Are there any particular tax regimes applicable to intellectual property, such as patent box?
Tax (4th edition)
No, there are no preferential tax regimes in Angola applicable to intellectual property.
There is no regime applicable to intellectual property. However, Brazilian tax legislation may offer tax incentives re. to the matter (e.g., deduction of expenses as well as some indirect tax reduction for companies that invest on technological research and development of technological innovation, R&D).
Canada has approached SR&ED not from the “patent box” angle but from the tax credit angle. Canada and most of the provinces have very generous tax credits regimes, including some refundable tax credits. The most generous tax credits are for Canadian-controlled private corporations, in which case the rate may me higher and the credit may be refundable (as opposed to a reduction of tax otherwise payable). Several high technology sectors have developed in large measure because of the Canadian SR&ED regime, including the aeronautical and pharmaceutical sectors.
There are no particular tax regimes applicable to intellectual property, such as patent boxes. However, there are special Income Tax rules applicable to intangibles, which follow IFRS standards.
In May 2012 Cyprus introduced a package of incentives and tax exemptions relating to investment in intellectual property rights, commonly known as an IP box. This combines the lowest rate of tax (effectively less than 2.5%) with the widest range of qualifying assets and the fewest restrictions compared to other countries’ IP boxes.
Following the adoption of the modified nexus approach under action 5 of the G20/OECD BEPS project the IP box regime applies to a more limited range of assets than previously since new arrangements for intellectual property assets have been developed as from 1 July 2016.
As a result, qualifying assets are restricted to patents, software and other IP assets which are legally protected. Intellectual property rights used to market products and services, such as business names, brands, trademarks and image rights, do not fall within the definition of qualifying assets.
Relief is geared to the cost incurred by the taxpayer in developing the intellectual property through its research and development activities, and costs of purchase of intangible assets, interest, costs relating to the acquisition or construction of immovable property and amounts paid or payable directly or indirectly to a related person are excluded from the definition of qualifying expenditure.
Unlike the case under the original scheme, 80% of the “qualifying profit” rather than a general 80% on “accounting profit” is granted as an additional deduction.
Nevertheless, the IP Box Regime continues to provide considerable tax savings, and companies that joined the scheme before June 2016 can look forward to benefiting from substantial savings until mid-2021.
Germany does not operate any particular tax regime with respect to intellectual property. On the contrary, in 2017 Germany has implemented into its tax law a provision stipulating that royalties paid for intellectual property and other rights are not deductible in case the royalties paid are subject to a low tax preference regime unless qualifying as a patent box with the BEPS nexus approach.
No, there are no such regimes.
Subject to a governmental audit, a supertax deduction of an additional 30% of certain R&D expenses, including any depreciation of machinery and equipment used for R&D purposes, is available at the time such expenses are realized.
Profits derived by a business from the sale of assets produced by deploying its own patents, and from services provided with the use of its own patents, are exempt from corporate income tax for a period of three years starting from the year when the relevant revenues were first accrued. The relevant profits are taxed when distributed or capitalized.
Certain instruments and equipment used for R&D which are set by governmental decision, can be amortized at a 40% rate annually.
As per the IT Act, income by way of ‘royalty’ in respect of a patent developed and registered in India is taxable at a concessional rate of 10% subject to certain conditions.
With effect from 1 January 2016 Ireland has enacted a Knowledge Development Box (“KDB”) which is an OECD compliant, modified nexus patent box. The KDB provides for a 6.25% corporation tax rate on profits derived from intellectual property (including patents and copyrighted software) where the related research and development (“R&D”) has taken place in Ireland. The relief is diluted to the extent that the relevant R&D is undertaken by group companies or is based on acquired intellectual property.
Ireland also offers an R&D tax credit of 25% of the qualifying R&D expenditure taking place in Ireland. The tax credit may be used to offset the corporation tax liability of the company, pay income taxes of certain key individuals or may qualify for a cash refund in certain circumstances.
