Developing “innovative” software? Have you considered the new tax deduction?

Not yet? Well, it is worth your while since you could deduct 85 % of your net income derived therefrom. Not only royalties but also indemnity payments and even the sale price.

Of course, there are certain conditions to be fulfilled, as set out in the Law of 9 February 2017 introducing a tax deduction for innovation income (the “Law”).

Here are the main ones:

First, this tax incentive only applies to Belgian companies or permanent Belgian establishments of foreign companies that are the (co-)owners or licensees of the software concerned. So, not to natural persons.

Second, the software, or the derivative work of an existing software, must result from a “research or development project or program” as set out in Article 275/3, § 3 of the Belgian Income Tax Code 1992 (the “Code”). According to the Public Service for Science Policy (BELSPO), there is no obligation to report such a project or program to them in order to claim the benefit of this tax deduction, but a company can request a binding opinion as to whether its activity actually qualifies as R&D, which then gives legal certainty.

According to BELSPO,  5 core criteria need to be taken into account when describing the R&D activity :

  1. The R&D activities needs to be innovative with respect to current knowledge and competencies in the company’s sector
  2. The R&D should be based on new concepts and ideas (routine modifications to products and processes are excluded)
  3. R&D activities should be uncertain as to their outcome (both in terms of result, investments and time usage)
  4. R&D activities should be systematically planned, reported and budgeted 
  5. The results of R&D need to be replicable and transferable

Third, the work concerned has not generated income before July 1, 2016.

The other conditions, including the formula to determine the qualifying net income, are further set out in the Law, as well as the documentation requirements.

The Law, the Code and the explanatory note of BELSPO can be found at:

http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2017020906&table_name=loi

http://ccff02.minfin.fgov.be/KMWeb/document.do?method=view&id=112d14a4-998f-4c93-9c01-7e8031923abd#findHighlighted

https://www.belspo.be/belspo/organisation/fiscinnov_en.stm