Innovation incentives in The Netherlands
January 9, 2024
Innovation incentives in The Netherlands, with its strategic approach to economic development, offer an attractive marketplace for businesses seeking innovation and growth. The Dutch government has implemented an array of incentives to attract and nurture investment across various sectors. These initiatives not only underscore the country’s commitment to fostering a competitive business environment but also reflect its commitment to sustainability and technological advancement.
Top sectors and innovation policy
Central to the Dutch strategy is the focus on 10 Top Sectors, areas where the Netherlands boasts significant global relevance. These sectors include AgroFood, Horticulture, High Tech, Energy, and more. The government, through Public Private Partnerships (PPPs), offers substantial support to these sectors. Each sector has an innovation contract that outlines specific goals and strategies, paving the way for enhanced research and development, particularly in tackling societal challenges like climate change.
Dutch Research and Development Act (WBSO)
The WBSO (Dutch Research and Development Act) is a scheme designed to encourage technological innovation by offering tax benefits for R&D expenditure. It provides tax relief for wage costs and other R&D expenses by offsetting a percentage of these costs against wage tax. Initially, the WBSO only covered wage costs, while other R&D expenses, like equipment purchases, were subsidized by the Research & Development Allowance (RDA).
However, since 2016, both the WBSO and RDA have been merged under the WBSO name, with tax benefits now available as a wage tax rebate. The rebate amount depends on total qualifying costs and is applied to different types of R&D projects, including technical-scientific research, product development, and new software development. Specific R&D work in pharmacy also qualifies for the WBSO. The rebate rate is 32% for the first €350,000 and 16% beyond that, with start-up entrepreneurs receiving a 40% rebate on the first €350,000. Applications for the rebate must be submitted online, with varying deadlines depending on the type of enterprise.
In the Netherlands, companies engaging in qualifying R&D activities can benefit from a reduced 9% effective corporate tax rate under the Innovation Box regime. This incentive is aimed at stimulating innovative research and development.
To qualify, companies must meet certain conditions. For small taxpayers, an R&D statement is sufficient to enter the Innovation Box, which may include unprotected intellectual property (IP). Larger taxpayers require both an R&D statement and a “legal ticket,” which could be a patent, software registration, or similar legal acknowledgment.
Small taxpayers are defined as those with gross benefits from all intangible assets under €37.5 million over five fiscal years and a net turnover of no more than €250 million. Benefits from innovation or technology are eligible for the Innovation Box if they exceed the total production costs of those assets, known as the box threshold. This threshold includes manufacturing costs but excludes fundamental research costs.
Benefits that can be allocated to the Innovation Box include royalties, sales profits, or part of the proceeds from a product, but they can be reduced if part of the R&D is carried out by an affiliated party. The effective 9% tax rate applies only to qualifying R&D benefits that exceed the production costs.
Taxpayers can annually opt to place qualifying intangible assets in the Innovation Box. However, assets still under development are ineligible. Innovation losses are deductible at the standard tax rate and can be offset against taxable profits from other years.
For small R&D benefits, a lumpsum option allows taxpayers to apply a fixed percentage of the profit (up to 25%, maximum €25,000) for the Innovation Box, simplifying the process for businesses with smaller-scale R&D activities. The lump sum applies to the year of asset production and the following two years.
In alignment with the European Fund for Regional Development (EFRD), the Netherlands provides regional subsidies focusing on innovation, research, digital agenda, SME support, and the transition to a low-carbon economy. These subsidies are tailored to address the unique needs and opportunities within different regions of the country.
The Dutch government’s investment incentives encompass a wide range of areas. Three notable schemes are the Environmental Investment Deduction (MIA), the Energy Investment Deduction (EIA) and the Kleinschaligheidsinvesteringsaftrek (Small-Scale Investment Deduction)
MIA (Milieu Investerings Aftrek) (Environmental Investment Deduction Scheme)
The MIA encourages investments in environmentally friendly equipment and technologies. It allows companies to claim additional tax deductions based on a percentage of their investment costs in sustainable technologies, supporting the transition to a greener economy.
EIA (Energie Investerings Aftrek) (Energy Investment Deduction Scheme)
Parallel to the MIA, the EIA incentivizes investments in energy-efficient technologies and sustainable energy. Companies investing in energy-saving equipment can avail themselves of tax deductions, underscoring the government’s commitment to energy conservation and sustainability.
Kleinschaligheidsinvesteringsaftrek (Small-Scale Investment Deduction)
The Small-scale Investment Deduction allows entrepreneurs to deduct investments in capital equipment ranging from €2,600 to €353,973 in 2023. Deductions are applicable in the year the investment is made, coinciding with the purchase and payment obligation for the capital equipment. If the equipment is not intended for use within the year of investment, a portion of the deduction can be deferred to the following year.
The Netherlands offers various financing incentives, notably the BMKB (Credit Guarantee Scheme for SMEs) and the GO (Corporate Credit Guarantee).
BMKB (Borgstelling MKB Kredieten) (Credit Guarantee Scheme for SMEs)
The BMKB aims to facilitate credit provision to SMEs, enhancing their ability to secure loans by providing government guarantees for a portion of the credit amount, thereby reducing the risk for banks.
GO (Garantie Ondernemingsfinanciering) (Corporate Credit Guarantee)
The GO assists larger companies in borrowing significant amounts by offering a government guarantee on a portion of the capital, thereby easing access to financing.
Other Financial Schemes
In addition to the above, the Dutch government provides a range of financial instruments to support the transformation of ideas into profitable new products, services, and processes. These schemes cater to both SMEs and larger companies, facilitating innovation and growth.