Luxembourg is an attractive business location. It has an active economic policy that encourages international businesses. A good geographical location, political and social stability and a tax efficient environment are just some of the reasons why many investors choose to set up a business in Luxembourg.
Luxembourg tax law does provide for various incentives, subject to specific requirements, for, amongst others, risk capital, audio-visual activities, environmental protection, and research and development (R&D). Most of the incentives are granted as tax credit.
Intellectual property may benefit from the new Intellectual Property (IP) regime introduced in March 2018. The Luxembourg tax law provides for a partial exemption of 80% on the net income derived from eligible IP assets, as well as a 100% exemption from net wealth tax (NWT).
Under this law, patents and copyrights on computer software, among others, are eligible assets for the preferential tax treatment. Eligible income that will qualify for preferential tax treatment includes net income from direct use, royalties from the granting of licenses or income from the sale of eligible IP assets.
Several incentive programs exist also for certain entities: investment funds incorporated as a company in Luxembourg (which are subject to several exemptions), private wealth management company (Société de gestion du Patrimoine Familial or SPF) (which is exempt from taxation on income and NWT), securitisation vehicles (which are exempt of NWT), venture capital companies (Société d'Investissement en Capital à Risque or SICAR) (subject to income tax at the normal rate with the benefit of an exemption on income and gains (e.g., dividends, capital gains, liquidation proceeds, interest) and shipping companies (which are not subject to municipal business tax and can benefit from investment tax credits and accelerated depreciation).
Prepared by Edward Kostka, Fiduciaire Alpha, Luxembourg