Luxembourg's standard corporate income tax rate is roughly 24% (23.87% aggregate rate in Luxembourg City). But if your income comes from qualifying intellectual property — patents, copyrighted software, or similar rights that you developed yourself — the IP Box regime exempts 80% of that net income from tax.

The result: your effective rate on that income drops to roughly 5%.

How it works

The IP Box applies to net income from qualifying IP. That means you subtract the costs associated with developing and maintaining the IP, and the remaining profit gets the exemption.

The key categories: - Patents — granted by a national or international patent office - Copyrighted software — provided you developed it through your own R&D work - Utility models and similar rights — with the same ownership requirement

The development must have been done by your company. Acquired IP — buying a patent from someone else — doesn't qualify for the full benefit.

The tracking requirement

This is where companies get it wrong. The IP Box requires income and expenses to be tracked per qualifying asset. You can't just apply an 80% haircut to your total income line. The tax authorities expect:

  • A clear mapping of which revenue streams come from which IP asset
  • Documented costs associated with each asset's development and maintenance
  • The tracking in place from day one, not retroactively attached

Set this up correctly from the start and it's a clean annual filing. Try to reconstruct it at year-end from general accounts and you'll face rejection — or worse, a qualification audit.

What 5% means in practice

If your SaaS company does €500,000 in revenue and €150,000 in costs attributed to software development, your net IP income is €350,000. Without the IP Box, you'd pay roughly €84,000 in CIT. With the IP Box, you pay around €17,500 — a difference of roughly €67,000 on a single year's income.

For companies with higher software margins, the impact is proportionally larger. This is not a small deduction — it's the difference between being tax-competitive as a Luxembourg tech company and paying the full headline rate.

Does this interact with R&D aid?

Yes. If you receive R&D & Innovation Aid for the same development work, the co-funding is separate from the IP Box, but both programs use your documented R&D activity as the basis. Structuring them together — the aid covering the development phase, the IP Box covering the commercial phase — is the most efficient approach.

Read Luxembourg startup funding in 2026: the complete map for the full funding picture across all categories.