Luxembourg has created a global services package for Israeli companies that want to launch their business in Europe. This presentation outlines the tax opportunities offered within this Luxembourg/Israel European Business Initiative. This initiative is led by P&TLuxembourg's TERALINK unit, with collaboration on this presentation by KPMG.

1. Luxembourg tax opportunities for ICT

2. KPMG in Luxembourg
Organization of KPMG Luxembourg
(Total staff: 900, Tax: 200)
KPMG Audit KPMG Advisory KPMG Tax
22 Partners & Directors 6 Partners & Directors 14 Partners & Directors
BANKING
FUNDS
INSURANCE
INDUSTRIAL & COMMERCIALS
CORPORATE HEADQUARTERS
PUBLIC SECTOR
REAL ESTATE

3. And the Winner is …
KPMG Luxembourg voted 2010 Leading 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 17 treaties signed/ in negotiation)
Tax agreement system – available to secure tax treatment (very prompt and flexible tax
authorities)
Luxembourg participation exemption
Easy partial / full exit or refinancing strategy - can be structured to be free of withholding
tax

6. Luxembourg: Not a “Tax Haven”
Effective corporate income tax rate (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)
VAT : 3% to 15% rate
No capital duty (abolished effective 1 January 2009).
Tax analysis letter system available to secure tax treatment
Withholding taxes
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.
IP Tax regime
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, Lebanon, Syria.
Bahrain, Kuwait, Qatar
Asia Azerbaijan, China, Hong Kong, Pakistan, Kyrgyzstan.
Georgia, South Korea, Indonesia,
India, Japan, Malaysia, Mongolia,
Uzbekistan, Singapore, Thailand,
Vietnam, Kazakhstan, Georgia
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, Cyprus
Denmark, Spain, France, Greece,
Hungary, Ireland, Italy, Netherlands,
Poland, Portugal, Czech Republic,
Slovak Republic, Romania, UK,
Sweden, Finland, Malta, Slovenia,
Estonia, Latvia, Lithuania
Latin America/caribbean Brazil, Trinidad and Tobago, Argentina,
Barbados
Africa South Africa, Mauritius
North America Canada, Mexico, USA

9. The Grand Duchy of Luxembourg
At the Heart of Europe
2/ Luxembourg VAT

10. 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.
10

11. 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%).
11

12. VAT on e-services
Conditions to benefit of 15% VAT rate:
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.
12

13. VAT on e-services
Examples:
Supply of digitized products generally,
Supply of music,
Supply of online or offline games,
Supply of games of chance and gambling games,
Supply of images, text and/or information,
Making available of databases,
On-line auction services,
Supply of distance teaching.
13

14. VAT on TV/Radio broadcasting
The broadcasting of television or radio programs,
Many potential viewers or listeners
VAT advantage for B2C: Super-reduced VAT rate (3%)
Adults content still to 15%.
14

15. 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 responsibility of the content or not,
Applicable to ancillarry operations ,
Applicable to all content except if exclusively aimed at adults.
15

16. VAT on Telecommunications services
Services relating to
Transmission, Emission, Reception
Of
Signals, Words, Images, Sounds, Information
By
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.
16

17. VAT on Distance sales
Goods ordered online
« 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 exceed EUR
100,000. Otherwise, it will be required to charge VAT rate, at the rate applicable in the
country where the goods are delivered.
E.g. Amazon
17

18. Condition to benefit from Luxembourg VAT rates
Substance condition: the entity to be given the possibility to carry out an
econimic activity in an autonomous and permanent way.
18

19. 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 l’usage d’un droit) any software copyright, patent, trademark or service
mark, domain names, design or model, is exempt up to 80 % of its net positive amount.
licence sale
Luxco Opco CustomerCo
royalty Sale
price
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.

20. 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 authorized the use of such right to a third-party.
sale
Luxco IP CustomerCo
Sale
price
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.

21. 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%.
But recapture rule:
The capital gain is taxable up to the algebraic sum of 80% of the net losses (revenus nets
négatifs) derived from the IP rights in both current and prior accounting periods to the
extent net losses have not been compensated by article 50bis 4§2 (i.e. capitalized on the
balance sheet, etc.)
No 80% exemption on assets acquired under articles 53 or 54 ITL.
Re investment
Sale in IP Sale of IP

22. 9. New Luxembourg IP Law: Principles
4§. Conditions of the law
4§1. the right must have been created or acquired after 31 December 2007 and,
4§2. the expenses, amortizations, and write-downs related to the right must be recorded on
the taxpayer’s 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.

23. 9. Luxembourg IP Law: Principles
5§. Abuse of law provision
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 common parent
company
Parent
Seller / Acquirer
NO
10% NO
10% 10%
Seller / Acquirer
Acquirer Seller

24. 9. Luxembourg IP Law: Which transfers are acceptable or not
under the new law?
Transferor
YES Contribution of
100% a branch of activity
Individual
InterCo
10%
100%
YES
Acquirer Acquirer
Seller / Acquirer Seller / Acquirer
YES? YES
100% 100%
InterCo
10% 10%
Seller / Acquirer Seller / Acquirer

25. 9. Luxembourg IP Law: Principles
6§. Valuation method in case of disposal of IP
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 of
16 March 2005.

26. 9. Luxembourg IP Law:
Example of an IP acquisition
Background
IsraelCo incorporates LuxCo 1
Israel Co
LuxCo 1 incorporates LuxCo 2
Dividends IsraelCo transfers IP to LuxCo 2
LuxCo 2 grants a license to EUCo
EUCo pays royalties to LuxCo 2
LuxCo 1
LuxCo 2 pays dividends to LuxCo 1
Dividends LuxCo 1 pays dividends to IsraelCo
LuxCo 2
License IP Royalties
EUCO

27. 9. Luxembourg IP Law:
Example of an IP acquisition
Luxembourg tax treatment
80% of Net IP income received by LuxCo 2 is
Israel Co exempt from corporate income tax and
municipal business tax
Dividends Qualifying IP exempt from net wealth tax
Only 20% of the Net IP income is subject to
corporate income tax at the rate of
LuxCo 1 28,80%, so 5,76% ETR
Dividends paid by LuxCo 2 to LuxCo 1
Dividends should not be subject to withholding tax
and said dividends should be tax exempt at
the level LuxCo 1
LuxCo 2 Dividends paid by LuxCo 1 to IsraelCo
should not be subject to withholding tax
(under certain conditions)
Royalties
License IP Foreign considerations
Applicable withholding tax on royalties
EUCO paid by EUCo to LuxCo2
Israeli taxation further to disposal of IP to a
Luxembourg entity
Israeli taxation of dividends by IsraelCo

28. 3/ Luxembourg Special Investment
Funds (SIF)

29. Luxembourg Special Investment Funds (SIF)
The investors are well informed investors, institutional
ISRAEL Investors 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; the
management company of the FCP-SIF is in the form of
FCP-SIF a public/private limited liability company.
Management
FCP - SIF 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
LUXEMBOURG
FCP-SIF is not liable to corporate income tax, municipal
Holding
business tax, net wealth tax and contribution to
Company 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
ABROAD
Property public/private limited liability company.
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.

30. Incentives
R&D incentives
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 (Société Nationale de Crédit et d’Investissement).

31. Contact
François Petit
Manager, Commerce & Industry
KPMG Tax Luxembourg
T: +352 22 5151 5585
francois.petit@kpmg.lu
www.kpmg.lu