Luxembourg's IP box, article 50ter L.I.R., exempts 80% of the net eligible income a company earns from qualifying intellectual property: patents, utility models, and software protected by copyright that the company developed itself. The exemption is not applied to your software revenue.
It is applied per asset, to net income after that asset's own costs, and then filtered once more: the 80% exemption applies only to the share of net eligible income produced by the modified nexus ratio in article 50ter, alinéa 6 L.I.R. Whatever the ratio leaves behind is taxed normally.
Corporate income tax runs at 14% on taxable income up to €175,000 and 16% from €200,000, and the employment-fund surcharge and municipal business tax sit on top of that. For a company seated in Luxembourg City the combined figure is 23.87% at the standard rate.
The rules below were checked in August 2026 against the circular of the director of the Administration des contributions directes on article 50ter L.I.R., dated 28 June 2019, and the coordinated text of the income tax law. This regime replaced an older one since abolished, so any page telling you that trademarks or domain names qualify is describing a version that no longer exists.
What actually qualifies
Two filters run in sequence: the asset has to be an eligible one, and the income has to come from that asset. Marketing intangibles fail the first filter outright. Trademarks and similar commercial-character assets sit outside article 50ter L.I.R. entirely, and reading them in is the single most common misreading of the regime. Software qualifies through copyright protection, not registration, and only where it came out of research and development the company itself carried out.
| Asset or income stream | In scope | The condition attached |
|---|---|---|
| Patents and utility models | Yes | must result from the company's own R&D |
| Software protected by copyright | Yes | self-developed; a licence you bought is not your asset |
| Trademarks, domain names, marketing IP | No | excluded from the regime |
| Licence fees and royalties | Yes | net of that asset's development and maintenance costs |
| IP income inside a product or service price | Yes | the IP share has to be identified, not assumed |
| Gain on selling the qualifying asset | Yes | same per-asset tracking applies |
The embedded-IP line is where most SaaS companies actually live: you are not licensing a patent, you are selling a subscription whose price embeds code you wrote. The regime accommodates that, but the IP share has to come from a defensible method, not from a round percentage asserted against the invoice.
One more subtraction happens before the exemption bites. The figure it applies to is net eligible income adjusted and compensated, meaning losses the asset generated in earlier years are recovered first. A product that burned cash through development starts delivering exempt income once its own history has been worked through, not the moment it turns profitable.
The nexus ratio, in plain English
For each eligible asset you keep two running totals since R&D on it began.
Qualifying expenditure is R&D your own people did on the asset, plus R&D you paid an unrelated third party to do. A payment to a related company counts only where that company passes it straight through to an unrelated party without a margin.
Total expenditure is everything spent on the asset, including what qualifying expenditure excludes: R&D bought from a related company, and the cost of acquiring the asset if you bought it instead of building it.
The ratio between the two is the share of that asset's net eligible income that gets the exemption. Both totals run from the start of R&D on the asset and count spend whether it was capitalised or expensed, so your bookkeeper's capitalisation policy does not move the ratio.
| Spend on the asset | Counts as qualifying | Counts as total |
|---|---|---|
| Your own developers working on the asset | Yes | Yes |
| R&D contracted to an unrelated third party | Yes | Yes |
| R&D contracted to a related group company | No | Yes |
| Buying the IP asset from someone else | No | Yes |
That table is a warning, not a menu. A company whose own engineers wrote the product sits at or near the top of the ratio and takes close to the full 80%. A company that had its founders' offshore development entity build the same product applies 80% to a much smaller base — same headline exemption, a fraction of the benefit.
This is why any single "effective rate" quoted for the Luxembourg IP Box is misleading. Two companies with identical revenue and identical costs pay materially different tax depending on who wrote the code.
The law behind it, article 50ter L.I.R., defines each term precisely and allows a limited adjustment in the taxpayer's favour. Treat the raw quotient as the conservative version of your position, not the final one.
The tracking requirement is the real work
This is where companies get it wrong. Tracking is not a paperwork detail; it is the condition the whole claim rests on. The law requires eligible expenditure, total expenditure and eligible income to be followed per eligible asset, and the claim is filed the same way: one set of figures per asset, attached to the annual return. Three products means three parallel sets of records inside one set of books.
