Copyright remuneration back for IT professionals ? Things will not be the same again.

One of the measures proposed in the coalition agreement of the new Belgian government is extending the copyright tax concession scheme back to digital professions, after the previous government scaled it back pursuant to the major reform that came into force on 1 January 2023.

Many present this as a simple restoration of the previous tax regime applicable before the controversial reform of 2023. However, things are not that simple and will certainly not be the same as before the reform of 2023.

In any case how and to what extent the scope of the special tax regime for copyright income will be extended to IT activities remains to be clarified.

Continue reading below to see what this means for the IT sector and how this could fit into the reform of 2023.

1. Purpose of the original reform

The purpose of the reform of 2023 was to go back to the original intent of the special tax regime, that it would apply on those artistic jobs that suffer from irregular and volatile income, such as painters, authors, musicians, etc. As such, in the framework of this reform a narrower definition of ‘copyrighted work’ was retained, which excluded software.

Pursuant to the recent coalition agreement, income obtained via the transfer or licensing of software would once again qualify under the special tax regime.

Before getting too optimistic, it is important to note that the existing constraints of the reform have not been addressed and continue to significantly affect the potential implementation for the IT sector. Below is an overview of these limitations, whether they will persist in their current form remains to be seen.

2. Scope of the reform of 2023

The most impactful change to the scope of the regime in 2023 was that its beneficiaries must either possess an artwork certificate or alternatively assign or license the rights in their copyrighted work to a third party for communication to the public, public performance or reproduction.

An artwork certificate is issued by the Arts Work Commission via the platform Working in the Arts. To obtain an artwork certificate, you must demonstrate professional artistic practice in the arts.

Professional pratice means that your earnings and your time investment are sufficient to provide for part of your living expenses.

Artistic practice means the effective practice of an artistic (technical/supporting) activity in one of the eight fields defined by law (audiovisual arts, visual arts, music, literature, spectacle, theatre, choreography or comic strip) and a contribution necessary for an artistic creation or performance, i.e. without which the same artistic result would not be achieved

As an artwork certificate is not available for the majority of the IT sector under the current regime (as confirmed by the explanatory memorandum and the information available from the Arts Work Commission), this means a de facto exclusion of the people that produce copyrights and that do not fall under the scope of the aforementioned failsafe of communication to the public, public performance or reproduction, which will not apply for services benefiting for example private individuals or fall into most B2B contexts.

There has been no clear indication whether this limitation, which certainly impacts IT professionals, is here to stay. If so, any IT activities will have to be carefully analyzed on a case-by-case basis to verify whether they fall under the scope of the regime.

3. Absolute cap

The absolute cap €37.500 (non-indexed) that can benefit from the favourable tax regime is maintained. However, the tax regime shall no longer apply when the annual average gross income from copyright received during the four preceding taxable periods exceeds the absolute cap of €37.500 euros (non-indexed).

This limitation should not affect IT professionals in comparison to prior to the reform if they take care to remain below the abovementioned thresholds, otherwise this income will be treated as professional income.

Example :

• Gross copyright income : €40.000 for the 2023 taxable period.
• Gross copyright income amounts to €100.000 euros, €70.000, €50.000 and €60.000 euros for the taxable periods 2019 to 2022, respectively; i.e. average gross income for the four taxable periods preceding 2023 is €70.000, which is higher than the absolute cap of €64.070 euros (€37.500 indexed).
• The special tax regime is not applicable for the 2023 taxable period and the gross income in the amount of €40.000 euros will be taxed as professional income (with credit for the withholding tax deducted from this amount).

4. Relative cap

A new relative cap was introduced in 2023 (a codification of an existing practice) whereas the favourable tax regime shall not apply where the ratio between the remuneration for the transfer of copyright and the total remuneration (including for the service provided) is higher than 30% (50% for the tax year 2024 and 40% for the tax year 2025 as transitional measures). In other words, copyright income exceeding this ratio will be taxed as professional income. This percentage is notably very severe for the remaining beneficiaries under the new regime compared to the practice of the tax ruling commission preceding the reform. If this relative cap is maintained (and we can reasonably epect it well be), certain IT professionals will certainly not get the full benefit of the regime as they used to before the reform.

Example:

• An artist transfers his copyright to a transferee who exploits those rights and pays him copyrights (€45.000) and a fee for the services he performs in the transferee’s company as artistic director (€30.000), i.e. for a total yearly amount of €75.000.
  
• Applying the relative cap, the favourable tax regime is applied to €22.500 (30% of €75.000) and the remaining €52.500 is taxed as professional income.
  
• Should the total remuneration have been €210.000, of which €70.000 as copyright income, then the relative cap of 30% would be respected, however the absolute cap of €64.070 euros (€37.500 indexed) would be exceeded and therefore the favourable tax regime would apply to €64.070 (equal to the absolute cap) and the remaining €145.930 is taxed as professional income.