Tax advantage for innovators
Is my business paying enough attention to innovation? Am I eligible for a tax cut? If so, what tax benefits are available? These are just a few questions clients often ask us when it comes to innovation in their organisations and the available tax options for promoting innovation.
If your organisation develops technically innovative products or services, or if you want to improve your production processes, there is a fair chance that you are entitled to tax cuts. There are two incentives that facilitate innovation by providing tax benefits: the Dutch Promotion of Research and Development Act (Wet bevordering speur- en ontwikkelingswerk, “WBSO”) and the innovation box (Innovatiebox).
Tax schemes: WBSO and innovation box
The tax scheme designed to promote research and development is called the WBSO. It offers a payroll tax credit in respect of (wage) costs and expenses incurred during the research and development phase of your innovation. The innovation box offers a corporate income tax credit for profits from your innovation. If you satisfy the conditions, you will pay 7% rather than 25% tax on the proceeds from your innovation - a reward for successful innovations.
Moreover, apart from these savings, the WBSO and the innovation box may be beneficial to your organisation in the long run.
Innovative business - a broad concept
Innovation is a comprehensive concept, covering not only technological highlights in brand new products or minor modifications updating a production process, but also the smart use of new technologies or the development of modern communication channels. Options for tax cuts based on innovation are definitely not only restricted to high-tech companies; they apply to any conceivable sector, from plants improving their production processes to food companies required to modify their products due to more stringent health requirements. All such companies can benefit from tax schemes and be awarded an extra tax break - provided, of course, that they satisfy all conditions.
By being smart about designing your business’s innovation model, you will be able to derive more benefits from the WBSO and the innovation box. In this context, it is crucial that you define a sound strategy, prepare an inventory of your innovation projects in advance and keep accurate records of your innovation activities afterwards. This is how you avoid rejections, repayments and fines, and comply with the administrative burden, which has increased since 1 January 2017.
BDO’s specialists will be happy to tell you what factors you should consider in your specific situation. They can help you implement a full-scope and pragmatic approach, with the long term always taking centre stage. Our close relationship with the tax authorities, which involve the BDO specialists in evaluations of the current schemes on a structural basis, is important in view of the effectiveness of these schemes, so that they actually foster innovation by businesses.