13 June 2023

Pushing the boundaries of innovation with patents 

June 2023 marks an important milestone for companies engaged in innovation, as the long-awaited European unitary patent becomes a reality. The Innovation Income Deduction (IID) is a powerful instrument that encourages companies to invest in research and development (R&D) by offering them a tax benefit. However, with the expansion of the European patent system, which takes effect on June 1, 2023, Belgian companies can expect even more favorable outcomes. 

Intellectual property innovations 

The appeal of the Innovation Income Deduction lies in the ability to lower the tax burden for companies involved in R&D+I and possessing intellectual property (IP). This incentive allows eligible IP, such as patents and software, to be deducted from taxable income. Belgium is already recognized as an innovation-friendly country, and the Innovation Income Deduction goes beyond patents, encompassing various forms of intellectual property. 

The introduction of the unitary patent system changes the landscape within the European Union. Starting from June 1, 2023, the European Patent Office (EPO) will have the authority to grant unitary patents that have unitary effect in 17 EU countries, including Belgium. This development reduces costs compared to obtaining individual patents in multiple countries. Small and medium-sized enterprises (SMEs) in particular should benefit from more affordable patent protection and improved access to the European market. 

This significant change in patent legislation offers interesting opportunities for businesses in Belgium. The unitary patent system reduces costs and enables innovators to protect their inventions in multiple EU member states. Belgium’s strategic position as a leader in innovation, combined with a favorable tax framework and the existence of the innovation income deduction, enhances the country’s attractiveness as an ideal destination for establishing R&D centers and fostering innovation. 

The appeal of the innovation income deduction    

As a fiscal stimulus, the Innovation Income Deduction provides additional support to businesses in their investment in innovation through intellectual property. Thanks to this tax measure, companies can deduct a portion of their net income derived from eligible intellectual property from their taxable income, thereby reducing the tax burden. Subsidizable IP rights primarily include patents and software. 

The changing european patent system 

Thanks to its favorable tax framework, Belgium remains one of the most welcoming EU countries for innovative businesses. The innovation income deduction is not limited to patents but also encompasses other forms of intellectual property. The latter is currently undergoing rapid expansion and is the subject of significant change within the European Union. 

Starting from June 1, 2023, the European Patent Office (EPO) will be able to grant “unitary patents,” which will be valid in 17 EU countries, including Belgium. The Unified Patent Court (UPC) will only handle disputes relating to unitary patents. The costs of maintaining a unitary patent are much lower than those of a European patent valid in four or more UPC countries. 

This development will allow innovators in small and medium-sized enterprises to benefit from more affordable patents. Patent protection will apply in a greater number of European countries without the need to validate patents in each jurisdiction. The new system could make Europe a preferred destination for companies looking to establish research and development centers. Belgium’s central location and leading position in innovation will only strengthen this position. 

Protection from multiple EU member states   

The unitary patent is a new type of European patent that, once granted, protects inventions in nearly all participating EU member states. The innovation income deduction is a tax incentive for Belgian companies generating income from certain types of intellectual property, including patents. This is how a unitary patent can impact the innovation income deduction. 

  • In order to benefit from the innovation income deduction, intellectual property must be protected by a patent issued by a Patent Office. 
  • Income Calculation: The Innovation Income Deduction allows companies to deduct a portion of their net income from qualified intellectual property from their tax base. The unitary patent qualifies for the innovation income deduction, and the income derived from it can thus benefit from this deduction. 

Since the unitary patent provides protection in various EU member states, this may affect how companies calculate their income for the innovation income deduction. When calculating eligible income, consideration may need to be given to the different jurisdictions where the unitary patent is in effect and the respective tax rates in those jurisdictions. 

With the new streamlined patent, the application process will be less time-consuming and less expensive. 

Increased quality at the same standard   

Michel Caldana, IPBox Expert Consultant at FI Group Belgium, explains: “The quality of the patent system does not change, but the standard will now be higher thanks to the Unitary Patent.” This means concretely:  

  • A reduction in costs: each patent application and its validation came with its own national cost in the past. The new system ensures that you only have to pay for an application once. Also, it is no longer necessary to have the application translated per language. So from now on, you no longer have to take into account the different countries for which you want to submit.   
  • Easier process in case of disputes: if you want to revoke a patent, you no longer have to litigate separately in each EU country. From now on, there will be one court for granting and nullifying patents.   

This change at the end of the process may seem minor, but it brings a lot of positive benefits:  

This change allows you to build a broader portfolio, which is an advantage, especially for SMEs, as it has a beneficial effect on the final cost.  

Michel Caldana, IPBox Expert Consultant at FI Group Belgium 

To further encourage investment in R&D+I, our FI Group consultants help identify, implement and maintain the necessary financial processes. We support you in understanding and intercepting available R&D+I opportunities.  

Yvette Poumpalova

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