If you want to open an Intellectual Property (IP) holding company in Luxembourg, you must respect specific laws and follow precise steps. Our Luxembourg lawyers can guide you through the procedure and explain the advantages of setting up such an entity here.
Intellectual property elements in Luxembourg
Domain names, patents, trademarks, models, designs, copyright related to software and domain names are considered intellectual property. The Luxembourg intellectual property can be divided into two: industrial property (patents, trademarks, and designs) and copyright and related rights.
The industrial property is represented by patents (which protects an invention or an improvement of a product or a process, a product or a process providing a new solution to a particular technical problem or a new use for something; the marks (refers to the identity of the product or service and which can be graphic signs for distinguishing goods or services of one undertaking from those of its competitors, a word mark, a figurative mark or a mark combining these two aspects); and the drawing or model for the appearance and aesthetics of a product (the shape, configuration, texture).
Copyright and related rights apply to literary, musical, or artistic works. It covers software, drawings, maps, charts, plans, photographs, films, architectural works, sculptures, sound recordings, radio and television, and others. For small and medium businesses, the effective use of intellectual property rights can help them compete with larger companies. Intellectual property offers potential for these entities in terms of legal protection, information technology, and competitive advantage.
The Luxembourg government is very interested in developing new technologies and granting support to new businesses, so new measures for protecting those and helping develop this sector were taken. One of these measures is the IP tax regime, which is applicable to IP rights which was created after 31 December 2007.
Advantages of setting up IP holdings in Luxembourg
There are several advantages attached to the IP tax regime in Luxembourg such as:
- the total exemption from the new wealth tax,
- an 80% exemption from the net capital profits achieved after the release of qualifying IP,
- an 80% exemption of the net positive income from using certain IP rights,
- a deduction of up to 80% of the net income applicable for self-developed patents used by the applicant in their own actions;
- a 100% exemption from the net wealth tax on qualifying assets.
Because of the above advantages, the foreign companies may be encouraged to open patent holding companies with the purpose of acquiring patents and their exploitation via their subsidiaries. As a rule, the holding company cannot perform any commercial or industrial activity related to the patent but can grant licenses to related or unrelated companies. The copyrights of know-how can be purchased only if are related to the patents owned by the company.
It is important to note that the calculation of the net wealth tax, which also applies to IP holdings in Luxembourg, has been simplified and is now computed on the total balance sheet of the company. Also, the corporate tax rate was lowered by 1% – from 17% to 16%.
The IP Box in Luxembourg
The IP Box was introduced in Luxembourg to offer a special tax regime applied to income obtained from intellectual property rights. Under this regime, the income resulting from various IP rights takes the form of a tax relief, which is what makes Luxembourg one of the most attractive destinations for setting up a holding company for intellectual property purposes. Even if the holding company can be used in many countries for holding such IP rights, Luxembourg is by far one of the jurisdictions offering this type of company such a status.
In order to qualify for the IP Box regime in Luxembourg, the following conditions must be met:
- the intellectual property rights must have been obtained or developed after the 31st of December 2007;
- the company acquiring the IP rights must submit relevant proof that they were not acquired with the purpose of obtaining tax benefits;
- the costs related to the development of the intellectual property rights must be subject to a favorable trade balance;
- the rights over the intellectual property cannot be transferred from the parent company to a subsidiary in which the former owns more than 10% in the shareholding, or the purchase price of the participation is at least EUR 6 million or EUR 1,2 million for the dividend exemption;
- another transfer requirement refers to the fact that the parent company cannot transfer IP rights to subsidiaries with common shareholders;
- the participation is held for a minimum period of one year;
- the subsidiary is a domestic or non-EU fully taxable resident company, or an EU-based enterprise.
For more information on the holding company for IP purposes, you can discuss with one of our Luxembourg lawyers, who can also explain in detail how the IP Box Regime works.
IP rights that can be obtained under the holding in Luxembourg
Even if Luxembourg has its own legislation with respect to the protection of intellectual property rights, for the acquisitions of certain rights, companies in the Grand Duchy will respect the Benelux legislation (the laws applicable in Belgium, the Netherlands, and Luxembourg).
Under the IP Box Regime, the following intellectual property can be used for the creation of a holding company:
- copyrights over software;
- internet domain names;
- patents and trademarks;
- designs and industrial models.
Copyrights over literary works cannot be used for the creation of a holding company for IP purposes in Luxembourg.
