Seize the opportunity: deadline for innovation tax deduction on patents and software is approaching!

Belgium offers several interesting tax incentives for companies holding patents or self-developed software. One of the measures to reduce your taxable income is the innovation deduction.   

What is it?

Thanks to the innovation deduction, your company can deduct 85% of its net innovation profit from its taxable income in corporate income tax. This innovation income should relate to i.a. patents or copyrighted software resulting from R&D activities. But rights from data or market exclusivity and breeders’ rights may also qualify. This in fact means that the profit from your innovative activities will only be taxed at a 3.75% rate (instead of 25%).

Ruling?

The application of the innovation deduction is often pre-assessed with the Ruling Commission. A ruling provides legal certainty on the application and the extent of the deduction. This way, you avoid disputes with the tax authorities.

The ultimate deadline for submitting a ruling for application of the innovation deduction for the current financial year 2024 was recently set at 30 November 2024. This 30 November deadline applies to companies that close their financial year on 31 December 2024. For ‘broken’ financial years, the deadline will move along accordingly.

This deadline seems short notice, but in the first stage it is sufficient to submit a so-called ‘prefiling’ ruling note. This is a brief request stating the intellectual property rights involved. The purpose of this deadline is mainly so that the Ruling Commission can map out how many rulings need to be dealt with.

Thus, a request for this should be made no later than 30 November 2024. In a second step, the Ruling Commission will schedule an appointment circa March 2025 to discuss the file. A more comprehensive application will therefore only need to be submitted in March.

Time for action!

We therefore advise companies that hold patents or develop their own software to take a closer look at this tax concession and possibly already file a notification before 30 November, in order to benefit from the innovation deduction as early as financial year 2024.

If desired, the innovation deduction can also be considered from next financial year 2025, giving more time for a tax ruling until the end of next year (deadline to be determined).

Focal points

In order to apply the innovation deduction, the tax authorities (and the ruling office) are taking an increasingly critical look at the novelty search of Belgian patents. In this context, it may be highly desirable to have the patents properly (re)screened and/or to consider a European patent if the procedural timeframe allows.

If the innovation deduction is applied in the context of copyrighted software resulting from an R&D programme, it is important that the legal ownership and/or licensing rights of the software are contractually sufficiently clear (and preferably optimal from a tax perspective).

At Van Havermaet, we are happy to assist you in the critical screening of intellectual property rights that may be eligible for innovation deduction and provide optimal tax guidance in this regard. Together, we can take care of drawing up the required documentation and any tax ruling for the innovation deduction. Be sure to contact us if you wish to submit an application before 30 November.