Yes. A law that came into effect on January 1, 2017, introduced a new intellectual property regime (the “IP Regime”) in Israel applicable to technology and hi-tech companies that develop their intellectual property in Israel. Companies that qualify under the IP Regime would benefit from a reduced preferential corporate tax rate of 12% on qualifying income (which rate is reduced to 7.5% in certain specified development zones). In certain cases concerning multinationals (in general, where the turnover of the company is higher than NIS 10 billion), the applicable tax rate can be reduced to only 6%.
In order to be entitled to these benefits, the said law sets out certain convoluted conditions the purpose of which is to ensure that the benefits will be provided only when the intellectual property is actually developed in Israel.
Various reliefs are available under domestic law for companies that are involved in research and development (for example, permitting accelerated amortization of research and development costs).
In 2014 Italy has introduced a patent box regime, mostly based on international OECD standards. In essence the regime provides for a partial exclusion from taxation of the business income derived from certain qualifying intangible assets. Taxpayers may activate a ruling procedure with the tax authorities in order to agree in advance the criteria relevant to the application of the regime in their speciﬁc case.
There is no patent box, but a premium of 14% applies to R&D expenses for R&D inhouse activities performed in Austria.
Conversely, intra-group interest and royalties are non-deductible if the foreign receiving company is situated in a low tax jurisdiction (i.e. less than 10%).
No. In Japan, there are no particular tax regimes applicable to intellectual property. Japan does not have a patent box system.
Luxembourg reintroduced in 2018 in its LITL the new IP box regime that is now in line with the BEPS recommendations. In addition, the Luxembourg tax authorities published a circular on 28 June 2019, L.I.R. n° 50ter/1, clarifying the patent box.
Under the new Article 50ter LITL, 80% of the income derived from the commercialisation of certain intellectual property (“IP”) rights is exempt, as well as fully exempt from NWT. The new rules are applicable as from the fiscal year 2018. Qualifying assets include the following IP rights:
- patents (broadly defined) and functionally equivalent rights that are legally protected by utility models, extensions of patent protection for certain drugs and phyto-pharmaceutical products, plant breeder’s rights, and orphan drug designations; and
- copyrighted software.
In line with the BEPS – Action 5 recommendations, marketing-related IPs can no longer benefit from the IP box regime.
Qualifying income includes the following:
- income derived from the use of, or a concession to use, qualifying IP rights (i.e. royalty income);
- IP income embedded in the sales price of products or services directly related to the eligible IP asset. The principles of Article 56bis LITL must be used to separate income unrelated to the IP (e.g. marketing and manufacturing returns);
- capital gains derived from the sale of the qualifying IP rights; and
- indemnities based on an arbitration ruling or a court decision directly linked to a breach of a qualifying IP right.
The regime applies on a net income basis, meaning that expenses relating to the qualifying IP assets need to be deducted from the gross qualifying income. The proportion of qualifying net income entitled to the benefits will be determined based on the ratio of qualifying expenditures and overall expenditures (nexus ratio). The previously-qualifying IP assets can continue to benefit from the old regime during the grandfathering period, running until 30 June 2021.
There are specific tax incentives for principal hubs, pioneer statuses, investment tax allowances and special tax incentives such as that for research and technology initiatives, biotechnology industries (BioNexus status incentives) and Multimedia Super Corridor Malaysia status incentives.
No special tax regimes concerning intellectual property are considered by Mexican tax laws.
R&D Wage Tax Credit
The R&D Wage Tax Credit is a subsidy for research & development activities in the Netherlands which is granted by means of a reduction in Dutch wage tax. In order to apply the R&D Wage Tax Credit, an R&D declaration (WBSO-verklaring) must be obtained from the Dutch Enterprise Agency. The R&D Wage Tax Credit is based on salary expenses related to R&D activities and on certain R&D expenses.
The Netherlands has the innovation box, where qualifying income is subject to an effective tax rate of 7% (instead of 19% - 25%).
In order to be able to apply the innovation box to qualifying income, the taxpayer must have an entry ticket (SME) or entry tickets (MNE). SMEs can apply the innovation box to their qualifying income if they enjoy the R&D Wage Tax Credit (which can be obtained with the Dutch Enterprise Agency).
