Companies developing or exploiting intellectual property — especially patents, utility models and software — are entitled to reduce their tax liabilities in connection with their royalty income. By applying such incentives, taxpayers can substantially lower their tax burden and improve cost efficiency.

Key tax advantages linked to royalty income

• Corporate income tax (CIT) base reduction: 50% of the profit received from royalties may be deducted from the CIT tax base, capped at 50% of the profit before tax. It is important that this relief may be applied alongside available R&D incentives.
• Local business tax: Royalty revenue is excluded from the local business tax base, therefore, no local business tax and innovation contribution would arise in connection with such income.

Applying royalty-based tax incentives

To apply royalty-based tax incentives properly, clear documentation and well-supported compliance with the statutory conditions are essential. In particular, it is crucial:

• determining and clearly separating the royalty component of the contract-based income from other fees and revenue elements,
• for software development, preparing or amending contracts precisely from both a copyright and a tax perspective,
• documenting and tracking the related revenues and costs transparently,
• documenting and supporting the company’s own R&D activity linked to the royalty-generating intangible asset — especially where the intangible asset is acquired or where R&D services are obtained from related parties.

If the application of such incentives is not properly supported, companies may face increased tax risk, which is why the involvement of experts is strongly recommended throughout the process.

How can Andersen support you with royalty-based tax incentives?

Andersen’s tax experts support royalty-based tax planning through the following services:

• identification and review of royalty-eligible intangible assets and related contracts,
• preparation of an expert opinion request to confirm the royalty nature of the income,
• determination of royalty income and related costs to calculate the tax base reduction,
• review and preparation of supporting documentation for the tax incentive,
• assistance with preparing corporate income tax, local business tax and innovation contribution returns.