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Innovation and innovative businesses

The Netherlands has been high in the world ranking list of knowledge economies these past years. Innovation plays a significant role in the development of products and services. The government wishes to stimulate innovation in the Netherlands and has introduced various tax stimulation measures.

Labour costs subsidy

When your business’s activities include product development, process programming, technical (scientific) research, or analyses on the technical feasibility, then your business may be eligible for the labour cost subsidy for research and development work (R&D).

The subsidy consists of a deduction of the payroll tax and the social security contributions of the R&D salary of employees involved in these R&D activities. This will cause your labour costs to reduce significantly. The deduction amounts to 50% or 64% of the labour costs on the first EUR 220,000 labour costs. The deduction on the remaining labour costs amounts to 18% (figures 2011).

One of the conditions for this tax relief is that an R&D statement is issued by AgentschapNL. We can assess with you whether a request is the best option and can arrange this request for you.

Research & Development deduction (“RDA”)

In order to provide a tax stimulant for the performance of R&D activities with an R&D statement, the RDA was introduced as from 2012. This is an additional tax deduction on the profit and is a percentage of certain costs that are directly attributable costs and investments for R&D activities, excluding the labour costs. The RDA can first be applied on costs, or expenses, for R&D activities performed after 31 December 2011.

Based on an RDA percentage of 40%, the tax relief is as follows:

  • Business subject to corporate income tax: at a 25% corporate income tax, this results in a net tax relief for a private limited company of 10% of the costs involved and, for a DMS, including AB effect 7.5%.
  • Businesses subject to personal income tax: at a top rate of 52% and profit exemption for small and medium-sized enterprises of 12%, resulting in a net tax relief of up to 18.3% of the costs involved.

Innovation box corporate income tax
If the profit of your business is subject to corporate income tax, then you are eligible for even more tax relief. An R&D statement is one of the means to gain access to the innovation box for the corporate income tax. The innovation box can also apply when you have made a technical invention on which you have obtained a patent, or the cultivator rights for newly developed plant breeds.

The innovation box means that part of the profit is obtained from R&D activities; patents and cultivator rights are subject to only 5% corporate income tax. This results in a tax deduction of 15% to 20% of this profit! Moreover, the production costs for immaterial fixed assets are always deductable at the normal rate of 20/25%. If the innovation profit amounts to more than the previously deducted production costs, then that profit is taxed at a rate of 5%.

The determination of part of the total profit, which is attributable to the innovation activities, is, in practice, the most difficult part of the assessment. To this end, practical and useful calculation models were developed, which can be used to attribute certain distribution codes to various core business functions. Normally the application of the innovation box does not result in a great administrative burden.

As this involves significant tax relief on which you need to gain certainty, we recommend that you discuss your situation with the Dutch Tax and Customs Administration. We can provide assistance in doing so and have experience with the application of the innovation box. We can provide additional explanation without obligation and discuss the possibilities for your business.

More information

Please contact Ronald van Kampen or Peter Coolen on 040 235 34 30 for more information on this matter.