In addition to the R&D Wage Tax Credit, MNEs must also have a qualifying (self-developed) intangible asset in order to apply the innovation box. Such intangibles are intangible assets:
- for which a patent or a plant breeders' right has been obtained/applied for;
- that qualify as software;
- for which the taxpayer is allowed to use/trade a non-chemical method as defined in the Crop Protection Act and biocides;
- for which the taxpayer as EU marketing authorization for medical products;
- for which the Dutch Patent Center has granted a supplementary protection certificate;
- for which a registered utility model has been granted; or
- that relate to intangible assets qualifying under one of the above categories.
An exclusive license for an intangible asset qualifying under one of the first 5 categories listed above for a certain geographical area, certain application or certain period of time may also qualify for the innovation box.
There are no particular tax regimes applicable to intellectual property.
There is no special tax regime specifically intended for intellectual property.
The Innovation (Patent) Box
On January 1, 2019 the Innovation (Patent) Box, a new tax incentive scheme came in force in Poland.
Innovation Box incentive includes a preferential tax rate of 5 % (applicable to both corporate and personal income tax) on qualified intellectual property (IP) income, where the taxpayer is deemed to be an owner, co-owner, or user of IP rights under a license agreement. The 5% rate is used only to qualified intellectual property rights that have been created, developed, or improved by the taxpayer. The intellectual property rights which qualify for Innovation Box tax incentive cover:
- Patent rights;
- Protection rights for utility models;
- Rights from the registration of Industrial designs;
- Rights from the registration of integrated circuit topography;
- Rights from the registration of medicinal and veterinary products (authorized for market);
- Rights from the registration of new varieties of plant or new animal breeds;
- Protection rights for medicinal product patents;
- Rights to computer software.
A Polish taxpayer may qualify for tax relief under the Innovation Box under conditions that intellectual property rights are already subject to certain legal protections, such as ratified international agreements concluded by Poland or EU.
The income eligible for the innovation box will be derived from royalties or other charges related to the use of qualified IP rights, as well as income from the sale of qualified IP rights.
The income which is subject to the preferential tax rate of 5% offered under the Innovation Box regime is calculated using a formula recommended by the BEPS Action 5 – knows as the “nexus” approach.
Under the Innovation Box incentive, taxpayers must keep detailed accounting records which should be separated from the other types of income.
R&D tax relief
As from 2016 both CIT and PIT taxpayers may make additional deduction of eligible costs incurred for research and development activities (R&D) from the tax base. Starting from 2018 the attractiveness of the R&D tax relief increased since the deduction level has been raised to 100% of eligible costs incurred (and even 150% of costs incurred for certain type of taxpayers that possess the status of research and development centres).
In 2016, Portugal adopted a new patent box regime that follows closely the OECD BEPS Action 5 “modified nexus” approach. The Corporate Income Tax Code provides 50% exemption on the gross income derived from the assignment or temporary use of patents and industrial models or designs, as well as to any indemnities resulting from the infringement of those IP rights, as long as certain conditions are met. This regime is not applicable for income derived from an assignee resident in a blacklisted territory.
There are no enhanced tax regimes applicable to intellectual property.
I. Patent box
A partial exemption can be applied to the income obtained by entities from the transfer of the right to use or exploit certain assets (patents, utility models, registered advanced software, and complementary certificates for the protection of medicines, phytosanitary products and designs legally protected), that have been generated by its research, development and technological innovation activities. This partial exemption can amount to a maximum of 60 % of the income.
This partial exemption can also be applied to capital gains generated from the transfer of the above-mentioned assets to third parties. In the event that the transaction is carried out between related parties, the partial exemption will not apply.
II. Capitalization reserve
Entities that are taxed under the general and increased tax rates (25% and 30%, correspondingly) can apply a special reduction to their positive taxable base in an amount equal to 10% of the increase in its net equity. The following conditions must be met in order to apply this reduction:
a There must be an increase in the entity’s net equity that must be maintained during a 5 years period;
b A reserve for the amount of the reduction will have to be booked separately in the account balance. This reserve should be recorded as restricted reserves for, at least, a period of 5 years.
