Best jurisdictions with Intellectual property box regimes in Europe

One of the most important tasks for successful business structuring is choosing an appropriate jurisdiction in terms of tax planning.
Currently many countries are interested in attracting high-tech companies in knowledge-intensive sectors of the economy that develop and use intellectual property objects in their activities.
Tax legislators struggle to tax income from intangible assets in a way preventing intellectual property income from being shifted abroad. In this regard, the most significant policy development in recent years has been the introduction of Intellectual Property Box regimes, also known as “Patent Box” and “Knowledge Development Box”, which have become increasingly popular among the EU member states. The aim of IP Box is generally attracting local research and development activities which eventually give rise to intangible assets and encouraging businesses to locate IP in the country and attract IP income.
Patent Box regimes offer a substantially reduced corporate income tax rate for income derived from patents and other selected kinds of intangible assets. The preferential treatment lies in reducing of the effective interest rate on income from the use of intellectual property, or in exempting a certain part of the income from taxation.
As today’s map shows, patent box regimes are relatively widespread in Europe. Below we will consider several countries with the most favorable conditions of IP box regime.
Ireland
Ireland’s headline corporate tax rate is 12.5 %.
The company can be entitled to a deduction equal to 50 percent of its qualifying profits in computing the profits.
A qualifying asset would include:
Copyrighted software;
An invention that is protected by a qualifying patent;
Other IP created by small companies that is certified by the controller of Patents as being patentable, but not patented.
The profits arising from patents, copyrighted software, or IP equivalent to a patentable invention are taxed at 6.25 %.
The regime is only available to the companies that carried out the research and development, within the meaning of section 766 of the Taxes Consolidation Act 1997. The guidance provides definitions of a qualifying company, a qualifying asset, and profits arising from exploiting the qualifying asset.
Netherlands
Dutch-based companies can benefit from an effective tax rate of only 7% (9% as of 2021) for income from intangible assets created by the Dutch taxpayer. The normal Dutch corporate income tax rate is 16.5% / 25% (2020).
The innovation box is applicable if the patent has originated at least 30% of the profits. Companies that have incurred certain qualified research and development (R&D) costs for the development of intellectual property for which no patent was granted are also entitled to the favorable effective tax rate.
IP box regime is not applied for trademarks, brands, and acquired IP.
Belgium
The terms of the qualifying assets deduction rate of 85% of the net qualifying income. This means that the effective tax rate for qualifying innovation income in Belgium could be as low as 5.1%.
The deduction will be worked out by comparing the R&D costs to the total costs related to the innovation.
The Belgian Patent Box formula is the following: (qualifying R&D costs/total R&D costs) x total income from intellectual property = qualifying income from an intellectual property.
Luxembourg
An 80% exemption from corporate income tax and municipal business tax is available on the net adjusted and compensated income from qualifying IP rights and there is a full exemption from net wealth tax
Eligible income is determined by the ratio of eligible expenditure to total expenditure. Eligible expenditure includes spending on research and development activities directly related to intellectual property.
Ineligible costs include those not directly related to the intellectual property, in addition to real estate, and interest and other financing costs, among other expenses.
The scope of qualifying assets include the following:
Patents (broadly defined) and functionally equivalent rights that are legally protected by utility models;
Copyrighted software.
Net income qualifying for the new regime include the following:
Income derived from the use of, or a concession to use, qualifying IP rights;
IP income embedded in the sales price of products or services directly related to the eligible IP asset;
Capital gains derived from the sale of the qualifying IP rights;
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.
Cyprus
The Cyprus IP Box regime applies on qualifying IP which is developed after the 1st of July 2016.
According to the regime, 80% of qualifying profit generated from qualifying IP rights will be considered as a deemed expense for corporation tax purposes. The remaining 20% will be subject to the normal corporation tax rate of 12.5%.
Thus, the qualifying profits will have an effective tax rate of as low as 2.5%.
The following assets include:
Patents;
Software programs with a copyright;
Other intangible assets that are not obvious, but are useful and novel.
IP box regime is not applied for business names, trademarks, image rights, marketing activities.
Andorra
The Andorran Patent Box is the reduction of up to 80% of the taxable base of the corporate tax. In this regard, considering that the nominal tax rate is 10%, with the implementation of the patent box, the effective tax rate can amount to 2%.
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