The Government of Belgium formally pronounced the innovation deduction as the successor of the Belgian patent income deduction on 2 December 2016. The new regime is intended to increase the competitiveness of the Belgian economy while complying with the requirements of Base Erosion and Profit Shifting (BEPS) Action Plan 5 of the Organisation for Economic Co-operation and Development’s (OECD’s).
The scope of the new innovation deduction is not limited to patents, but will be extended to other IP rights, including copyright protected software. In accordance with the proposal, the income qualifying for the incentive will also contain capital gains. The incentive can be applied as of the year in which the IP right is requested. The deduction rate is increased to 85% of the net qualifying IP income. This results in an effective tax rate of 5.10%. The innovation deduction will retroactively apply as of 1 July 2016. It replaces the patent income deduction which was previously abolished as of 1 July 2016 with a 5-year grandfathering period until 2021.
