The Law of 18 December 2015 concerning the Luxembourg government’s 2016 income and expenditure budget significantly amends Luxembourg’s intellectual property tax regime because starting 1 July 2016, Article 50bis of the Law of 4 December 1967 on income taxation (the “LIR”), as amended, will be repealed.

Until now, Luxembourg’s legislation allowed exemption of up to 80% of intellectual property income.

The LIR was amended in the context of the OECD’s adoption of the “Modified Nexus Approach”, pursuant to the OECD/G20 Base Erosion and Profit Shifting Project (BEPS), according to which OECD member countries had to review their tax regulation, particularly as regards their “Patent Box” regime.

The OECD’s approach allows the granting of IP income tax advantages provided there is a direct relationship, based on substantial activity, between the revenues benefitting from the advantages and the R&D expenditures contributing to those revenues.

However, to allow a smooth transition, Article 50bis of the LIR will remain applicable to revenues and  capital gains for a transition period, beginning 1 July 2016 and ending 30 June 2021, for the rights referred to therein which were created and acquired prior to 1 July 2016, including related upgrades, provided they are completed prior to 1 July 2016.