Belgium: Patent box regime revised; new deduction for innovation income

Belgium: Patent box regime revised; innovation income

The Parliament has approved a law modifying the Belgian regime of patent income deduction. The legislation provides for the repeal of the current patent box regime, effective 30 June 2016. However, a “grandfather period” is allowed until 30 June 2021 if certain conditions are satisfied.

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The Belgian patent income deduction is being amended because the current regime is not in line with the “modified nexus approach” as introduced by the OECD.  Under the “modified nexus approach,” there must be sufficient substance and an essential link between the expenses, the patents, and the related patent income in order to benefit from a patent box regime. This implies that Belgium, like other jurisdictions, must adapt the current patent box regime, to introduce a system of tracking for taxpayers to apply and closely monitor their expenses, patents, and income. A new formula also establishes how to determine the income that can benefit from the preferential regime: 

Grandfather rules

The grandfather rules apply as follows:

  • Patent income that has been received until 30 June 2021 and for which the patent application has been submitted before 1 July 2016. 
  • In instances of acquired patents, the patents must be acquired before 1 July 2016.

The transitional regime may not be granted for patents acquired directly or indirectly as from 1 January 2016 from an affiliated company that is not eligible for the patent income deduction or for a similar foreign regime. A taxpayer’s application to apply the rules under grandfather regime is made on the tax return. The grandfather period will also apply to the specific regime of foreign tax credit. 

Plans for new “deduction for innovation income”

The Belgian government currently is working on a new regime—the “deduction for innovation income.” While final text is not yet available, it is expected that the new regime would broaden the scope of the regime to include not only patents but software and utility models. Also, it is expected under this plan, that only the net amount would qualify (whereas under the current regime for the patent income deduction, the gross amount is the basis for calculation). While the draft law has not been finalized, it is anticipated that the new regime is scheduled to be applicable as from 1 July 2016.

 

Read a July 2016 report prepared by the KPMG member firm in Belgium: Changes to Belgian patent box regime

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