Federal Public Service Finance
Innovative fiscal measures
For Research & Development
2014
Fiscal Department for Foreign Investments
Michela Ritondo
2
Belgium
Effective (Average) Corporate Tax Rate (ECTR) 2012*
36,5
25,2
24
25,1
31,3
28,2
27,5
31
34
25
25
26,3
30
34,2
ECTR (Effective Corporate Tax Rate)
40
35
37,9
37,1
NCTR (Nominal Corporate Tax Rate)
40,1
45
38,6
Especially in Belgium, the ECTR is considerably below statutory tax rates (-7,7%)
20
15
10
5
0
Belgium Netherlands Germany
France
Sources : ZEW, Centre for European Economic Research, Manheim
Effect Tax Levels – Final Report 2012
Italy
UK
USA
Japan
Notional Interest Deduction
What is it?

A notional interest calculated and deducted yearly
from the taxable basis

used to off-set operational or financial income
(thus lowering effective tax rate)
Notional Interest Deduction
Who?
Companies subjected to
-
Corporate tax
Non-residents / Corporate Tax
Notional Interest Deduction
How does it work ?
Annual Tax Deduction
=
EQUITY (in the opening balance sheet of the taxable
period)
X RATE (10-year OLO)
1. Notional Interest Deduction
Interest Rate


RATE = annual average of the monthly published rates
of the long term Belgian Government Bonds (10-year OLO)
Fixed yearly: for 2014 (Tax Year 2015):
 2,63 %
 3,13 % (SME)
1. Notional Interest Deduction
EXAMPLE :
(Return on Equity: 4%)
P&L Account
Profit before tax
N.I.D. (2,63 %)
Assets
Group Financing
100 000
Liabilities
Share Capital
100 000
Before N.I.D.
After N.I.D
4000
4000
/
- 2630
Taxable
4000
1370
Corporate Tax (33,99 %)
1360
466
Effective Tax Rate
33,99 %
11,6 %
1. Notional Interest Deduction
Assets
Business Assets
100 000
Net Result
(Return on Equity)
≤ 2,63 %
4%
(Previous slide)
Liabilities
Share Capital
100 000
Effective Tax Rate
0%
11,6%
5%
16,1%
6%
19 %
1. Notional Interest Deduction
Other particularities




Permanent measure
No ruling nor agreement is needed
Suppression of the 0,5% capital duty as of 1/1/2006
EU compliant
Notional Interest Deduction
OPPORTUNITIES
 It’s a valuable tool for further development of Coordination
Centre activities
 Opens possibilities for international groups of allocating new
activities to a Belgian entity such as intra-group financing,
central procurement or factoring
THUS: increases attractiveness of Belgium for capital
intensive companies, equity funded headquarters and
treasury centers.
10 good reasons to invest in R&D !
1. Patent Income Deduction
2. Investment deduction for R&D related
investments and patents
3. R&D Tax Credit
4. Partial exemption salary withholding
tax for researchers
5. Tax allowance for additional employee
10 good reasons to invest in R&D!
6. Innovation premium
7. Expatriate status in R&D
8. Tax exoneration for regional grants
9. Accelerated depreciation of R&D intangibles
10. Deductible gifts
Unique tax features for R & D
1/ Patent income deduction
What is it ?
Deduction of 80% of the income from patents from the taxable
basis, resulting in an effective tax rate of maximum 6,8% on
this income
Who can benefit ?
Belgian companies and Belgian establishments of foreign
companies
Unique tax features for R & D
1/ Patent income deduction
Example
Patent income:
Deduction:
Taxable basis:
Corporate Tax (33,99%)
Net income after tax:
100
( 80)
20
(6,8)
93,2

6,8 %
Effective Tax rate:
3. Unique tax features for R & D
1/ Patent income deduction
Patents concerned

self-developed or co-developed by a Belgian company or
branch;

acquired by a Belgian company or branch provided they
are being further developed in Belgium or abroad (by
acquisition, or license,…)

Large companies must have in-house R&D activities in a
R&D center that qualifies as branch of activity

As of 1 January 2013 SME’s are exempted from the R&D
center requirement
Unique tax features for R & D
1/ Patent Income Deduction
Calculation of the deduction
 For patents that are licensed: 80% of the patent income
received, to the extend the income is at arm’s length
 For patents that are used in the production process: deemed
deduction of 80% of the at arm’s length royalty that would
have been received had the patents been licensed to
unrelated third parties
Federal Public
Service
FINANCE
Développer une entreprise axée sur R&D
Unique tax features for R & D
1/ Patent Income Deduction
 Applies to variable income streams, fixed income streams, as
well as upfront fees, milestones, etc.
 Other intellectual property rights (copyrights, know-how,
designs, trademarks, etc.) do not qualify.
Unique tax features for R & D
1/ Patent Income Deduction
Highly competitive measure
 Very low effective tax rate of maximum 6.8% and absence of
any capping rules;
 Tax deduction in addition to normal tax-deductibility of R&D
related expenses;
 Can be combined with Notional Interest Deduction for
invested equity, etc.
Unique tax features for R & D
2/ Investment deduction for R&D related inv. and patents

