Innovation income: tax authorities publish FAQ

The law on the deduction for innovation income dates from February 9th, 2017. However it took until end July 2018 for the tax authorities to provide a supplementary explanation in a FAQ. A short overview of some remarkable elements.

Who and what?

The FAQ starts with reminding which tax payers, which intellectual property rights and what innovation income qualify:

WHO: these are all Belgian resident companies and Belgian establishments of foreign companies;

WHAT - intellectual property rights: these are patents, additional protection certificates, orphan medicinal products, data and market exclusivity and copyright protected software;

WHAT - innovation income: these are (i) fixed or variable licence payments, (ii) payments which would be due to the company in case the goods which the company produces, would be produced by a third company based on a license, (iii) damages, (iv) payments for transfer of the property rights.

Accounting treatment

The intellectual property rights for which the deduction can be applied, should be posted as assets in the balance sheet under 'II. Intangible assets'.

Improving intellectual property rights

The innovation income deduction applies both to all intellectual property rights developed by the company itself and to rights the company acquires from whether or not independent third parties. Notwithstanding it is not clearly mentioned in the law, the acquiring company should further improve the acquired intellectual property rights. This implies that the company shows that the further development of the protected products, processes, ... has generated additional value.

What is copyright protected software?

Software is copyright protected when it is an original work, when it is an intellectual creation of the author. Contrary to other intellectual property rights, copyrights are automatically protected without having to be applied for.

Naturally every software is developed by individuals, linked (as an employee) to a company. It is the employer-company which is deemed to have developed the software itself.

Expenses related to application intellectual property rights are no expenses for research and development

How about the (administrative) costs linked to the request for applying intellectual property rights? Such expenditure is according to the tax authorities no cost for research and development. Consequently they do not qualify for innovation income deduction. The same goes for expenses made by a company in order to protect its patents.

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