Patent box regimes in Europe, 2022

Patent box regimes (also known as intellectual property or IP regimes) offer lower effective tax rates on IP income. Most commonly, the eligible types of intellectual property are patents and software copyrights. Under the patent box regime, income from intellectual property may include royalties, license fees, gains on the sale of intellectual property, sales of goods and services incorporating intellectual property, and damages – interest for patent infringement.

The purpose of patent boxes is generally to encourage and attract local research and development (R&D) and to induce companies to locate intellectual property in the country. However, patent boxes can introduce another level of complexity into a tax system, and some recent research questions whether patent boxes are actually effective in stimulating innovation.

As the current map shows, patent box regimes are relatively widespread in Europe. Most have been implemented over the past two decades.

Currently, 13 of the 27 EU Member States have a patent box regime in place. These are Belgium, Cyprus, France, Hungary, Ireland, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia and of Spain (federal, Basque Country and Navarre). Non-EU countries Andorra, San Marino, Switzerland, Turkey and the UK also have patent box regimes in place.

Reduced tax rates under patent box regimes range from 0% in San Marino to 12.5% ​​in Turkey.

Italy repealed its patent box in 2021 and instead introduced a 230% deduction for research and development costs. This represents a transition from an income-based benefit (the patent box) to an investment- or expense-based benefit (the super-deduction).

Table 1. Patent box regimes in Europe, as of August 2022
Qualifying Intellectual Property Assets Patent box tax rate Statutory corporate income tax rate
Patents Software Other (a)
Andorra a a 2% ten%
Belgium a a 3.75% 25.00%
Cyprus a a a 2.5% 12.5%
France a a ten% 25.83%
Hungary a a 4.50% 9%
Ireland a a a 6.25% 12.50%
Lithuania a a 5% 15%
Luxemburg a a 4.99% 24.94%
Malta a a 1.75% 35%
Netherlands a a a 9% 25.8%
Poland a a 5% 19%
Portugal a 10.5% 21%
San Marino (b) a a 0% or 8.5% 17%
Slovakia a a 10.5% 21%
Spain – federal (c) a a ten% 25%
Spain – Basque Country a a 7.2% 24%
Spain – Navarre a a 8.4% 28%
Switzerland (d) a Varies from canton to canton, up to 90% corporate tax exemption Varies from canton to canton; 11.9% to 21.6%
Turkey (a) a 11.5% 23%
UK a ten% 19%

Remarks:

(a) “Other” refers to Intellectual Property Assets that are not obvious, useful and new. These can only be applied to small and medium enterprises.

b) San Marino has two intellectual property regimes. The “regime for new companies provided for by art. 73, law no. 166/2013” ​​grants a tax rate of 8.5%. The “IP regime” grants a tax rate of 0%. Both apply to patents and software.

(c) The Spanish regions “Basque Country” and “Navarre” have separate corporation tax and therefore separate intellectual property regimes.

d) In 2020, Switzerland introduced a patent box regime at the cantonal level, which provides for a maximum reduction of the tax base of 90% on income from patents and similar rights developed in Switzerland. The cantons can opt for a lower reduction.

(e) Turkey has a second intellectual property regime which allows full tax deduction (0% effective tax rate) of qualifying intellectual property income resulting from R&D activities that have been undertaken in technology development zones Turkish.

Sources: OECD, “Dataset Intellectual Property Regimes”; Tax Bloomberg, “Country Guide”; PwC, “Tax Summaries”; EY, “2022 Global R&D Incentives Reference Guide”; and OECD, “Tax Database: Table II.1. Statutory corporate income tax rate”, https://stats.oecd.org/Index.aspx?DataSetCode=TABLE_II1.

In 2015, OECD countries agreed to a so-called modified nexus approach to intellectual property regimes as part of Action 5 of the OECD Action Plan on Base Erosion. tax and profit shifting (BEPS). This modified link approach limits the scope of eligible IP assets and requires a geographic link between R&D expenditures, IP assets and IP revenues. To align with this approach, previously non-compliant countries have either abolished or modified their patent box regimes in recent years.

Many European countries offer additional incentives for R&D, such as direct government grants, R&D tax credits or accelerated depreciation of R&D assets. The effective tax rates on intellectual property income may therefore be lower than those indicated in the respective patent box regimes.

Mary I. Bruner