Investment deduction for R&D related investments:
for assets which aim to promote R&D of new products and
advanced technologies which are environment-friendly :
 deduction of 13,5% on the investment value (in one shot)
OR 20,5% on the annual depreciation (spread deduction)

Investment deduction in patents
acquired or self-developed by the company
 deduction of 13,5% on the investment value
NB: In case of insufficient profits, deduction carried forward for
an unlimited period .
Unique tax features for R&D
3/ R&D Tax Credit
Corresponds to the tax saving linked with the investment
deduction
Ex.: Investment of 100 000 €
Tax credit = 100 000 x 13,5% x 33,99% = 4 589 €
▪ Advantage: improved presentation in accounting terms of the
cost price of R&D in Belgium
▪ In case of insufficient profits, the Tax Credit can be carried over
to the subsequent 4 tax years;
The part not used after 5 years is refunded.
Unique tax features for R & D
4/ Income tax reduction for researchers, in favor of employers
 Principle: the salary withholding tax is normally retained
on the remunerations paid to the researcher,
but the amount of tax so retained must not be totally paid
to the Belgian Treasury
(= extra financial means for the employer)
  80% exemption !
 For researchers with a specific degree, engaged
in R&D program
Unique tax features for R&D
5/ Tax allowance for additional employee
Exemption of 15 220 € (year 2014) from the enterprises profits:
-for the manager of Total Quality department
-for the manager of Exportations department
Unique tax features for R&D
6/ Innovation premium
▪ Principle: the premiums must be granted for an innovation which
creates genuine added value for the normal activities of the
employer
 exemption from personal income tax for the beneficiary
 exemption from social security contributions
 deductible against corporate income tax for the employer
▪ Conditions:
-the amount paid per worker may not exceed one month’s gross
salary per calendar year
-Publication within the company of the criteria, identification of the
project,…and communication to the Ministry of Economic Affairs
Unique tax features for R&D
7/ Expatriate status in R&D
Attractive conditions for foreign executives and researchers:
▪ Exclusion from the taxable remuneration of expatriation
allowances
 max €29 750 per year for repetitive expenses (cost of living,
cost of housing, tax equalization)
 tax free reimbursement of installation costs, school fees,…
▪ Exclusion from the taxable remuneration of workdays performed
outside Belgium
Attractive conditions for employers:
▪ Reduction of employment cost for expatriates with simple
proceedings
Unique tax features for R&D
8/ Tax exoneration for regional grants in favor of R&D
▪ Subsidized assets or intellectual property out of a subsidized
project can not be transferred during a 3 year period
Unique tax features for R&D
9/ Accelerated depreciation of R&D Intangibles
Tax depreciation rules on R&D investments (intangibles):
 accelerated depreciation in 3 years instead of 5, according to
the straight-line method of depreciation
Unique tax features for R&D
1O/ Deductible gifts
Cash contributions aiming at sponsoring public R&D programs
 deductible from the net taxable income
 max. 5% of the net income or € 500 000
People
Wage withholding tax exemption
Tax allowance for additional employee
Innovation premium
Expatriate tax regime
Belgian R & D Centre
 Investment deduction
R&D Tax credit
Accelerated depreciation
Tax exoneration for regional grants
Favourable
transfer pricing
rulings
Activities
Investments
Patent Income Deduction
Patents
INVEST IN BELGIUM – increase your profits
Example
Manufacturing company with a R&D division:
 Share capital: 100 000 (of which 20 000 = contributed patent value)
 Return on equity: 12%
 Net profit:
12 000
(of which 3 000 = patent income ; 9 000 = product revenue)
To deduct




Invest. ded. on patents:
Patent Income Ded.:
N.I.D.
Taxable basis:
 Corporate Tax:
 Effective tax rate:
13,5% x 20 000 =
80% x 3 000 =
2,63% x 100 000 =
(4 270x 33,99%) = 1 451
12 %
2700
2400
2630
4 270
Other tax incentives
Tax ruling (advanced decisions system on tax matter)
 Dividend withholding tax exemption
 Holding regime
 Bonded warehouses and VAT deferal
 Etc.,……
INVEST IN BELGIUM – increase your profits
Need to know more ?
Federal Public Service Finance
Fiscal Department for Foreign Investments
Rue de la Loi, 24 (Parliament Corner)
1000 Brussels - BELGIUM
Michela RITONDO
Email: michela.ritondo@minfin.fed.be
Tel.: +32 257 938 69
Fax: +32 257 951 12