Federal Public Service Finance

Innovative fiscal measuresFor Research & Development

2014

Fiscal Department for Foreign Investments

Michela Ritondo

BelgiumEffective (Average) Corporate Tax Rate (ECTR) 2012*

34

25

31

37,1

31,3

24

37,9

38,6

26,3 27

,5

28,2

34,2

25,1

25,2

36,5

40,1

0

5

10

15

20

25

30

35

40

45

Belgium Netherlands Germany France Italy UK USA Japan

NCTR (Nominal Corporate Tax Rate)

ECTR (Effective Corporate Tax Rate)

Sources : ZEW, Centre for European Economic Research, ManheimEffect Tax Levels – Final Report 2012

Especially in Belgium, the ECTR is considerably below statutory tax rates (-7,7%)

2

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 DeductionAnnual Tax Deduction==

EQUITY EQUITY (in the opening balance sheet of the taxable (in the opening balance sheet of the taxable period)period)

X RATE (X RATE (10-year OLO10-year OLO))

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%)

Assets Liabilities

Group Financing100 000

Share Capital100 000

P&L Account Before N.I.D. After N.I.D

Profit before tax 4000 4000

N.I.D. (2,63 %) / - 2630

Taxable 4000 1370

Corporate Tax (33,99 %) 1360 466

Effective Tax Rate 33,99 % 11,6 %

1. Notional Interest Deduction

Net Result(Return on Equity)

Effective Tax Rate

≤ 2,63 % 0 %

4% (Previous slide) 11,6%

5% 16,1%

6 % 19 %

Assets Liabilities

Business Assets100 000

Share Capital100 000

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

1. 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

Notional Interest Deduction

THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.

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

10 good reasons to invest in 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: 100 Deduction: ( 80) Taxable basis: 20 Corporate Tax (33,99%) (6,8) Net income after tax: 93,2

Effective Tax rate: 6,8 %

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

3. 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

Unique tax features for R & D

Federal Public

ServiceFINANCE Développer une entreprise axée sur 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

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.

Highly competitive measure

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 patentsacquired 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

Unique tax features for R&D

3/ R&D Tax Credit Corresponds to the tax saving linked with the investment deductionEx.: 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.

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

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&DAttractive 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

PeopleWage withholding tax exemptionTax allowance for additional employeeInnovation premiumExpatriate tax regime

Belgian R & D Centre

Activities Investments

Patents

Favourable transfer pricing rulings

Investment deductionR&D Tax creditAccelerated depreciationTax exoneration for regional grants

Patent Income Deduction

INVEST IN BELGIUM – increase your profitsINVEST IN BELGIUM – increase your profits

ExampleManufacturing 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: 13,5% x 20 000 = 2700 Patent Income Ded.: 80% x 3 000 = 2400 N.I.D. 2,63% x 100 000 = 2630 Taxable basis: 4 270

Corporate Tax: (4 270x 33,99%) = 1 451 Effective tax rate: 12 %

Other tax incentives

Tax ruling (advanced decisions system on tax matter)

Dividend withholding tax exemption

Holding regime

Bonded warehouses and VAT deferal

Etc.,……

Federal Public Service Finance Fiscal Department for Foreign InvestmentsRue de la Loi, 24 (Parliament Corner)1000 Brussels - BELGIUM

Michela RITONDO

Email: michela.ritondo@minfin.fed.be Tel.: +32 257 938 69Fax: +32 257 951 12

Need to know more ?

INVEST IN BELGIUM – increase your profitsINVEST IN BELGIUM – increase your profits