Such royalties are taxed at a relatively low rate of 15% on the first income bracket of 61,200 euros (tax year 2020), and the beneficiary can deduct generous fixed-rate professional costs (50% on the first income bracket of 16,320 euros and 25% on the following bracket up to 32,640 euros (tax year 2020)).
Since no objective legal criteria exist to determine the amount of the remuneration that can be paid in copyright royalties, it is recommendable to seek an advance tax ruling from the Office for Advance Tax Rulings. The Office approves of two different ways to determine the amount of copyright royalties, namely:
• on the basis of the average time spent on creative work,
• as a fixed percentage of the company’s turnover.
Unlike in the case of employees or freelance workers, a manager’s ordinary salary must remain unaffected by the awarding of a copyright royalty. Moreover, the Office for Advance Tax Rulings imposes additional restrictions (‘caps’) on copyright royalties that are set as a percentage of the company’s turnover:
• royalty may not exceed 50% of the earnings before tax and minus the remunerations paid as copyright royalties, however without being less than 5% of the “net creative turnover”;
• royalty must be reduced by copyright-related income attributed to employees and third parties (e.g. freelance workers);
• royalty should not exceed twice the average copyright royalty paid to employees and third parties;
• the ordinary salary paid to the manager must be at least EUR 45,000
Leyton will happily provide answers to any questions you may have regarding the tax treatment of the copyright royalties, and our experts will be eager to help you to determine the level of the copyright royalty and assist you in obtaining an advance tax ruling, so that you and your company have the necessary financial security.