Belgian favourable tax regime for copyrights
5 januari 2021
Professional activities of employees, freelancers and independent contractors contribute to the creation and expansion of the intellectual property within a company. In Belgium, a favourable tax regime can be applied when these persons transfer or license their copyrights to the company under the contract in exchange for a remuneration.
Among other advantages, this allows the company to gain a competitive advantage by paying out a higher net salary without a raise of the related costs for the company.
In this article we set out the general principles surrounding this favourable Belgian tax regime for copyright related income and explain how an advance tax ruling may be obtained in order to make sure that all requirements for the application of this regime are met.
Transfering or licensing copyright
The authors of literary and artistic works, software developers, marketeers, architects, designers, create copyrights and neighbouring rights over their creations, productions and performances. These are legal rights that allow these persons to determine how and by whom these creations, productions and performances may be exploited.
This is relevant in a lot of employment and cooperation relationships. Within an organisation, the output of for example writers, software developers, marketeers, architects, designers, teachers, and many others will often be copyright protected, as long as their job profile provides enough room for creativity.
Who has the copyright when there is an employment contract?
Copyrights belong to the natural persons who are responsible for the creation of the work, and neighbouring rights to the producers or performers of it. This also applies for such rights that are established in the context of the performance of an employment contract or cooperation agreement (except for software, for which a transfer in favour of the employer is legally presumed).
Renumeration for transfer of license
However, most of the time such contracts explicitly stipulate that the person concerned transfers or licenses to the company all copyrights (or any other IP rights) established in the performance of the contract. In this case, when these persons are actually involved in the establishment of original works, part of the remuneration under the contract can be paid out as a compensation for the transfer or licensing of these copyrights.
This remuneration is then subject to a favourable tax regime with advantages for both parties. The favourable regime can also be applied in relation between the company and its managers.
Favourable tax regime
In 2008 the Belgian legislator introduced a favourable tax regime for the remuneration that natural persons receive in exchange for the transfer or licensing of their copyrights.
This remuneration is regarded as “movable income” for a maximum amount of €62.090 for income year 2020. Above this amount the income will however be regarded as “professional income” and will be taxed as such under the usual progressive rates.
The copyright remuneration up to € 62.090 (for the whole income year) is however subject to only 15% witholding tax instead of the usual progressive rates of up to 50%.
The company will have to withhold this tax before paying out the remuneration. Moreover, before taxation an attractive amount of expenses can be ‘lump sum’ deducted resulting in an effective tax burden between 7,5% and 12%. The aforementioned amount is applicable for the income year 2020 and is indexed for each year.
Conditions & requesting an advance tax ruling
How can companies make use of this favourable regime?
Put it in writing
First of all the activities of the person under the contract with the company have to fall under the scope of copyright protection. The contracts have to provide in a written transfer of (or license on) copyrights to (for) the company in exchange for a remuneration (e.g. the journalist transfering his copyrights established in performance of the employment contract to the news company).
The contract has to provide for a clear distinction between the “normal” salary of the person concerned and the remuneration for this transfer or licensing.
Check with tax authorities
In principle a company can decide on itself to make use of the favourable regime. However, it is advisable to opt for an advance ruling with the tax authorities. This is recommended in particular because the tax authorities have adopted a strict approach and impose additional requirements in practice. E.g. regarding the maximum amount of such copyright remunerations in relation to the total salary of the person concerned and the relevant net turnover of the company, which are not explicitly provided for in the law.
This method allows a company to obtain legal certainty by neutralising the risk of the tax authorities coming back to levy additional taxes (e.g. in case of exorbitant ‘copyright’ remunerations).
What will the tax authorities do?
A request for an advance tax ruling will be examined by the Office for Advance Tax Rulings, which is part of the Belgian Federal Public Service ‘Finance’. This office acts as a ruling commission.
For these requests the office has adopted a specific approach.
- It will ask for the (categories of) job profiles of all the people within the company who are to obtain the remuneration for the transfer or licensing of their copyrights.
- It will take account of the creativity that is bound to the functions these people fulfill and the actual time that is spent on creative matters falling within the scope of copyright protection (e.g. developing software).
- Based upon this information, for each job profile a maximum percentage of the salary will be determined that can be paid out as a remuneration for the transfer of copyrights (often between 12,5% and 25% of the total salary).
Note: For the company managers, the remuneration will most of the time consist of a percentage of the relevant net turnover.
How long does a tax ruling procedure take?
On average an advance tax ruling procedure takes 6 months and consists of a pre-filing phase, the filing itself and the subsequent decision of the ruling commission.
After a positive decision, the tax ruling is then valid for 5 years and can be renewed when timely requested. The ruling has a binding effect upon the tax authorities.
How can De Groote – De Man help?
De Groote – De Man can fully assist your company with the application of the favourable tax regime income resulting from the transfer or licensing of copyrights under the employment or cooperation agreement.
This includes giving general advice, adapting the existing agreements where necessary and filing a request for an advance tax ruling with the Belgian Office for Advance Tax Rulings.