However, this reduction cannot exceed 10% of the entity’s positive taxable base prior to certain adjustments. The excess over the aforementioned limit can be carried forward for application in the following 2 years.
Currently, only the canton of Nidwalden has introduced a special IP box regime. In practice, mixed companies (with an effective tax rate between 9 and 12%) are often used for the exploitation of IP in Switzerland. Holding companies (with an effective tax rate of 7.8%) may be used as well, if the exploitation of IP does not qualify as a business activity.
TRAF (see 11 and 17 above) includes a patent box, mandatory for all cantons, as a replacement measure for the elimination of the various special taxation regimes.
No. However, the US tax system does subsidize certain research activities, for example, by offering a credit for qualified research expenditures and, before 2022, permitting research expenditure to be expensed rather than amortized over time.
In addition, although not strictly a “patent box” regime (due, in part, to the lack of nexus), the TCJA introduced Section 250 of the Code, which provides a reduced rate of 13.125 percent on the foreign-derived intangible income (“FDII”) of a US corporation, which, as explained above in 13a, is achieved by a 37.5 percent deduction. For these purposes, FDII generally includes income from property sold, leased, or licensed by a US corporation to any non-US person for use outside of the US, as well as certain services a US corporation renders to non-US persons. In March 2019 (REG-104464-18), the IRS and Treasury proposed regulations that would require taxpayers to obtain significant documentation proving income qualifies as FDII. In the wake of the critique that these requirements pose significant hurdles to obtaining benefits for FDII, Treasury officials indicated that these requirements may be modified to ease compliance burdens. It is anticipated that there may be challenges to FDII brought against the US in the World Trade Organization, as with similar export sales incentives previously provided by the Code. Thus whether FDII will be a long-term feature of the Code is open to question.
The Patent Box enables UK companies to apply a lower rate of 10% corporation tax to profits earned after 1 April 2013 from its patented inventions. The patent box regime was designed to attract companies with intellectual property overseas to choose the UK as a jurisdiction in which to develop the asset. Following OECD concerns that Patent Box was open to abuse, the UK government committed to making changes to the regime. In particular, it is no longer possible to use the standard method of calculating the percentage of taxable profits that could benefit from the regime. Instead, only profits derived from research and development activities carried out by the company will be allowed in a claim.
In addition to the Patent Box, the UK also gives tax relief in the form of Research & Development Tax Relief for projects that advance overall capability or knowledge in a technological or scientific area (note: this is not just increasing the company’s knowledge). There are two schemes, the first is for SMEs – up to 500 employees, up to €100m turnover and up to €86m balance sheet – which gives tax relief at 230% of the R&D costs. The second scheme is for larger companies or SMEs who do not qualify under the other scheme. Those who qualify under this second scheme can apply for a tax credit, calculated at 12% of the company’s research and development expenditure.
A new IP regime, the Innovation Income Deduction, recently entered into force as from 1 July 2016 as a substitute for the Patent Income Deduction, which has been abolished because it was inconsistent with, amongst others, the OECD modified nexus approach. A grandfathering regime is foreseen till 30 June 2021.
This Innovation Income Deduction allows companies to deduct 85% of the net income derived from qualifying IP assets, which results in an effective tax rate of a maximum 5.1 percent. As mentioned before, the corporate tax rate should decrease from 33,99% to 29,58% by 2018, which should result in an effective tax rate of maximum 4,44%.
The scope of the beneficial tax regime is broadly defined. Eligible IP rights are eg patents, data and market exclusivity, copyrighted computer programs and orphan drugs. The tax deduction applies to IP income derived from arm’s length license fees, IP income embedded in the sales price or in the production processes and damages received for infringements of IP rights. Capital gains may, subject to certain conditions, fall under the scope of qualifying income. A carry forward of unused deductions is applicable.
The nexus approach ensures that IP income can only benefit from the tax deduction to the extent that expenditures are effectively incurred by the taxpayer to develop the qualifying IP rights.
Subject to certain conditions, a company may benefit from other IP and R&D related tax incentives.
There are no specific tax regimes for intellectual property.