Partner Insight of the Day: what to know about taxes on author’s rights income by PKF-VMB
From now on we’re going to be sharing even more content from our valuable partners. This first piece is from PKF-VMB Tax Consultants, who support growing companies with financial expertise. They have some great advice about the fiscal ins and outs of income from author’s rights. If your job requires creativity, there’s a good chance that your, or one of your employee’s, work is protected by author’s rights. The income derived from these rights is eligible for an attractive personal tax regime with a 7.5% effective tax rate. What are the conditions and where are the pitfalls? Here’s what you should be aware of:
(Con)cession of author’s rights and neighbouring rights
A work is protected by author’s rights if it is the result of a “creative activity”, has a “concrete form” and if it is the “own and original intellectual creation of the author.” Author’s rights protection doesn’t have to be formally requested, but is automatically provided by law if the following conditions have all been met:
► There is a work protected by author’s rights
► The income received is actually derived from the (con)cession of this work
► The income derived from the (con)cession of the author’s rights as well as the scope and duration are explicitly and clearly stated in a written contract.
Just 7.5% personal tax!
Author’s rights income up to EUR 62,090 per year is subject to a separate tax rate of 15% for individual beneficiaries. A lump-sum cost deduction of 25% to 50% also applies, with a maximum of EUR 12,417.50. No social security contributions are due on author’s rights income. In practice this often comes down to an effective personal tax rate of only 7.5%!
Here’s an example:
If the author’s rights payments exceed EUR 62,090, the exceeding amount is in principle subject to standard 30% tax. However, if an in-depth factual analysis shows that the exceeding part of author’s rights income qualifies as “professional income,” it is subject to progressive Belgian personal income tax rates (max. 50%). That means that Belgian social security will likely also be due.
There are some compliance formalities to keep in mind:
► The debtor of the income needs to file a Belgian withholding tax return (on time) and pay Belgian payroll withholding tax to the Belgian tax authorities
► The beneficiary of the income needs to report the author’s rights income in his or her Belgian personal income tax return
► Appropriate VAT compliance is required.
The amount of author’s rights income
Based on Belgian tax ruling guidance, a taxpayer cannot receive an unlimited amount of author’s rights income: this amount must be defined within reasonable limits. In practice, author’s rights income is often granted as a fixed amount or as a percentage of, for example, the company’s turnover or financial envelope.
It’s also important to note that the contract should make a clear distinction between salary compensation for rendering professional services (say by an employee or director) and compensation for the transfer of author’s rights. The Belgian tax authorities take the stance that existing standard salary income cannot be (partially) “replaced” by author’s rights royalty income.
The fact that the author, who is always a natural person, renders his or her services via a management company to the person exploiting and commercialising the author’s rights does not prevent the application of the author’s rights tax regime.
Applying these author’s rights tax rules can lower your overall tax bill significantly. But watch out: taxpayers applying this specific regime are high on the radar of the Belgian tax authorities. So be prepared to answer any questions, and make sure you are compliant with all the rules from day one!
Would you like to know more? Contact Kurt (firstname.lastname@example.org) or Janke (email@example.com) at PKF-VMB Tax Consultants, proud partner of Start it @KBC!