1. Tax rate on IP ownership
Royalty income and capital gains are generally subject to corporate income tax at 33.99%. However, a tax deferral can be obtained by rolling over gains into other assets.
As from the 2007 income year, companies have a tax deduction for patent income equal to 80% of the gross arm's length income received, giving rise to a corporate tax rate on royalty-based revenue from patents of 6.8%. This rate can be further reduced or even eliminated altogether, when taken in combination with the deduction or amortisation of research and development expenses and the notional interest deduction which allows for the deduction of a fictitious interest component computed on the basis of a company's net equity.
The 80% patent deduction is applicable not only to income from licences but also to income from the sale of goods produced or services provided by the Belgian company or branch that directly holds the patent in question. In the latter case, the 80% deduction is calculated by reference to a deemed arm’s-length remuneration that the company would have received had the goods or services been produced or provided by an unrelated third party under a licence.
To qualify, the Belgian company (or branch) cannot operate as a mere pass-through entity simply to qualify for the deduction; it must add value to the patent or licence rights.
If the payments do not correspond exclusively to remuneration for use of the patent and also cover other types of intellectual property rights or research and development participation costs, the deduction will be computed solely on the basis of that portion which represents compensation for use of the patent.
To the extent insufficient taxable profit is available to use all or part of the royalty deduction, any unused portion may not be carried forward.
2. Withholding taxes
Belgium levies 15% withholding tax on Belgian source royalties, except if paid to Belgian companies, EU resident affiliated entities (the EU Interest & Royalty Directive exemption) or recipients benefitting from a tax treaty exemption.
Belgium has a wide range of tax treaties providing for a zero rate withholding tax. However, structuring involving Belgian vehicles requires careful planning as to substance in order to avoid application of anti-avoidance rules.
3. CFC rules
Belgium does not have CFC rules.
4. Preferred ownership structures
Where it is advisable to have a Belgian company to license out IP rights (e.g., because of relevant tax treaties), and access the new patent income tax deduction, it is possible to implement a structure similar to The Netherlands/Cyprus structure (see "The Netherlands - overview"). Depending on the location of the foreign entity (which can be chosen in function of the shareholders), the effective tax rate may still be reduced to 5% or lower even though the new patent income deduction is not applicable.