Smart Taxation: The IP Box as an Incentive for Innovation

One of the key pillars of Luxembourg’s attractiveness is its tax system. In particular, the intellectual property regime known as the IP Box stands out, allowing for an 80% exemption on income attributable to certain intangible assets, such as:

• Internally developed software
• Patents
• Protected algorithms and technologies
• Digital business models with structured IP

This regime translates into an effective tax rate of just around 4.5% on those profits. In addition, the costs of developing, maintaining, and improving those assets can also be deducted, further strengthening the tax incentive.

This environment allows technology companies not only to set up in Luxembourg, but also to keep their development centre, asset protection, and value creation there.

Real Support for Technological Investment and Digitalisation

Through the Ministère de l’Économie, Luxembourg offers one of the most active innovation support policies on the continent. The main public aid schemes include:

1. Grants for Investment in Digitalisation

Support for companies that invest in their own technology or in solutions to digitalise their activity.

• Grant of up to 50% of eligible costs
• Can reach 60–70% if there is collaboration with technology partners or public bodies
• Applicable to software, platforms, apps, ERP systems, AI, process automation, among others

2. Support for Marketing and Internationalisation

Companies developing technological products can access grants to position themselves in new markets.

• Up to 50% of eligible expenditure, including digital campaigns, marketing materials, brand development, web design, etc.
• Also includes the costs of participating in international trade fairs or market studies.

3. Innovation Grants for SMEs

• Co-financing of experimental development projects or organisational innovation.
• In cases of collaboration with accredited research centres, support can exceed 60% of total project costs.

4. Support for Hiring Specialised Personnel

• Partial co-financing of the salary of qualified technical staff hired for technology projects.
• Incentive applicable during the first years of the company’s life.

Incentives for Business Creation and Entrepreneurship

Luxembourg has also created specific instruments to foster entrepreneurship, such as:

1. Start-up Aid Scheme

This programme provides aid to newly created startups with a technological focus.

• Co-financing of up to 70% of expenditure for activities such as development, marketing, product testing, recruitment, technical training, etc.
• Additional support for young founders or projects led by women.

2. Fit 4 Start (Luxinnovation)

A competitive acceleration programme financed by the State.

• Provides up to €150,000 in direct grants to selected startups
• Includes mentoring, access to investors, and free workspace

3. House of Entrepreneurship

A one-stop contact point for all company incorporation procedures.

• Free assistance with planning, financing, drafting business plans, and applying for public aid
• Direct channel with entities such as Luxinnovation or the Chambre de Commerce

In addition, entrepreneurs who establish themselves in Luxembourg can access complementary financing lines through the SNCI (Société Nationale de Crédit et d’Investissement), which offers low-interest loans for companies in the development phase.

Major Tech Companies That Already Trust Luxembourg

Numerous international groups have chosen Luxembourg as their European headquarters or strategic operations centre. Among them:

• Amazon: established its European headquarters in Luxembourg, from where it coordinates its operations across the continent.
• Skype / Microsoft: set up one of its main European offices in Luxembourg, with both tax and technical presence.
• PayPal: also holds its banking licence in Luxembourg to operate in the EU as an electronic money institution.
• SES: one of the world’s largest satellite operators, with its global headquarters in Betzdorf.
• Roku, Spotify, eBay and other digital companies have used Luxembourg as a gateway to the European market, taking advantage of the tax framework and the network of international treaties.

These companies did not choose Luxembourg solely for tax reasons, but also for its legal stability, ability to attract international talent, and high quality of life for their executive teams.

A Strategic Environment for Scaling in Europe

Beyond the tax framework and financial support, Luxembourg offers a legal, regulatory, and financial structure that is ideal for scaling technology projects:

• Easy access to vehicles such as SOPARFI, SCSp or RAIF to structure investments and raise capital
• A network of banks familiar with innovative and technology-driven projects
• Possibility to protect assets and income with solid, efficient structures
• Possibility to operate in English or French, with bilingual documentation and a regulated framework that offers European legal certainty

In addition, Luxembourg legislation is particularly open to asset tokenisation, blockchain, smart contracts and AI solutions, making the country an ideal laboratory for technological pilots.

Conclusion

Luxembourg has moved beyond being merely a financial centre to become a competitive, secure, and growth-oriented technology ecosystem. With a combination of smart taxation, tangible support, an international environment, and efficient corporate structures, it offers entrepreneurs and innovative companies a strategic opportunity to establish themselves in Europe and scale with confidence.

For those looking for an environment in which to develop digital products, protect their IP, access funding, and connect with international investors, Luxembourg represents much more than just a good option: it represents a sustainable competitive advantage.