IP Box: Article 50ter LIR in Luxembourg
Effective rate of about 5% on intellectual property income
The IP Box regime provides an 80% exemption on net income from qualifying intellectual property (patents, software). Based on the BEPS Nexus approach, it rewards companies that genuinely conduct their R&D in Luxembourg.
Key metrics
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Talk to a tax expertKey advantages
- 80% exemption of net income from intellectual property
- 80% exemption of capital gains on qualifying IP disposals
- Net wealth tax exemption on qualifying IP
- Combinable with R&D cost deductibility
- Compliant with BEPS standards (modified Nexus approach)
- Compatible with Luxembourg R&D tax credits
Qualifying conditions
- Qualifying IP: patents, copyright-protected software, utility models
- R&D conducted primarily in Luxembourg (Nexus ratio)
- Accounting traceability of R&D expenses per IP asset
- Trademarks and designs excluded (since 2016)
- Detailed Nexus documentation per asset
- Substantial and verifiable R&D activity
Who this regime is for
SaaS publisher with EUR 5M in software revenue
A Luxembourg company develops copyright-protected software. It receives EUR 5M in annual licensing revenue. 90% of R&D is conducted in-house.
24.94% on EUR 5M = EUR 1.25M
about 5% effective on EUR 5M
around EUR 1M
Thanks to the IP Box regime, 80% of net income is exempt. Only 20% remains subject to the standard CIT rate, resulting in an effective rate of about 5%. The Nexus ratio must be documented rigorously per IP asset.
Legal basis and OECD compliance
Nexus BEPS compliance
The Luxembourg IP Box regime was reformed in 2018 to comply strictly with the OECD modified Nexus approach (BEPS Action 5). Only income proportional to R&D expenses actually incurred by the taxpayer benefits from the exemption.
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Frequently asked questions
Are trademarks eligible for the IP Box regime?
No. Since the 2018 reform, trademarks, domain names and designs/models are excluded. Only patents, copyright-protected software and utility models are eligible.
How is the Nexus ratio calculated?
Nexus ratio = (qualifying R&D expenses x 1.3) / total R&D expenses. Qualifying expenses are those incurred by the taxpayer itself, with a 30% uplift. Related-party outsourced expenses are not qualifying.
Can IP Box be combined with R&D tax credits?
Yes, both regimes can be combined. The R&D tax credit reduces CIT due, and the IP Box exempts 80% of net IP income. This requires precise tax engineering.
Is a prior application required?
No, the IP Box regime is applied directly in the annual return. However, a tax ruling with the tax authority is strongly recommended to secure tax treatment, particularly the Nexus calculation.
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