Incentive Deduction for the Commercialization of Innovations (IDCI) in Québec – 2% on Eligible IP Income

What is Québec’s IDCI (2% Innovation Deduction)?

Québec’s IDCI—often described as a “Québec patent box”—was introduced in March 2020 to encourage companies to commercialize intellectual property (IP) created through Québec R&D. Eligible corporations can reduce the effective corporate tax rate to 2% on qualified income from commercializing eligible IP.

Who Is Eligible for the IDCI?

• The corporation must have an establishment in Québec and carry on business there. Québec Finance
• It must not be tax-exempt. (standard condition; see corporate tax eligibility rules)
• It must commercialize an eligible IP asset, such as:
  • Software protected by copyright
  • An invention covered by a patent (or certificate of supplementary protection)
  • A plant variety with a valid plant breeder’s rights certificate
• The asset must result, at least in part, from R&D activities carried out in Québec that significantly contributed to its creation, development, or improvement.

What Income Qualifies (Royalties, Sales, Services, Damages)?

Qualified gross income reasonably attributable to a Québec establishment, including:

• Royalties or consideration for the use of the IP
• Sales or lease income from property embedding the eligible IP
• Service income is intrinsically linked to the IP (e.g., implementation, maintenance tied to the asset)
• Damages awarded in litigation related to the IP

The 2% Effective Rate: How the Formula Works

The deduction aligns the effective corporate tax rate to 2% on the qualified portion of income using three components:

1. Qualified profit attributable to the eligible IP
2. A Québec nexus ratio reflecting the share of R&D tied to Québec
3. An IDCI rate factor that brings the qualified income down to a 2% effective rate

Nexus Requirements After 2023: Proving Québec R&D

For taxation years beginning after December 31, 2023, the nexus rules tighten:

• Only R&D that directly contributed to the IP counts toward the Québec nexus
• Nexus tracking is historical, requiring documentation that links R&D work to the resulting IP asset
• Transitional rules apply; maintain clean audit trails for pre- and post-2023 periods

How to File: Form CO-737.18.CI and Deadlines

• Compute qualified profit, determine the Québec nexus ratio, and apply the IDCI factor
• File Form CO-737.18.CI with your corporate return for the relevant taxation year
• Keep supporting documentation: IP registrations, R&D records, revenue tracing worksheets, and intercompany pricing support if applicable

Get an IDCI & R&D Tax Credit Review with Emergex

Contact us to assess your IDCI eligibility, quantify the potential 2% effective-rate benefit, and coordinate it with other incentives like SR&ED and Québec’s CRIC—so you maximize savings without gaps or double-counting.

What you get: IDCI nexus mapping tied to Québec-performed R&D, revenue-tracing worksheets, and CO-737.18.CI filing guidance and a coordinated plan across incentives.