- 1.Luxembourg tax opportunities for ICT
- Franois Petit, Tax Manager, Commerce & Industry, KPMG
2. KPMG in LuxembourgOrganization of KPMG Luxembourg (Total
staff: 900,Tax: 200) 6 Partners & Directors 22 Partners &
Directors 14 Partners & Directors BANKING FUNDS INSURANCE
INDUSTRIAL & COMMERCIALS CORPORATE HEADQUARTERS PUBLIC SECTOR
KPMG Audit KPMG Advisory KPMG Tax REAL ESTATE 3. And the Winner
is
- KPMG Luxembourg voted2010Leading Tax planning & Tax
transactional Firm in Luxembourg International Tax Review,
2010
- KPMG in Luxembourg delivers a full tax service to their many
local and international clients.Some of their specialists are held
in the highest regard by their peers and other market
observers.
4. 1/Generalities 5. Reasons for frequent use of Luxembourg in
international structuring/ planning
-
- Pragmatic approach of Luxembourg tax authorities in enacting
domestic tax laws in favour of cross border investment streams
(holding, financing, real estate, IP, trading, etc.)and high value
added functions (IP management, distribution, entrepreneurial
functions, etc).
-
- Very tax efficient vehicles (e.g. fully taxable SOPARFI,
securitization vehicles, SICAR, SIF, SPF, etc.): if properly
structured, no or minimum taxation in Luxembourg
-
- Good treaty network (57 treaties in force and currently
17treaties signed/ in negotiation)
-
- Tax agreement system available to secure tax treatment (very
prompt and flexible tax authorities)
-
- As a general rule, no withholding tax on royalties, interest
payments and liquidation proceeds
-
- Luxembourg participation exemption
-
- Easy partial / full exit or refinancing strategy - can be
structured to be free of withholding tax
6. Luxembourg: Not a Tax Heaven
-
- Effectivecorporate income taxrate (corporate income tax and
municipal business tax): 28.80%.
-
- Net wealth tax: 0.5% annually on the net assets of the company
(creditable under certain conditions) exemptions available (see
further)
-
- No capital duty (abolished effective 1 January 2009).
-
- Tax analysis letter system available to secure tax
treatment
-
- 15% WHT on dividend payments (reduced by double tax treaty 0%,
or EU Parent-Subsidiary Directive 0%)
-
- No withholding tax on royalties (apart from certain artistic
activity)
-
- No withholding tax on interest payments (withholding tax or
exchange of information in case Savings Directive applies)
-
- As from 1 January 2011, specific tax provisions to highly
skilled workers relocated in Luxembourg after 31 December 2010
-> exemption of part of highly skilled workers remuneration in
relation with their assignment in Luxembourg.
7. Luxembourg Tax Developments
-
- As Luxembourg has concluded a double tax treaty with Israel and
provided certain conditions are fulfilled, dividends paid by a
Luxembourg company to an Israeli company should not be subject to
Luxembourg withholding tax.
-
- 80% deduction of IP related income
-
- Qualifying IP assets are now exempted from the Net Wealth
Tax
8. DTT list of countries In Force Not yet in force Middle East
and North Africa UAE, Morocco, Tunisia, Turkey, Israel, Bahrain,
Kuwait, Qatar Lebanon, Syria. Asia Azerbaijan, China, Hong Kong,
Georgia, South Korea, Indonesia, India, Japan, Malaysia, Mongolia,
Uzbekistan, Singapore, Thailand, Vietnam, Kazakhstan, Georgia
Pakistan, Kyrgyzstan. East Europe & non EU Member states
Russia, San Marino, Norway, Moldova, Switzerland, Iceland, Armenia,
Ukraine, Serbia Montenegro, Albania, Macedonia. EU Member states
Austria, Germany, Belgium, Bulgaria, Denmark, Spain, France,
Greece, Hungary, Ireland, Italy, Netherlands, Poland, Portugal,
Czech Republic, Slovak Republic, Romania, UK, Sweden, Finland,
Malta, Slovenia, Estonia, Latvia, Lithuania Cyprus Latin
America/caribbean Brazil, Trinidad and Tobago, Argentina, Barbados
Africa South Africa, Mauritius North America Canada, Mexico, USA 9.
The tax analysis letter system: presentation
-
- No general tax analysis letter published.
-
- Private tax analysis letters only, specific to each
taxpayer.
-
- Tax analysis letters are not published as it would be contrary
to the private character of such letter and as it is always issued
considering the specific situation of a taxpayer.
-
- Not legally binding but followed in practice where no change of
the facts presented and no subsequent change in the law.
-
- The tax analysis letters accepted may be relied upon to the
extent that:
-
- Full disclosure of the facts in the written request
-
- Purpose to confirm a tax treatment and not to confer an undue
advantage
-
- Issued by a competent civil servant
-
- Contains no reservations or limitations
-
- A tax analysis letter may contain limitations such as a time
period, reference to particular facts such as the size of the
turnover) and may be specific to the facts and circumstances of the
taxpayer.
