R&D and innovation
Economic stimulus plan
Last update: 21 August 2013 - 14:00 CET
Belgium has a 2020 objective of investing 3% of its GDP in research and development. To help the country reach this target, the Government wants to make use of two fiscal measures (among other non-tax related ones). These measures are implemented by the Law of 17 June 2013 containing tax and financial measures (Dutch - French).
Qualified researchers and partial payroll tax exemption
In order to provide R&D active companies with increased financial means, a partial payroll tax payment exemption on R&D wages is available to firms with scientific professionals in their payroll.
The system until recently applied a 75% payroll tax exemption on researcher salaries. The researchers' personal tax situation remained unaffected as their employers withheld 100% of the normally applied payroll tax, of which only 25% had to be transferred to the tax authorities.
Three types of firms can benefit from this partial exemption:
- Those that remunerate researchers active in projects which consist of partnerships with academic establishments in the EEA (European Economic Area) or recognised scientific institutions.
- So called "Young Innovative Companies" employing scientific professionals.
- Companies which remunerate researchers who are active in R&D programs and who possess doctoral degrees in medical or pharmaceutical sciences, degrees in civil engineering or master's degrees in one or more scientific disciplines.
The stimulus plan provides for an increase of the percentage of partial payroll tax exemption on wages of qualified researchers from 75% to 80%. The increase is applied consistently across all firm categories outlined in the above bullet points. The increase applies to payroll tax due as of the first month following the month of publication of the law implementing the increased partial payroll tax exemption. The increased 80% payroll tax exemption applies to payroll tax due on wages received as of 1 July 2013.
In line with the increased tax audit focus for payroll tax incentives which was announced previously by the Minister of Finance, the following measures apply as of 1 January 2014, to ascertain a more effective audit of the payroll tax exemption by the tax authorities:
- Definition of the concepts “research” and “development projects or programmes” in the law itself (whereas previously the concepts were only defined in the preparatory works of the law of 23 December 2005 (“Generatiepact” / “Pacte de solidarité entre les générations”) but not in the law itself.
- Mandatory upfront reporting of research and development programs with a special government service (“Programmatorische Federale Overheidsdienst Wetenschapsbeleid / Service public de programmation de la Politique scientifique fédérale”) upon the start-up of an R&D project or program. This special government service should assess whether the reported programs qualify and if not, any unrightfully applied payroll tax reduction would be reclaimed from the taxpayers. There is a possibility to ask confirmation from this special government service on the eligibility of certain projects or programs. As already applicable under current Belgian tax law, companies have a documentation obligation regarding the application of this payroll tax exemption for researchers: i.e., companies should have a detailed documentation file including (i) identification of the company; (ii) description of the projects; and, (iii) list of researchers working on these projects with their diploma’s and indication of time spent on the projects available upon a tax audit. Such documentation file can be kept on a calendar year basis.
R&D projects and programs existing at the time of the entry into force of this measure are subject to the reporting obligation until 31 December 2014. As from 1 January 2015 all existing R&D projects and programs should meet all conditions of the new measure.
Finally, a technical correction is made to the conditions to qualify as a “Young Innovative Company”. Whereas the previous wording in Art. 275/3 Income Tax Code refers to Art. 15, § 1 of the Companies Code and offers solid arguments to claim that the qualification as an SME should be assessed on company level, reference is henceforth made to Art. 15 of the Companies Code in its entirety so that there can be no doubt that the assessment should be made at consolidated level.
A company which employs a researcher with a net monthly salary of EUR 3,000 would reportedly save approximately EUR 20,000 per year and on that researcher alone under the new regime.
With SME's and startups specifically in mind, the plan also foresees the relaxing of conditions for patent income deduction ("PID").
In 2007, Belgium introduced the PID to encourage local companies' increased involvement in research and development work as well as patent ownership. The incentive's underlying objective was to increase the country's attractiveness for R&D activity and patent exploitation.
Qualifying companies, i.e. tax payers subject to corporate income tax in Belgium, can benefit from an 80% deduction of patent generated income from their taxable base. The deduction results in an effective tax rate of maximum 6.8% on qualifying income.
Patents on which this 80% deduction can be exercised are restricted to those which have not been used before 1 January 2007. Furthermore, in order to qualify, the patents can either be:
- owned by the company and born out of in-house R&D work in research centres in Belgium or abroad; or
- purchased by the company or obtained under a license agreement with subsequent development to the patent.
Deductible income can be derived from the company's licensing of the patent (or extended patent certificates), or generated by the company's use of the patent in a production or service rendering process.
A key requirement which, if met by corporate taxpayers, under the previous regime offered access to PID was that the research centre must constitute a branch of activity or a business line component.
This very condition has been eliminated by the stimulus plan as of tax year 2014 for companies which qualify as “small companies” according to Art. 15 of the Companies Code. Indeed, such small companies often do not have an in-house research centre and outsource the research to an external research centre, while bearing the research costs and owning the research results. Consequently, PID has become more accessible for most SME's and even more so for new start-ups. This requirement was in fact a sizeable obstacle for this segment of companies, an issue which the Government felt hindered Belgium's competitiveness.