Currently, there is a patent box regulation in 13 of the 27 EU member states. These are Belgium, Cyprus, France, Hungary, Ireland, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia and Spain (Federation, Basque Country and Navarre). The non-EU countries of Andorra, San Marino, Switzerland, Turkey and the United Kingdom have also introduced patent box regulations.

The reduced tax rates provided for under the patent box regulations range from 0 percent in San Marino to 12.5 percent in Turkey.

 

Italy lifted its patent box in 2021 and instead introduced a deduction of 230 percent of costs related to research and development. This represents a transition from an income-based benefit (patent box) to a benefit that focuses on investments or expenses (the super deduction).

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Table 1. Patent box regulations in Europe, as of August 2022

Qualifying IP AssetsTax Rate under the Patent Box RegimeStatutory Corporate Income Tax Rate

PatentsSoftwareMiscellaneous a)

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Andorra✔ 2%

Belgium✔ 3.75%

Cyprus✔2.5%

France✔ 10%

Hungary✔ 4.50%

Ireland✔6.25%

✔ Lithuania 5%

Luxembourg✔ 4.99%

Malta✔ 1.75%

Netherlands✔9%

Poland✔ 5%

Portugal✔ 3.15%

San Marino ✔ 0 %

Slovakia✔ 10.5%

Spain – federal (c) ✔ 10%

Spain – Basque Country✔ 7.2%

Spain – Navarra✔ 8.4%

Switzerland (d) ✔ Varies from canton to canton, up to a 90% exemption from corporate income tax

Turkey (e) ✔ 11.5%

United Kingdom✔ 10%

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Notes:

(a) "Other" refers to intellectual property assets that are not obvious, useful and new.

These can only be applied to small and medium-sized companies.

b) There are two intellectual property regimes in San Marino. The "Scheme for new companies pursuant to Article 73 of Law No. 166/2013" grants a tax rate of 8.5 percent. The "IP regime" grants a tax rate of 0 percent. Both apply to patents and software.

(c) The Spanish regions of 'Basque Country' and 'Navarre' are subject to different corporate tax regimes and thus different intellectual property regimes.

(d) In 2020, Switzerland introduced a patent box scheme at the cantonal level, which provides for a maximum tax reduction of 90 percent 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 that allows for a full tax deduction (0 percent of the effective tax rate) of qualified intellectual property income resulting from research and development activities carried out in Turkish technology development zones.

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

✔In 2015, OECD countries agreed on a so-called modified nexus approach to IP regimes as part of Action 5 of the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan.

This modified nexus approach limits the scope of qualifying IP assets and requires a geographic link between R&D spending, IP assets, and IP revenue. To accommodate this approach, previously non-compliant countries have either abolished or amended their patent box regulations in recent years.

Many European countries offer additional R&D incentives, such as direct government support, 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 specified in the respective patent box rules.