Luxembourg: Offshore Business Sectors
Licensing, Royalties and Franchising
Holding companies are also permitted to hold patents, and may acquire copyright or know-how in relation to patents already held. The patent holding company (either as part of a management holding company or as a separate operation) owns patents and exploits them among its subsidiaries or elsewhere; it receives royalties or license fees in a tax-efficient way, and can pay them on without deduction of withholding tax. Because it was drafted in terms of patents, the legislation is not easily extended to a wider class of intellectual property licensing or franchising.
From 2008, 80% tax exemption on the net positive income received as consideration for the use of, or the right to use, any copyright on software, any patent, trade mark, design or model, applies. This partial exemption leads to an effective tax rate of 5.9% on the net IP income.
It’s worth noting that the 80% deduction also applies to taxpayers that have created a patent and used it for their own business purposes.
The 80% exemption also applies to the capital gain realized on the disposal of the considered IP. A recapture system was, however, foreseen to avoid exempting a gain, where the concerned IP has generated negative net income.