Belgium: Parliament approves deduction for innovation income

Belgium: Parliament approves deduction for innovation

The Belgian Parliament has approved a draft law that introduces a deduction for innovation income. The legislation will be published in the Belgian official gazette shortly. The new regime will replace the patent income deduction (that was previously repealed but with a “grandfathering period” until 30 June 2021) because the patent income deduction was found not to be in line with the OECD “modified nexus approach.” The new deduction for innovation income will be effective retroactively as from 1 July 2016.

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Deduction for innovation income

The main features of the new regime are:

  • The deduction equals 85% of net income from qualifying intellectual property (IP).
  • The deduction applies to income from patents or supplementary protection certificates, breeders’ rights, orphan drugs, data and market exclusivity and copyrighted software. Capital gains on such IP also qualify if reinvested.
  • The net income is determined based on the “modified nexus approach.” According to the “modified nexus approach,” there needs to be sufficient substance and an essential link between the expenses, the IP and the related IP income. This is expressed in the following formula—[qualifying R&D costs x 1,3 / total R&D costs] x total IP income = qualifying IP income—The costs of outsourcing to related parties are not treated as “qualifying costs,” contrary to the cost of outsourcing to unrelated parties.
  • A “tracking system” is introduced whereby taxpayers must closely monitor the expenses, IP and income.
  • The unused deduction can be carried forward.
  • The taxpayer can already claim the deduction through an exempt reserve while the patent request is pending.

 

Read a February 2017 report [PDF 120 KB] prepared by the KPMG member firm in Belgium

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