Belgium offers a full range of tax incentives enabling companies to structure their R&D activities, as well as the valorization of the intellectual property (IP) resulting from R&D activities. This comprehensive R&D regime consists of tax deductions on qualifying IP income, deductions on R&D investments and (refundable) tax credits, cash savings from partial exemption from withholding tax for qualified researchers and full tax exemption of R&D subsidies.
The multidisciplinary team of T/A economics and Tiberghien take a tailor-made and pragmatic approach to assist small, medium-sized and large companies with the application of these innovation related tax incentives. Hereto, we can bring all the required expertise to the table to maximize your benefits in a sustainable manner, in sync with your business model and growth aspirations, globally.
Hereafter, focus has been put on the application of the Belgian Innovation Income Deduction (“IID”) regime.
Innovation Income Deduction
What do we do?
T/A economics and Tiberghien are specialized in providing advise with respect to the IID regime. In line with the OECD’s recommendations of the BEPS action plan, Belgium created this regime to stimulate innovative R&D activities. Enterprises involved in R&D activities may benefit from a tax deduction of up to 85% of the net income generated by IP rights.
We seek to provide high value added services to optimize your position, as well as to assist you in drafting supporting documentation and seeking tax certainty through an advance decision.
When can the IID be applied?
The relevant law (art 205/1 and further BITC) was published in February 2017. Here below we have summarized, in a practical manner, in which cases the IID can be applicable for most companies:
- Your company has applied for or obtained a patent
- Your company has developed (or improved) something that can be patented
- Your company has developed (or outsourced development of) innovative software (computer programs protected by copyright, including upgraded software (if certain conditions are fulfilled))
The list of qualifying IP rights for the application of the IID also includes:
- Plant Breeders' Rights (filed as from July 1, 2016, or acquired after June 30, 2016);
- Orphan Drugs (filed as from July 1, 2016, or acquired after June 30, 2016, but limited to the first 10 years of registration in the European Register of Orphan Drugs)
- Data or market exclusivity granted by a public body (granted after June 30, 2016)
The right to use the IP is sufficient. The contribution made to the joint development of an IP provides the right to the company in question to apply the IID.
All marketing related IP is excluded from the scope of the IID. The income for names, logos, shapes, ... to distinguish a product of a service, do not qualify. Also, utility models are not eligible for the IID.
Frequently observed misconceptions:
In practice, we notice that companies qualify more often for the IID than they would initially believe. Hereafter, we have listed some frequently observed misconceptions regarding the application of the IID.
- Too modest: We notice that companies are often too modest about their innovative accomplishments, be it due to their deep specialization or modest (company) character. We therefore encourage companies to have a critical look at any technology that has been realized by/ is within the pipeline of the company and contemplate whether such technology is patentable. Protection of IP has been proven to be valuable for many companies. With respect to innovative software, in case internally developed software results in a high value add for the company and/or is licensed to clients, the IID may also be applied. Do not underestimate developments within your company. Brainstorming with external experts/patent lawyers might help in this process.
- Too small: Companies often believe they are not large enough to apply for this IID regime or to apply for patents. Size does not matter in terms of innovative ideas. Also consider that recurring tax benefits may outweigh initial costs that may be incurred for e.g. requesting a patent, set-up costs.
- Loss-making companies: Loss making companies often do not consider the IID to be a priority on their agenda. Even though a company is loss-making, it could still be relevant to apply already for the IID regime. For start-up companies, this might be especially relevant. In case owners or private equity partners seek to sell their stake in the future, having a sizeable deferred tax asset might of interest in M&A discussions.
- Long and costly process: Companies often think that the process of applying the IID regime is long and costly. Depending on the situation (e.g. should patents be requested or not), the length of the process is often very reasonable. In terms of costs, making a cost/benefit analysis is of course a good idea, however considering the sizeable benefit in terms of tax saving often outweighs set-up costs – which can generally be fixed at prior to starting the process.
Tips & tricks
- Assess products, processes, developed software that is present within your company. Gather the appropriate people in your company to have a brainstorm session to think about possibilities.
- Consider tax impact on the company in view of new/ongoing innovation projects. Onboarding key R&D people early could facilitate the process, as they would see the impact and (cash/tax) benefit to the company (e.g. impact on R&D budgeting, R&D expenses tracing etc.)
- Confidentiality should of course never be forgotten. There are solutions to apply for patents without sacrificing the crown jewels (e.g. patent only part of a process or product, etc.)
- Don’t be too modest in assessing innovative nature of technology
- Start early in identifying R&D expenses per type of technology/patent/software. Making such an ex-post assessment may be burdensome or less accurate (e.g. less beneficial due to inaccurate allocations)
- Make a cost/benefit analysis
For any questions, please reach out to our specialists:
Tine Slaedts - Partner (firstname.lastname@example.org)
Ben Plessers - Senior Manager (email@example.com)
Heleen Van Baelen - Senior Manager (firstname.lastname@example.org)