02/2019: ROYALTIES, ALTERNATIVE REMUNERATION?

Why copyright is so interesting
Copyright income, or royalties, of up to 61,200 EUR/year is treated as “movable” income, even if it is linked to your professional activities, and is only subject to 15% withholding tax, after the application of a lump sum expense deduction. The lump sum expense deduction amounts to 50% of the income from copyrights up to 16,320 EUR/year and 25% of income from 16,320 EUR to 32,640 EUR/year.

On copyright income of, for example, 10,000 EUR you pay only 15% movable tax on a net income of 5,000 EUR (= 10,000 EUR income minus 50% lump sum expense deduction), that is 750 EUR movable withholding tax. The result is an effective tax burden of only 7.5%, which is clearly a lot better than on a classic salary or ordinary dividend at 30% movable withholding tax.

Example: a programmer who is entitled to 15,000 EUR in copyright payments pays 1,125 EUR in taxes and keeps 13,875 EUR net.

The conditions
Only income from the “assignment or licence of rights protected by copyright” is eligible to be treated as copyright income for tax purposes. A work is protected by copyright if it satisfies the following, cumulative conditions:

  1. It is a creative activity, literature or art in the broad sense of the word, e.g. Literary (books, texts, lectures, courses, etc), Graphic (logos, drawings, photos, etc.), Audiovisual (presentations, films, etc.) or other (music, software, architecture, etc.);
  2. The work is expressed in a concrete form. An idea or concept alone is not sufficient, it must be developed materially;
  3. The work must be original (it must contain the author’s own idea, vision, etc.).

If the criteria above are met and, in addition, the creation has been assigned or licenced, the company may grant (payment for the) copyright. A difference must always be made between remuneration for performance, on the one hand, and payment for the transfer of copyright on the other.

Practical implementation
It is very important to consider carefully and justify the way in which remuneration for performance and transfer of copyright are split, in order to be able to stand the test of a tax audit. The law itself contains no clear criteria, so the parties themselves (company and natural person) can establish this split contractually, with a fixed or variable amount (e.g. a percentage on the revenues or profit obtained from the use of work protected by copyright). Published rulings (= previous agreements with the taxman) are often used as guidelines.

Many rulings have already been published for various profiles and sectors, such as architects, journalists, writers, designers, people active in the publicity sector and ICT, teachers, etc.

If this regulation is implemented, it is important to have written evidence of all the following:

  • Specification and justification of the fee;
  • Conclusion of legal contracts;
  • Tax and accounting formalities: movable income tax declaration(s) and payment slip(s), invoices with or without VAT.

Should you have additional questions, please do not hesitate to contact us.

Karel Van Hooteghem – karel.vanhooteghem@bofidi.com
Aleksandr Natanelov – aleksandr.natanelov@bofidi.com

Karel Van Hootegem

About Karel Van Hootegem

Karel is a tax consultant certified by the Institute of Accountants and Tax Experts. He is your point of contact at BOFIDI for aspects relating to personal income tax, salary splits and all obligations of international executive staff. Do you have questions? Contact Karel by email: karel.vanhootegem@bofidi.com