Belgium is a very interesting jurisdiction in this regard. Indeed, Belgium actively promotes R&D and IP-intensive businesses through various tax incentives, some at the corporate level and some applicable to employees. Belgium is continuously improving on and expanding the scope of these incentives.
The main corporate tax incentives are the following:
- Accelerated depreciation: assets used for R&D may qualify for accelerated three-year depreciation rather than the standard five-year schedule
- R&D investment deduction: in addition to (ordinary) depreciation of research costs, the company is allowed an additional 13.5% one-time or 20.5% spread deduction for R&D investments, resulting in the deductibility of up to 120.5% of the investment
- Patent income deduction (PID): the PID allows taxpayers to deduct 80% of qualifying patent income from their taxable income, resulting in a 6.8% maximum effective tax rate. The PID applies not only to licence payments (milestone payments, upfront fees, etc) but also to a percentage of turnover on patented goods and services. The requirements to benefit from the PID were recently relaxed and, as a result, an R&D centre is no longer required in all cases (making the PID particularly interesting for YICs)
- Other corporate tax benefits: the notional interest deduction, tax exemptions for regional subsidies, energy-savings deduction, and an established advance ruling practice (cost plus transfer pricing method for R&D, rulings allowing a downward adjustment of the taxable profit if it could not have been realised in a stand-alone situation, etc).
The main employment-related incentives are the following:
- R&D payroll tax incentive: 80% of taxes withheld through the payroll on wages for qualifying research need not be remitted to the tax authorities. This incentive reduces the salary cost of researchers working on qualifying R&D projects by about 25%, allowing companies to put these savings to better use
- Expat tax status for executives and researchers: foreign executives and researchers temporarily assigned to Belgium may qualify for a special non-resident tax status (ie they will only be taxable on income sourced in Belgium) and receive tax-free allowances of up to EUR 29,750, tax-free reimbursement of certain expenses (installation costs, school fees, etc), and a business travel exemption
- Other employment-related tax benefits: tax-deductible R&D premium (up to one month's gross salary per employee, exempt from social security contributions and income tax), etc
YICs may qualify for all of the abovementioned tax incentives. Since many YICs do not break even in their first few years, they will particularly appreciate these incentives, which will have a direct (positive) impact on their cash flow and accounting position