Three failures account for most lost claims, and all three are bookkeeping decisions rather than tax ones: development time booked to one undifferentiated payroll line, so no asset can be costed; contractor invoices reading "development services" with no product named, so nothing can be allocated; and the expensive one, a company that decides in its third year to start claiming and finds total expenditure reaches back to the first line of code.
You cannot start the clock late. You can only reconstruct, and reconstruction is what triggers a qualification review.
Set up a cost centre per product before the first commit and tag contractor invoices to it, and the annual claim becomes a report you run. Assemble it in December out of a general ledger and you are building an argument instead of filing a return.
Net wealth tax: the quieter half of the benefit
Eligible assets under article 50ter L.I.R. do not form part of operating wealth for net wealth tax, so a qualifying patent or codebase drops out of the base that tax is computed on. For an IP-heavy balance sheet this matters more than founders expect: net wealth tax is charged on assets, not profits, and it lands in loss-making years too.
It does not remove the tax. The minimum charge applies whatever the balance sheet contains: €535 a year up to a total balance sheet of €350,000. The exemption works on the variable part of the charge, and the floor stays where it is.
How and when you claim it
This is not a ruling you obtain once and rely on afterwards. You claim it with the annual corporate income tax return, which is due 31 December of the year following the tax year.
It goes on the dedicated annex the ACD publishes for article 50ter L.I.R., completed per eligible asset and supported by the documentation the article itself requires. The claim is recomputed every year, and the ratio moves with it: start routing development through a group entity and the exempt share falls without anything about the product changing.
Does this stack with R&D aid?
Yes, and the sequencing is worth planning. Co-funding under R&D and innovation aid supports the development phase; the IP Box works on the commercial phase once the asset earns. Both rest on the same evidence: documented R&D, attributable to a named project, carried out by the company.
Companies that build the aid file properly have usually built most of the nexus documentation without meaning to, and a thin aid file is a warning sign about the IP Box claim that follows it.
Common questions
The questions below are the ones that decide whether a claim is worth building, and they come up in roughly this order once a company starts tracking.
Does software we bought or licensed qualify?
Acquired IP is not excluded, but its purchase price sits in total expenditure and never in qualifying expenditure, so the nexus ratio falls and the exemption reaches a smaller share of the asset's income.
Do trademarks qualify?
No. Trademarks and other marketing-related intangibles fall outside article 50ter L.I.R. altogether. Only the older, abolished regime covered them, which is why secondary sources still list them.
What if a related company did the development?
R&D contracted to a related company counts in total expenditure but not in qualifying expenditure, unless that company passes the payment through to an unrelated provider without a margin. Group development structures are the most common reason a claim delivers far less than the 80% headline suggests.
What effective tax rate do you end up paying?
It depends on your own expenditure history, so treat any page quoting one number as having skipped the nexus ratio. The best case is a nexus ratio of 1, where the whole asset was developed in-house or by unrelated contractors: 80% of the net eligible income is exempt, leaving a fifth of it taxable.
That fifth is taxed like any other profit: 14% corporate income tax up to €175,000 of taxable income, €24,500 + 30% of the income above €175,000 between €175,000 and €200,000, and 16% from €200,000.
On top of that sit the 7% employment-fund surcharge and your commune's municipal business tax, which is the 3% base rate times a coefficient generally between 200% and 400%. Every euro of related-party or acquisition cost pushes the ratio below 1 and the exempt share down with it.
When do we need to start tracking?
From the first R&D spend on the asset. Total expenditure is measured from the start of research and development, so records that begin later leave a gap you will have to reconstruct.
The year-one checklist
- Decide what the asset is. Name each product or module that could stand alone as an eligible asset, and write the definition down before the accounting is built around it.
- Open a cost centre per asset. Payroll, contractor invoices and directly attributable costs get tagged at entry, not at year end.
- Record who did the work. In-house, unrelated contractor, or related company — that one field per invoice is what the nexus ratio is later built from.
- Keep the copyright story clean. Employment and contractor agreements should place authorship of the code in the company, since self-development is the entry condition for software.
- Fix the embedded-IP method early. If income arrives inside a subscription price, document how you identify the IP share the first year you claim, and apply it consistently after that.
- Run the claim with the return. Prepare the per-asset annex alongside the annual corporate tax return, and keep the underlying figures where an auditor can follow them.