-
- Period of validity: open ended if no stated time period (in
such case, an extension can be requested)
10. The tax analysis letter system Main topics
-
- Specific cases of application of the Luxembourg participation
exemption such as comparable taxation status for the subsidiary,
the character of earn-out payment, etc.
-
- Functional currency for tax purposes.
-
- Exit routes (using instruments to avoid withholding tax on
profit participation).
-
- Financing margin (transfer pricingstudy requested, except for
small financing volume), finance companies, finance branches.
-
- Margin on royalties (documentation requested)
-
- Hybrid financing instruments and hybrid entities
-
- There is actually no limitation as regards the variety of
topics.
11. The Grand Duchy of LuxembourgAt the Heart of Europe 2/
Luxembourg VAT 12. Luxembourg VAT treatment of television,
broadcasting and electronic services
-
- In a B2B transaction : services should be located where the
recipient is established.
-
- In a B2C transaction: services should be located where the
supplier is established.
13. VAT on e-services
-
- Most services provided for a fee through the internet.
-
- The physical delivery of goods, where the order and processing
is done eletronically, does not qualify as electronically supplied
services.
-
- VAT advantage for B2C : The lowest VAT rate in the EU
(15%).
14. VAT on e-services
-
- Conditions to benefit of 15% VAT rate:
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- Services delivered on the internet,
-
- Involving minimal human intervention,
-
- Internet cannot be used for communication between suppliers
& customers,
-
- Internet is only used for the supply itself,
-
- Internet is used as a support for the commercial activity.
15. VAT on e-services
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- Supply of digitized products generally,
-
- Supply of online or offline games,
-
- Supply of games of chance and gambling games,
-
- Supply of images, text and/or information,
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- Making available of databases,
-
- On-line auction services,
-
- Supply of distance teaching.
16. VAT on TV/Radio broadcasting
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- The broadcasting of television or radio programs ,
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- Many potential viewers or listeners
-
- VAT advantage for B2C : Super-reduced VAT rate (3%)
-
- Adults content still to 15%.
17. VAT on TV/Radio broadcasting
-
- Conditions to benefit of 3% VAT rate:
-
- Whatever the mode of transmission used,
-
- Only to public broadcasting,
-
- Regardless of whether the provider has the responsibilityof the
content or not,
-
- Applicable to ancillarry operations ,
-
- Applicable to all content except if exclusively aimed at
adults.
18.
-
- VAT on Telecommunications services
- Transmission, Emission, Reception
- Signals, Words, Images, Sounds,Information
- Wire , Radio, Optical, Other electromagnetic systems
-
- VAT advantage for B2C : The lowest VAT rate in the EU
(15%).
- Not subject to VAT if enjoyed outside of the EU.
19. VAT on Distance sales
-
- Distance sales rules allow :
-
- A business to charge VAT rate, to a private consumer,at the
rate applicable in the country where the business is established,
if its sales to other EU countries do not exceedEUR 100,000.
Otherwise, it will be required to charge VAT rate, at the rate
applicable in the country where the goods are delivered.
20. Condition to benefit from Luxembourg VAT rates
-
- Substance condition: the entity to be given the possibility to
carry out an econimic activity inan autonomous and permanent
way.
21. 9. Luxembourg IP Law: Principles
-
- 80% exemption on net positive royalty AND on net capital gain
from certain IP
-
- 80% deemed income deduction for self-developed patents
-
- Effective corporate tax rate of 5.76% on qualifying net IP
income
-
- Recapture system & anti-abuse provisions
-
- Simple valuation methods for small and medium size
businesses
-
- The 6 paragraphs of article 50bis ITC
-
- 1. The income received as payment for the use or the granting
of the right to use (usage ou la concession de lusage dun droit)
any software copyright, patent, trademark or service mark, domain
names, design or model, is exempt up to 80 % of its net positive
amount.
-
- The net income is the gross income less expenses having a
direct economic relationship with the income and includes annual
amortizations as well as write-downs if applicable.
Luxco Opco royalty licence CustomerCo sale Sale price 22. 9.
Luxembourg IP Law: Principles
-
- 2.Where the taxpayer created a patent himself and it is used as
part of his business activity, he is entitled to a deduction
amounting to 80% of the net positive income that he would have
realized if he had authorizedthe use of such right to a
third-party.
-
- Net revenue = fictive gross revenue less directly related
expenses including annual amortizations and any write-downs.
-
- Deduction is allowed as of the date of the filing of the patent
application.
-
- If patent denied, recapture of previously deducted in the
operating year of the notice of the denial.
Luxco IP CustomerCo sale Sale price 23. 9.Luxembourg IP Law:
Principles
-
- 3. The capital-gain derived from the transfer (cession) of the
right of software copyrights, patent, trade or service mark, or
design or model is exempt up to 80%.
