Tax benefits for innovative businesses
Under the current market conditions, the need for innovation is more important than ever. Together, the innovation box (formerly known as the patent box) and the Law to Promote Research and Development (WBSO), make the Netherlands an appealing location for innovative companies.
Innovation and tax benefits
Companies that engage in innovative activities may obtain substantial tax benefits because of several incentives that have been put in place by the Dutch government, such as the Law to Promote Research and Development (WBSO) and the innovation box.
Fiscal incentive
Amongst other things, the WBSO is a fiscal incentive given by the Dutch government to compensate part of a company’s labour costs by providing the company with a wage tax credit. The application of the wage tax credit is extended in 2010 as the definition of 'Research & Development' has been broadened.
Moreover, more money has become available for the application of the WBSO. The amount of wages qualifying for the wage tax credit has increased from €150,000 to €220,000. This temporary extended application of the wage tax credit directly provides cash advantages for innovative companies.
Technical innovation
A wage tax credit may be available on qualifying wages relating to technical innovation. Provided certain conditions are met, it may be possible to obtain the wage tax credit when the Research & Development (R&D) activities lead to the development of an intangible asset. An example of such an intangible asset might be the software developed within a company, the preceding feasibility study, technical scientific research, or the development of (or parts there of) a technical new physical product, etc.
Advantages for starting companies
In 2010, the R&D wage tax credit amounts to 50%, provided that the total R&D wages do not exceed €220,000. For starting companies, this wage tax credit is even increased to 64%. Should the amount of total R&D wages exceed €220,000, an 18% wage tax credit applies for the remainder. A request for application of the wage tax credit can be filed with SenterNovem, an agency of the Dutch government.
Broader scope of the innovation box
In addition to the R&D wage tax credit the expanded tax incentive for innovative activities has resulted in a significant expansion of the innovation box in the Dutch corporate income tax.
To qualify for the innovation box, the company has to be active in Research & Development (R&D) which leads to patents or apply for the wage tax credit mentioned above.
In the broadened innovation box, the profits resulting from R&D will only be taxed against an effective tax rate of 5%, rather than the statutory rate of 25.5%. Furthermore, the former maximum amount of profits that was attributable to the patent box no longer applies. In addition, the cap of €400,000 for non-patented intellectual property (IP) is removed.
The final flourish is that for 2009 and 2010, innovation development costs and losses on the exploitation of IP that are allocated to the patent box can be deducted against the ordinary corporate income tax rate of 25.5%. This means that costs can now be deducted against 25.5% whereas future profits are only taxed at 5%. It goes without saying that the amount of future income up to the costs deducted will be taxable at the ordinary rate, however all together this provides for a substantial cash-flow benefit. Also, it reduces potential downside risk of innovation substantially as the costs are fully tax deductible to other income derived.
More information
Please contact Patrick van Min or Suzanne Hurkens from Deloitte, Tel: +31 (0) 88-2882888.
Related topics
The Netherlands: attractive European business location
Fiscal advantages of doing business in the Netherlands
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