The digital transformation of industry, amplified by the rise of AI, is forcing companies to invest massively to innovate and stay competitive. Thanks to the Deduction of Innovation Income (DRI), they benefit from crucial support to transform their production and economic models. Find out how to maximize these tax opportunities to boost your competitiveness.
1. The challenges of digital transformation in industry
The digital transformation of industry began in the 2000s, marked by massive investment in software anddata analysis. These initiatives not only aimed to increase productivity, but also enabled the development of high value-added digital solutions, transforming customer interactions and redefining the business model of companies.
This digital transformation has accelerated over the past 10 years. Industry 6.0 is characterized by the rise ofartificial intelligence (AI) and autonomous, self-adaptive systems capable of learning and adjusting without human intervention.
The last time such a transformative technology emerged was with the Internet in the 1990s. With the AI market set to reach nearly $1 trillion by 2027, companies will need to devote significant resources to R&D and the integration of AI solutions to remain competitive.
2. Deduction of income from innovation in Belgium
Belgium’s support for innovation
Recognizing the need to support industries in their digital transformation, in 2018 the Belgian government is extending the scope of the Deduction of Innovation Income (DRI) beyond patents, taking into account other intellectual property rights such as innovative software. In its new form, this regime enables companies to benefit from an effective corporate tax rate of just 3.75% on income generated by innovative software.
A tax incentive with a broad scope of application
What makes the DRI scheme particularly attractive is its broad scope. In fact, it applies not only to “direct” revenues from the commercialization of software, but also to the added value of embedded software, or to productivity gains generated by software used in internal operations. Companies can therefore take advantage of this tax break to finance projects that :
- Automate production processes
- Optimize supply chain and resource consumption
- Plan equipment maintenance to avoid costly downtime
- Enhancing cyber security
Digital technology boosts patent applications
Companies can continue to exploit their patents. Here too, the scope of IRD is broad. Even if a company only holds the rights to use or license a patented technology, it can benefit from the IRD as long as it continues to invest in R&D efforts and integrates the patented technology into its operations.
As the digital transition accelerates innovation, it contributes to the increase in patent applications. Healthcare, IT and clean technologies are among the sectors with the highest demand.
3. Navigating the complexities of the Innovation Income Deduction
Beneficial but complex
Although the Innovation Income Deduction scheme offers significant financial benefits, it can be complex to implement. Calculating the tax benefits involves complex accounting treatments, particularly in the case of software embedded in a product or service, or software or patents used for internal purposes.
In view of this complexity, the use of the Advance Ruling procedure (Ruling fiscal) with the Advance Ruling Service (SDA) has, paradoxically, become the norm.
Our expert advice on optimizing your DRI benefits
Our team of experts is here to help you maximize your benefits. From optimizing your tax position to ensuring compliance with all legal requirements, we provide comprehensive support so you can make the most of your innovation efforts.
Tony Bulcaen, Innovation Performance Director at Ayming
“It’s never too early to apply for a deduction for innovation income. Some companies may be reluctant to undertake a feasibility study due to low revenues or little or no taxable income.
However, any gross annual income from innovation not taken into account is lost forever. What’s more, any unused tax deduction can be carried forward indefinitely, both in terms of time and value. These are not insignificant reasons for any innovative company looking to optimize its innovation income.”