Also, in order to be considered for tax purposes in the holding company, the IP rights must be recorded in the company’s balance sheet for the year the tax benefit is claimed. The rights must be recorded as assets.
Our attorneys in Luxembourg can offer more information on the legislation applicable to intellectual property rights in the Grand Duchy.
How to set up an IP holding in Luxembourg
Foreign investors can register IP holding companies in Luxembourg based on intellectual property created or bought after the 31st of December 2007. If purchased, these rights must not come from an affiliated company. Also, in the first financial year of the Luxembourg IP holding company, the IP rights must be registered as assets in the financial documents.
The first step in registering an IP holding company is to draft the Articles of Incorporation which contain the general information regarding the name of the company and its headquarters, the name of the founder, the amount of the share capital and the amount of paid capital (if necessary), the value and the type of the shares, information regarding the representatives and auditors. Besides the articles of association, a certificate proving that the name is available and, if necessary, a certificate proving that the paid capital was deposited in the bank. The Articles of Incorporation are then signed in front of a Notary and published in the Official Gazette. Our attorneys in Luxembourg can assist with the preparation of the documents required to register the IP holding.
Our lawyers in Luxembourg can offer detailed information about all the conditions required by the law in order to establish an IP holding in the Grand Duchy. We can also help you register a holding company for intellectual purposes in Luxembourg.
The SOPARFI, a suitable entity for IP holdings in Luxembourg
The financial holding or SOPARFI is the most employed type of business for creating an IP holding in the Grand Duchy. It is important to know that it is not a specific legal structure, as it refers to a tax regime applicable to holding companies. The SOPARFI can be registered as a private or public limited liability company as long as it owns financial participation in subsidiary entities and administers them. In the case of an Intellectual Property company, the participation can take the form of patents, inventions, industrial designs and models, software, etc.
If you decide to register such an enterprise, you can benefit from assistance from our law firm in Luxembourg.
Assets for which the Luxembourg IP Regime applies
The IP Regime that covers holding companies owning such assets in Luxembourg covers specific rights that are eligible for the above-mentioned tax benefits. These are:
- patents and utility models;
- protection certificates for pharmaceutical and plant-based products;
- extensions for protection certificates for pediatric use;
- orphan drugs designations;
- plant breeder’s rights;
- software that is copyright-protected.
There are also IP rights that are not covered by the regime, and the most common are trademarks and domain names. This is why it is important to understand how the law applies to these companies.
Also, in order to obtain the respective benefits, the Luxembourg SOPARFI must ensure compliance by having the following:
- records on the development, expenditures, and income associated with qualifying assets;
- proof that the intellectual property was obtained from research and development activities conducted by the Luxembourg IP holding company;
- the asset(s) for which the tax exemption was applied were comprised in the company’s financial statements.
The IP holding as a tax minimization tool in Luxembourg
We have seen above the tax exemptions which can be obtained through an IP holding company in Luxembourg; there are several conditions to be met before obtaining them. Foreign companies can transfer their IP rights to a holding company in Luxembourg, provided that the former complies with a few requirements. The first one is for the foreign company to have a legal address in Luxembourg (this can be obtained with the help of our virtual office services) and to have a Luxembourg resident manager.
Most of the times the SOPARFI holding company is used in Luxembourg with the purpose of owning IP rights. This business form also falls into the Parent-Subsidiary Directive, thus becoming more appealing from a taxation point of view.
The IP holding company in Luxembourg can take the form of a corporation (private or public) or of a cooperative, which must be registered as a public limited company.
Our law firm in Luxembourg can help you set up an IP holding company under the form of your choice.
Why set up an IP holding company in Luxembourg?
Luxembourg is a very attractive country for starting a business, especially when it comes to the IP holding company. Apart from the IP Box Regime, which provides for a reduced corporate tax rate (an effective rate of 5.84%), Luxembourg is very appealing for starting a business in any other field apart from the financial one. Among these, we mention the following:
- Luxembourg has signed an extensive number of double tax treaties, out of which 64 are already in force;
- companies can benefit from various tax credits on investment (a 12% credit is available for qualified investments in tangible assets);
- some tax credits are available for periods of up to 10 years;
- copyrights can benefit from a reduced VAT rate of 3% (one of the lowest in the EU).
We can help you open any type of company in the industry you are interested in Luxembourg, if you want to do business here. For complete information on establishing an IP holding, please contact our law firm in Luxembourg.