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Inbound investment: Belgian patent company
Upon acquisition of a portfolio of patents that have not yet been commercially exploited in Belgium, transferring them to a Belgian company may be the way to go. Depending on the value and the return the portfolio generates, an effective tax rate as low as 0% may be attained.
Main features
- Patent income deduction (PID)
- No capital duties upon contribution
- Patents may be tax-depreciated over their useful economic life
- Application of increased (spread) investment deduction (currently 14.50% / 21.50%)
- Notional interest deduction of (currently) 3.781% on “fiscal net equity”
- Application of EU Interest & Royalties Directive and extensive treaty network
- Renewed Belgian ruling practice (pre-filing meeting possible on no-name basis)
- No capital gains taxation at the end as the patents expire
- Application of “tax sparing” clauses contained in certain double taxation treaties (e.g. Greece, India, Brazil, China, etc.)
- Payroll incentives, e.g. expatriate tax regime and payroll withholding tax relief
Example
| year 1 | year 2 | year 3 | year 4 | year 5 | year 6 | year 7 | ||
|---|---|---|---|---|---|---|---|---|
| Patent income | 500 | 700 | 900 | 1.200 | 1.500 | 1.750 | 2.000 | (A) |
| Operating expenses | -200 | -210 | -220 | -230 | -240 | -250 | -260 | |
| Amortization (1) | -200 | -200 | -200 | -200 | -200 | 0 | 0 | |
| PROFIT BEFORE TAX | 100 | 290 | 480 | 770 | 1.060 | 1.500 | 1.740 | (B) |
| Patent Income Deduction (for Tax only) | -400 | -560 | -720 | -960 | -1.200 | -1.400 | -1.600 | (80% * A) |
| Corporate Tax Basis (2) | 0 | 0 | 0 | 0 | 0 | 100 | 140 | |
| Corporate Tax Rate | 33,99% | 33,99% | 33,99% | 33,99% | 33,99% | 33,99% | 33,99% | |
| BELGIAN CORPORATE TAX | 0 | 0 | 0 | 0 | 0 | 34 | 48 | (C) |
| EFFECTIVE TAX RATE | 0,00% | 0,00% | 0,00% | 0,00% | 0,00% | 2,27% | 2,73% | (C/B) |
| Assumption: (1) Total capitalised internally developed = 1,000 (2) Excluding any benefits of Notional Interest Deduction or Investment Deduction (which can further decrease the Effective Tax Rate) |
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