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Changes to Belgian patent box regime

Changes to Belgian patent box regime

The Parliament has approved a law modifying the Belgian regime of patent income deduction. The law abolishes the current regime as from June 30, 2016 but provides for a grandfathering period until June 30, 2021.


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Grandfathering period

There will be a grandfathering period for patent income until June 30, 2021 (new article 543 BITC ’92). In order to benefit from the grandfathering period, the following conditions should be met:

  • Patent income that has been received until June 30, 2021 and for which the patent application has been submitted before July 1, 2016. In case of acquired patents, the patents should be acquired before July 1, 2016;
  • the transitional regime may not be granted for patents acquired directly or indirectly as from January 1, 2016 from an affiliated company, which is not eligible for the patent income deduction or for a similar foreign regime;
  • Application of the grandfathering regime should be asked via the tax return;

The grandfathering period will also apply to the specific regime of foreign tax credit.


Future changes

The Belgian regime of patent income deduction will be changed as the current regime is not in line with the ‘modified nexus approach’ as introduced by the OECD.

According to the ‘modified nexus approach’, there should 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, just like other jurisdictions, should adapt the current system and introduce a system of tracking where the tax payers closely monitor the expenses, patents and income.

The following formula has been introduced to determine the income that can benefit from the preferential regime:

[qualifying R&D costs/total R&D costs] x total income from intellectual property
= qualifying income from intellectual property

For the qualifying costs, the costs of outsourcing to related parties are excluded, contrary to the cost of outsourcing to unrelated parties who qualify as ‘qualified costs’. Since this change may have a major impact on multinationals with projects around the world, the OECD provides for a lift-up of 30% of the qualifying costs, whereby the multinationals can still outsource partly without losing the preferential regime.

Simultaneous with the restriction based on substance, the OECD provides for an extension from patents in the narrow sense to, inter alia, utility models, extensions of existing patents and software.


The new system ‘deduction for innovation income’

Currently the government is working on a new regime the ‘deduction for innovation income’. No final texts are available but it is expected that the new regime will apply as follows:

  • the scope will be broadened (now limited to patents in the narrow sense but also e.g. software and utility models will qualify);
  • only the net amount will qualify. Currently, the Belgian regime for patent income deduction is calculated on the gross amount. Only in case of acquired patents should the depreciation be deducted;
  • introduction of a ‘tracking system’;
  • lift-up of 30% of the qualifying expenses;
  • In case the new deduction for innovation income applies, one cannot benefit from the grandfathering period for the income of that particular patent.

The draft law has not been finalized yet. However, the new regime is scheduled to be applicable as from 1 July 2016.

© 2020 KPMG Tax and Legal Advisers, a Belgian Civil Cooperative Company with Limited Liability (burg. CVBA/SCRL civile) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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