On 2 December 2016, the Belgian Government approved the innovation deduction (ID) draft bill. The draft bill was submitted to the Chamber of Representatives on 21 December 2016 and it was approved on 2 February 2017. Taxand Belgium looks at the new innovation deduction.
The new ID is to replace the former patent income deduction or PID. The PID was intended to encourage Belgian companies and Belgian permanent establishments from foreign companies to invest in technological innovation. In this respect, Belgian tax law provided, as of tax year 2008, the possibility to deduct 80% of the gross patent income from the taxable corporate income tax base. As a result, the effective corporate income tax rate on the concerned patent income was reduced to 6.8%.
The PID regime has come under increased pressure from the BEPS action plan which was launched in 2013 by the OECD. In order to comply with the principles included in the BEPS action plan, the Belgian Government decided to abolish the PID regime as of 1 July 2016. A transitional period for the current PID schemes until 30 June 2021 was also approved in order to allow a smooth transition to a new tax regime to be developed.
Discover more: Draft bill on innovation deduction
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In order to apply the ID regime, specific documentation is required. In this respect, a special form needs to be included with the corporate income tax return, and the taxpayer needs to establish and keep a detailed documentation file including all documents and information on specific data, such as the actual value on acquired intellectual property rights, the calculation of the gross and net income, and the data used to calculate the Nexus fraction.
