Belgian Innovation Income Deduction

The question

You have developed a patented invention or software in Belgium and it now earns money, through product sales or licensing. Does the income qualify for the innovation income deduction, how much of it, and what must be in place before the tax return is filed?

The deduction is set out in article 205/1 and following of the Income Tax Code 1992 (WIB 92). It allows a Belgian company, or a foreign company with a Belgian permanent establishment, to deduct 85% of its net qualifying innovation income from the tax base. At the standard corporate rate of 25%, the effective rate on that income is about 3.75%.

Three things usually decide whether the benefit is real: whether the IP is of a qualifying type, whether the company did the underlying R&D itself, and whether it can prove both.

Clients usually come to us in one of four situations: a company has licensed a patent for the first time, a software business notices that part of its revenue comes from code written in-house, an investor or buyer asks about the tax position of the IP, or a new accountant questions a deduction claimed in earlier years. In each case the starting point is the same set of facts: which rights, which income and which R&D.

Our approach

We start with the IP. Qualifying rights include patents and supplementary protection certificates, copyright-protected software resulting from an R&D programme, plant breeders' rights, and orphan drug designations and certain data or market exclusivities. Many technology companies hold qualifying software without having looked at it from this angle, which is why we often begin with an audit of the IP you already have.

Next we check the nexus. The regime follows the OECD approach: the benefit is tied to the R&D the company carried out itself, so costs that were outsourced to related parties or acquired weigh against it. We reconstruct the R&D expenditure per asset and the income per asset, because the calculation is made on net income after the R&D costs attributable to it.

Then we look at ownership. The company must hold the IP, or the right to exploit it, and that depends on assignment clauses in employment, freelance and collaboration agreements. Where those are missing, we draft them with our Document Studio. Our portfolio and renewals platform gives a current list of what the company holds, in which jurisdictions and with what status, so the claim matches the register.

Finally we place the deduction in the wider picture. It can be combined with grants and with the withholding tax exemption for researchers, provided the same costs are not counted twice. The overview of Belgian grants and tax incentives explains how the instruments fit together. Where certainty matters, an advance ruling is an option.

Rules in this area are being looked at by the current federal government, which has said it wants to keep and strengthen the regimes that support R&D. Recent legislation also allows a company to convert all or part of the deduction into a non-refundable tax credit, which can matter for groups subject to the global minimum tax. We check the current position at the time of each engagement.

What you get

• An assessment of which assets and income streams qualify, with reasons.
• A nexus and net income calculation, with the supporting R&D cost allocation.
• A list of ownership gaps and the assignment or licence documents needed to close them.
• A file ready to support the tax return, or an advance ruling request if you want certainty first.
• A plan showing how the deduction sits alongside your grants and other incentives.

The tax computation is reviewed by a lawyer at Pitch and, where you have one, by your accountant, before anything is filed.

Consider a Flemish software company that licenses a data-analysis platform to customers in several countries. Its developers wrote the code in-house under a funded R&D programme, but two early modules came from a freelancer without a written assignment. We map the modules to the income they generate, separate the part with a clean chain of title, and prepare the nexus calculation for that part. For the freelancer's modules we draft an assignment for signature and note the effect on the claim in the file. The result is a claim that the company can explain line by line, and a short list of documents to put right before the next filing.

Next step

Send us a short description of your IP and the income it generates. We will tell you whether the deduction is worth pursuing and what would be needed.

Schedule a meeting or contact us.