in 2017. The reform package aims to maintain the overall competiveness of Luxembourg's tax landscape. Minister Gramegna has confirmed that a decrease in the corporate tax rate will be amongst the measures put in place in this context ... another welcome statement from the Finance Minister. However, this of course raises the inevitable question about the decrease in tax: how low will the rate go?
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