TAX INCENTIVES FOR RESEARCH & DEVELOPMENT & INNOVATION2020

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FAVORABLE TAX REGIME FOR RESEARCH & DEVELOPMENT & INNOVATION

The flourishing Belgian innovation sector is supported by a favourable tax system. According to an OECD report 2019 edition, the Belgian tax package for R&D is ranked third worldwide in the ranking of attractive tax systems.

The Belgian tax package is structured in such a way that it offers an allowance for every part of the R&D activity:

1. a cost reduction for investments in R&D staff and assets

2. advanced decisions in tax matters regarding the business model (cost sharing and contract R&D model or own commercialization model)

3. a partial income tax exemption for successful innovations resulting from the R&D activity

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Schematically this can be represented as follows:

Investing R&D staff R&D assets

Activities Belgian R&D center / R&D project

80% payroll tax exemption for R&D workers Tax-free innovation premium

Special tax status for foreign executives and researchers

R&D Tax creditAccelerated depreciationTax exemption susidies

Tax rulings for contract R&D Tax rulings for commercialization IP

Innovation Intellectual property

Innovation income deductionInvestment deduction patents, licences

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1. REDUCING COSTS AND EXPENSES

1.1. Partial withholding tax exemption for researchers

• For whom? For researchers working in R&D and in possession of a specific degree or working in a “young innovative company “(start-up <10 years and >15 % R&D expenditure)

• Advantage for the company: extra financial means

• Principle: the wage withholding tax is normally retained on the remunerations paid to the researchers, but a part must not be paid to the Belgian Treasury

- 80 % exemption for masters and YIC - 80 % exemption for bachelors (limited in function of the number of masters)

1.2. Innovation premium

• For whom? For a creative employee who contributes to a new idea (with added value) that is implemented within the company.

• Consequence? Exemption from personal income tax and social security contributions for the employee and employer

• Max amount: one month’s gross salary per worker and per calendar year.

1.3. Expatriate tax status in R&D

For foreign researchers, temporarily in Belgium detached or recruited on the own payroll:

• tax-free expatriation allowances to a max of 29,750 euros per year

• tax-free reimbursement of non-repetitive expenses (installation costs, school fees, …)

• exclusion from the taxable income of the days performed abroad

For the employer:

• reduction of employment costs for expatriates

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1.4. R&D tax credit

• What? A reduction of the tax payable by 3.38 euros per 100 euros investment (set off full amount in year of investment) or 5.13 euros spread over the depreciation period of the asset.

• For what kind of investments? These must be investments used for research and de-velopment of new products and advanced technologies that are environment friendly

• Advantage: in an international context, this entails an improved accounting representa-tion of the costs of R&D.

• The tax credit that could not be offset will be reimbursed after 5 years

1.5. Accelerated depreciation

• What? Accelerated depreciation on intangible fixed assets used for R&D is allowed.

• Condition: these assets are depreciated in 3 years (instead of 5 years), according to the straight-line depreciation method

1.6. Tax exoneration for regional grants

• What? There is a tax exemption of capital and interest subsidies granted by regional institutions in the context of support for R&D.

• Condition: The subsidized assets may not be transferred within a 3 year period.

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2. ADVANCED DECISIONS IN TAX MATTERS REGARDING THE BUSINESS MODEL

2.1. Tax ruling on the “at arm’s length” principle of intercompany transfer pricing

• What? Transfer pricing ruling for cost sharing and contract R&D

• Advantage: Advanced legal certainty

• Example: cost-plus ruling for contract R&D

2.2. Tax ruling with regard to the calculation method of innovation income

• Example: residual profit split method

3. INNOVATION AND VALUE CREATION

3.1. Innovation income deduction

• What? Deduction from the taxable base of 85 % of the net income from legally protected intellectual property rights arising from own R&D. As a result, the effective tax rate on this income is 3.75 %.

• For whom? Belgian companies and Belgian establishments of foreign companies.

• Eligible intellectual property rights:

- patents and supplementary protection certificates - variety rights and orphan drugs - copyrighted software

• When IP rights are acquired from third parties they need to be further developed

3.2. Investment deduction for patents and licenses

What? Deduction from taxable income of 13.5 % of the investment value of

• patents (acquired or self-developed by the company)

• acquisition value of individualized license

Responsable editor: FPS Finance - Fiscal Department for Foreign InvestmentsFrancis Adyns North Galaxy - Koning Albert II - laan 33 - bus 22 1030 Brussels (BE)• www.fin.belgium.beD/2020/1418-........