intellectual property owning

TECHNOLOGY AND INTELLECTUAL PROPERTY IN LUXEMBOURG

Since 2007, Luxembourg has decided to attract companies that develop intellectual property : copyright, patent, trademark, etc.

The aim for Luxembourg is to be part of international companies' intellectual property strategy by creating an environnement likely to protect intellectual property rights and reduce its taxation.

The law dated December 12, 2007 intends to promote the holding of intellectual property by Luxembourg companies.

LEGAL BASIS

The articles 50bis, §1 to 6 constitute the legal basis of this new regulation. Mémorial A 234 dated December 27, 2007.

The principle is to grant a tax cut of 80% on all incomes relating to intellectual property, including capital gains realized at the rights transfer.

As an example, a company established in Luxembourg-city where the taxation is 28.59% will only be taxed 5.718%.

FIELD OF APPLICATIONS

The new provisions apply to Luxembourg taxpayers, individuals or legal entities, as far as they are owners of the intellectual property.

The use of intellectual property is considered as asset management and not as a trading activity. Consequently, a trading licence is not mandatory to invoice royalties.

The relationship between the Luxembourg IP rights owner and the royalties payer is an intellectual property contract (agreement between both parts).

TYPES OF IP

The intellectual property act of 2007 does not concern all types of IP. The intellectual property definition, according to this law is following :

  • Copyrights license on software and domain names;

  • Duly filed and registered patents

  • Trademarks

  • Registered designs (including rights on photography)

PERIOD AND MEANS OF ACQUISITION

  • IP acquired or created since December 31, 2007

  • IP acquired from third party or creation within the company

The seller, who cannot be an affiliated company, is limited to 10% of the purchaser’s capital OR the purchaser is limited to 10% of the seller’s capital OR a third company cannot hold directly more than 10% of the seller and the purchaser.

Expenditures directly related to the creation of rights must be registered in the company balance sheet during the first year to benefit from the tax allowance.

The IP valuation can be extremely important in case of acquisition. We work with IP lawyers that are intellectual property experts and can provide services of intellectual property valuation, intellectual property registration and intellectual property rights protection.

The date of the licence, trademark, patent registration is also an important data for intellectual property copyright profits taxation.

ALLOWANCES MECHANISM

The intellectual property act of 2007 defines the income tax rate on IP as follow :

  • Regular incomes

80% of the net income resulting from the intellectual rights marketing is exempted from taxation.  
The net income is calculated by deducting to the gross income all the expenses directly linked to this type of income, including depreciations and value reductions.

Should the intellectual property be created within the company, the deduction of 80% is also applicable.

  • Capital gains

They are exempted in the same proportion as incomes.
Should the intellectual property be created within the company and no market value be known, the property will be valued according to the usual valuation methods for this type of asset.

Intellectual property consultants or IP attorneys can be usefull in this case