The Netherlands actively promotes engaging in R&D activities through a favourable corporate income tax regime and specific R&D tax incentives which are available to companies operating in the Netherlands. Please find below a high-level overview of the main tax incentives available which could significantly lower your companies R&D cost and taxable base.
- Payroll Tax Credits
Companies performing particular R&D activities may benefit from payroll tax credits. The reduction is 35% (up to 50% for start-up companies) of the first EUR 250,000 in R&D wage costs and 14% for such costs exceeding EUR 250,000 with a maximum of €14M (2014).The credit is an immediate benefit for the company as cost of salaries for qualifying R&D employees are reduced.
As an example, the development of new technical hardware or software could qualify as R&D. Companies that merely perform R&D on the instructions and at the expense of a Dutch company could also obtain the credit. Market research, organizational and administrational activities do not qualify for this incentive.
- R&D Deduction
In addition to the payroll tax credits, the Netherlands also provides for a deduction of R&D costs (not salaries) on top of actual R&D costs deduction. The R&D deduction is set at 60% (2014) of the costs and expenses that can be attributed to R&D. This could regard investments in equipment and materials. Wages cannot qualify for the R&D Deduction.
Access to the R&D deduction is linked to the payroll tax credits and the deduction can be applied in combination with the payroll tax credits. If the company is in a profit making position there is immediate benefit as the deduction lowers the taxable base of a company.
- Innovation Box
Companies could apply the innovation box on income from a self-produced intangible asset which is a qualifying R&D asset or for which a patent is received. The innovation box rate is 5% for qualifying net income instead of the statutory Dutch corporate income tax rate of 20%-25%. Qualifying income from IP exceeding a threshold containing the recapture of R&D costs, will be taxed at the beneficial tax rate. Planter’s rights could also qualify. Trademarks, logo’s etc. cannot qualify.
To promote the utilization of the innovation box for small and medium sized companies, as per 1 January 2013 it is also possible to opt for a lump sum amount. The lump sum amount entails that 25% of the profit of the company could be allocated to the innovation box with a maximum of EUR 25,000. A detailed calculation of what should be allocated to the innovation box would then not be required. The lump sum amount will be taxed at a corporate income tax rate of 5%. If a taxpayer opts for this alternative incentive, it should be applied for a period of three years.
To apply the innovation box a request should be filed with the Dutch tax authorities. It is possible to obtain certainty in advance from the Dutch tax authorities on the income that may be allocated to the innovation box.
- Small scale investment deduction and other incentives
For certain qualifying assets the small scale investment deduction could be obtained and an additional amount of the investment price could be deducted from the fiscal profit. The amount is based on a range and depends on the invested amount in the book year. As an example the small scale investment deduction will be 28% for an investment amount between EUR 2,300 and EUR 55,248.
Other incentives could be:
- Tax free allowance of 30% of the salary (conditions apply) for foreign specifically skilled employees as compensation of extraterritorial expenses;
- Additional investment deductions;
Please note that application of the various R&D incentives requires satisfaction of formalities such as meeting the application deadline.