-
- The capital gain is taxable up to the algebraic sum of 80% of
the net losses (revenus nets ngatifs) derived from the IP rights
inboth current and prior accounting periods to the extent net
losses have not been compensated by article 50bis 42 (i.e.
capitalized on the balance sheet, etc.)
-
- No 80% exemption on assets acquired under articles 53 or 54
ITL.
Sale of IPRe investmentin IPSale 24. 9. New Luxembourg IP Law:
Principles
-
- 41. the right must have been created or acquired after 31
December 2007 and,
-
- 42. the expenses, amortizations, and write-downs related to the
right must be recorded on the taxpayers balance sheet and shall be
included in the profits / loss allocation as from the first fiscal
year for which the benefit of this tax regime is applied provided
that for a given year, these expenses exceeded the income in
relation with the same intellectual property right .
25. 9. Luxembourg IP Law: Principles
-
- 5. Abuse of law provision
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- IP cannot be acquired from a direct related company.
-
- If either seller / buyer companies are direct owners of each by
at least 10%;
-
- If both seller / buyer companies are directly owned 10% or more
by same commonparent company
Seller / Acquirer Seller / Acquirer 10% NO Parent Acquirer 10%
NO Seller 10% 26. 9. Luxembourg IP Law:Which transfers are
acceptable or not under the new law? Acquirer 10% Transferor
Acquirer 100% YES 100% InterCo YES Individual Contribution ofa
branch of activity Seller / Acquirer Seller / Acquirer 100% YES?
10% Seller / Acquirer Seller / Acquirer 100% YES 10% InterCo 27. 9.
Luxembourg IP Law: Principles
-
- 6. Valuation method in case of disposal of IP
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- Large companies: generally accepted methods (Market Approach,
Income Approach, Cost Approach, etc);
-
- Other companies: possibility to determine the market value at
110% of expenses deducted from the taxable basis of the year of
disposal and the preceding years. Grand Ducal Decree of16 March
2005.
28. 9. Luxembourg IP Law:Example of an IP acquisition
-
- IsraelCo incorporates LuxCo 1
-
- LuxCo 1incorporates LuxCo 2
-
- IsraelCo transfers IP to LuxCo 2
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- LuxCo 2 grants a license to EUCo
-
- EUCo pays royalties to LuxCo 2
-
- LuxCo 2 pays dividends to LuxCo 1
-
- LuxCo 1 pays dividends to IsraelCo
Israel Co LuxCo 2 LuxCo 1 EUCO Royalties License IP Dividends
Dividends 29. 9. Luxembourg IP Law:Example of an IP acquisition
-
- 80% of Net IP income received by LuxCo 2 is exempt from
corporate income tax and municipal business tax
-
- Qualifying IP exempt from net wealth tax
-
- Only 20% of the Net IP income is subject to corporate income
taxat the rate of 28,80%, so 5,76% ETR
-
- Dividends paid by LuxCo 2 to LuxCo 1 should notbe subject to
withholding taxand said dividends should be tax exemptat the level
LuxCo 1
-
- Dividends paid by LuxCo 1 to IsraelCo should not be subject to
withholding tax (under certain conditions)
-
- Applicable withholding taxon royalties paid by EUCo to
LuxCo2
-
- Israeli taxation further to disposal of IP to a Luxembourg
entity
-
- Israelitaxation of dividends by IsraelCo
Israel Co LuxCo 2 LuxCo 1 EUCO Royalties IP Dividends Dividends
License 30. 3/ Luxembourg Special Investment Funds (SIF) 31.
LUXEMBOURG ABROAD PropertyCompany HoldingCompanyISRAEL Investors
FCP-SIFManagement Company
- The investors are well informed investors, institutional
investors or professional investors.
- Taxation is to be analyzed on a case-by-case basis.
- The FCP-SIF is in the form of a contractual fund; themanagement
company of the FCP-SIF is in the form of a public/private limited
liability company.
- The FCP-SIF is not liable to corporate income tax, municipal
business tax, net wealth tax and contribution to employment fund;
the management company of the FCP-SIF is not liable to corporate
income tax, municipal business tax, net wealth tax and contribution
to employment fund if it manages only the FCP-SIF.
- The FCP-SIF is liable to subscription tax of 1 basis point on
the net asset value.
- The holding company is typically in the form of a
public/private limited liability company.
- The holding company is liable to corporate income tax,
municipal business tax, net wealth tax and contribution to
employment fund.
- The property company is typically in the form of the equivalent
of a public/private limited liability company.
Luxembourg Special Investment Funds(SIF) FCP - SIF 32.
Incentives
-
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- Since Luxembourg wishes to attract companies developing
technologies, the Luxembourg government developed a few financial
aid processes for various type of scheme. The aim is to help
companies to develop their business in Luxembourg. Financial aid
can be granted according to certain conditions. In general,
Medium-sized Enterprises (SMEs) and Large-sized Enterprises
established in Luxembourg can benefit from these advantages.
-
- Equipment loan provided by SNCI (Socit Nationale de Crdit et
dInvestissement).
33. Contact