Patents as
tickets 
to tax benefits

The Innovation Box is a scheme within the corporate income tax that taxes profits from self-developed intangible assets, such as new products, production processes or software, at a reduced rate. Profits falling within this scheme are effectively taxed at around 9%, instead of the regular rate of up to 25.8%.

The scheme applies only to assets developed by the enterprise itself. A distinction is made between small-scale and large-scale companies. Small companies can participate based on a WBSO (‘Research and Development Promotion Act’) decision, while larger companies must provide additional rights (such as a patent) for the developed asset. An enterprise is “small-scale” if the total gross profit from the asset over the past five years is no more than €37.5 million and the total turnover over the same period is no more than €250 million.

It is a common misconception that 100% of corporate profit can fall under the Innovation Box. Even at high-tech companies, where R&D is fully intertwined with business operations, part of the profit is allocated to the “entrepreneurial function” of the company. Thus, the tax authorities will always allow only a portion of the profit to fall within the Innovation Box.

Which part falls within the Innovation Box depends on the role of R&D in the business model. To determine the portion of profit that qualifies for the Innovation Box, one of the following methods is generally used: the peel-off method, the cost-plus method, the per-asset method or the lump-sum method. The most appropriate method is determined through a functional analysis. V.O. cooperates with specialized tax advisors who can provide support in this regard.
   

The Belgian innovation deduction is aimed at companies that derive income from intellectual property, such as patents or copyrighted software. This scheme replaced the old patent deduction in 2016 and now better reflects the actual R&D efforts of companies.

Although the administrative requirements are quite strict, it remains a powerful tax lever for companies investing in technological innovation. The goal is to stimulate innovation and the valorization of technology in Belgium. By investing in R&D in Belgium, companies can significantly reduce their tax burden as well as strengthen their competitive position - a real win-win for innovative SMEs.

Companies can deduct up to 85% of their net innovation income from taxable profits. This can reduce the effective tax burden to 3.75% instead of the regular rate of 25%, depending on the so-called “nexus break.” This is a correction factor that determines the extent to which the innovation stems from R&D carried out by the company itself or through independent third parties. In practice, SMEs with a consolidated turnover below €750 million mainly benefit from this, as they are not affected by the OECD minimum tax (Pillar 2) of 15%, which can partially neutralize the benefit for large multinationals.

It applies to patents; copyrighted software (if R&D related), plant breeders' rights and orphan drugs. Trademarks, trade names and domain names are excluded. In addition, the company must be the legal or economic owner of the rights, for example as (co-)owner, licensee or usufructuary, and be subject to Belgian corporate income tax.

Would you like to know whether your company is eligible for tax benefits or do you have other questions on this topic? If so, please contact your patent attorney. We will be happy to assist you further or refer you to an appropriate tax advisor.