In simple terms, royalties are payments made for the use of, or the right to use, intellectual property. This can include copyrights, patents, trademarks, designs, models, secret formulas, know-how, software or technical information. In an international context, the concept of royalties is often interpreted based on tax treaties and international standards.

A practical example is a Belgian company that pays a foreign software provider for the right to use a platform, technology or licence. Another example is a Belgian group company that receives payments from foreign subsidiaries for the use of a brand name, software tool or technical know-how.

It is important to distinguish royalties from a sale of intellectual property. If intellectual property rights are transferred permanently and definitively, the payment may no longer be considered a royalty. Different tax rules may then apply. This distinction is often decisive for the tax treatment of the payment.

In cross-border situations, double tax treaties determine how taxing rights are allocated between the country where the royalty arises and the country where the recipient is resident. Many treaties provide that royalties are taxable in the recipient’s country of residence. However, some treaties still allow the source country to apply limited withholding tax.

This means that the tax treatment can differ depending on the country involved. A royalty paid to a company in one country may be exempt from Belgian withholding tax, while a similar payment to another country may still be subject to a reduced withholding tax rate. The exact treaty wording and the status of the beneficial owner must therefore be reviewed carefully.

In addition, treaty benefits may be denied if the royalty is connected to a permanent establishment in the source country or if the amount paid is not at arm’s length. This is particularly relevant for international groups where royalty payments are made between related companies.

1. Risk of double taxation

One of the main risks is double taxation. A Belgian company may withhold tax on a royalty payment to a foreign recipient, while the recipient’s home country may also tax the same income. Although tax treaties often provide relief, the correct procedure must be followed to effectively obtain an exemption, reduction or refund.

2. Unnecessary withholding tax

In practice, companies sometimes withhold tax out of caution even when a treaty exemption could have applied. This may create a cash-flow disadvantage for the recipient and lead to time-consuming refund procedures. A prior review can often prevent unnecessary withholding tax.

3. Administrative documentation

Applying an exemption or reduction generally requires proper documentation. Companies may need to demonstrate who is entitled to the royalty income, which intellectual property rights are being used, whether the transaction has economic substance and whether the beneficiary is resident in a treaty country. Missing or incomplete documentation can create problems during a tax audit

4. Impact on international group structures

Royalties are common in multinational groups. A Belgian company may develop software and license it to foreign affiliates, make a brand available to distributors, or exploit patents, technology or know-how within the group. In such cases, the royalty must be commercially justified and priced at arm’s length. Transfer pricing documentation is often essential.

5. Foreign withholding taxes on incoming royalties

Belgian companies receiving royalties from abroad may face foreign withholding taxes. This reduces the net income received in Belgium. Depending on the applicable treaty and domestic Belgian rules, mechanisms may be available to limit double taxation. However, the result depends on the country, the type of royalty and the available documentation.

International tax matters often involve a combination of domestic tax rules, treaty provisions, procedural deadlines and supporting documentation. For individual investors, navigating these requirements can be challenging.

• Reviewing your investment income and identifying whether French dividend withholding tax may have been overpaid.
• Assessing whether a refund claim or administrative relief procedure is still possible within the applicable statutory deadlines.
• Calculating the potential tax recovery available.
• Preparing and submitting the necessary documentation and correspondence with the tax authorities.
• Advising on the future tax-efficient treatment of foreign dividend income.
• Supporting investors with broader cross-border tax planning and compliance obligations.

This topic frequently arises in situations involving:

• Multinational groups licensing intellectual property between affiliated companies;
• Foreign businesses expanding into Belgium;
• Belgian technology companies commercialising software internationally;
• Companies paying licence fees for software and cloud-based platforms;
• Businesses developing transfer pricing policies for intellectual property arrangements.

In many cases, organisations discover withholding tax obligations or treaty opportunities only after contracts have already been signed and payments have been made. An upfront review can often prevent unnecessary tax leakage and administrative complications.

The tax treatment of international royalties requires a coordinated approach. PKF BOFIDI assists companies, employers, entrepreneurs and international groups with the analysis, documentation and optimisation of royalty flows.

Royalty qualification and tax analysis

We assess whether a payment qualifies as a royalty, a service fee, a capital gain or another type of income. This qualification is the starting point for the correct tax treatment in Belgium and abroad.

Double tax treaty review

We analyse the applicable double tax treaty to determine which country may tax the royalty income and whether a withholding tax exemption, reduction or refund is available.

Withholding tax support

We assist with practical withholding tax formalities, including exemption requests, refund procedures, supporting documentation and communication with tax authorities.

Structuring intellectual property

For companies exploiting software, brands, technology, patents or know-how, we help design legally and fiscally sound intellectual property structures that support the commercial business model.

Transfer pricing and group policies

For multinational groups, we review whether royalty payments between related companies are at arm’s length and support the preparation of transfer pricing documentation.

Contract review

The wording of licence agreements, software contracts and IP transfer clauses can have a direct impact on the tax treatment. We review contracts and identify potential tax risks before they become disputes.

Whether your organisation pays or receives royalties linked to software, technology, trademarks, patents or know-how, the interaction between domestic tax rules, withholding tax obligations and double tax treaties can have a significant financial impact.

At PKF BOFIDI, we help international businesses, technology companies and multinational groups analyse royalty arrangements, assess treaty protection, manage withholding tax obligations and optimise intellectual property structures.

Would you like to understand the Belgian tax implications of your international royalty payments? Our specialists would be happy to review your structure and identify potential tax and compliance opportunities. Contact us. 

This article is intended for general information purposes only and does not constitute tax or legal advice. The tax treatment of royalties should always be assessed based on the specific facts, contracts and countries involved.