The Netherlands’ R&D Tax Relief Regime R&D Relief factsheet

Key features of the WBSO

• Eligibility: The program applies to companies that perform R&D activities that lead to technological innovations. These activities can involve product or process development, software development, or the improvement of existing technologies.
• Eligible Expenses: The WBSO covers a wide range of costs related to R&D, but the primary benefit is a reduction in labor costs. This includes wages for employees involved in R&D, as well as expenditures for related software development and other direct R&D activities.
• Application Process: Companies must apply for the WBSO program through the Rijksdienst voor Ondernemend Nederland (RVO), the Dutch Enterprise Agency. The application should outline the R&D activities that the company plans to undertake in the coming year.

WBSO Tax Relief Benefits

• Reduction in Payroll Taxes: The WBSO provides a reduction in social security contributions (payroll taxes) for employees engaged in R&D. This reduction is effectively a form of tax credit that can be claimed on a monthly basis.
• The WBSO Benefit Rate: In 2024, the WBSO provides a tax benefit of approximately:
  • €14.00 per hour for R&D work performed by employees.
  • For small companies, the first €350,000 of qualifying R&D wages benefits from a higher rate (around 40%), while the remaining costs are reimbursed at a lower rate (around 14%).
  • Larger companies also benefit from a reduction, but at a lower rate for R&D beyond a certain threshold.

Innovation Box

The Innovation Box is another significant incentive designed to encourage the commercialization of innovative products and services. It provides tax relief on the profits generated from innovative activities, specifically on income derived from intellectual property (IP) that results from R&D.

Key features of the Innovation Box:

• Eligibility: The company must hold an IP right related to its R&D activities, such as patents, software, or other intellectual property created through technological innovations.
• Tax Benefit: The profits derived from these IP assets are taxed at a significantly lower rate under the Innovation Box regime. The effective tax rate on qualifying income is reduced to 7%, compared to the regular corporate tax rate, which is higher.
• IP Requirements: In order to qualify for the Innovation Box, the company must have conducted substantial R&D activities in the Netherlands, and the IP must be the result of these activities. Companies must have an innovative tax ruling from the Dutch tax authorities to apply the Innovation Box to their IP-derived profits.

Example: If a company generates €1 million in profits from the commercialization of a patented product, and the company qualifies for the Innovation Box, the company would only pay tax on 7% of the profit, i.e., €70,000 instead of €1 million, reducing its corporate tax liability substantially.

R&D Tax Credit for Startups and SMEs

The Netherlands has tailored its R&D tax incentives to encourage startups and small-to-medium enterprises (SMEs) to invest in research and development.

• SME Tax Benefits: SMEs with fewer than 250 employees, and an annual turnover of under €50 million, may benefit from additional tax relief under the WBSO program. For these companies, the rates of reduction in social security contributions can be higher.
• Startups: For early-stage startups, the Dutch government also offers additional flexibility, allowing them to apply for the WBSO before they are profitable, thereby reducing their early-stage financial burden.

R&D Investment Deduction (R&D Aftrekken)

The R&D Investment Deduction is an additional incentive for companies that invest in R&D-related assets, such as research equipment and infrastructure. This allows businesses to deduct a portion of their R&D investments from taxable income.

• Tax Deduction: The R&D Investment Deduction allows companies to claim a percentage of the costs associated with R&D investments. This deduction typically ranges from 25% to 50% of qualifying R&D investments depending on the type of assets and their use in the R&D process.
• Eligible Investments: The deduction applies to investments in equipment, software, and facilities directly used for R&D purposes.

Claiming R&D Tax Relief

• Application Process: To claim the WBSO and other R&D tax benefits, companies must submit their R&D activities and related expenses to the RVO. The application is made at the beginning of the year (before the R&D is carried out) and can be adjusted throughout the year as needed.
• Documentation: Companies must keep thorough records of their R&D activities, including detailed project descriptions, timesheets, and payroll information for employees involved in R&D, as well as invoices for related expenses.
• Compliance: The Dutch tax authorities may request additional documentation and perform audits to ensure that companies are compliant with the requirements of the R&D tax relief programs.

Impact of the Netherlands’ R&D Incentives

The Netherlands is considered one of the most innovation-friendly countries in Europe, and its tax incentives for R&D play a key role in this reputation. The combination of the WBSO program and the Innovation Box, along with other incentives like the R&D Investment Deduction, makes the Netherlands an attractive location for both domestic and international companies engaged in R&D.

These incentives contribute to the growth of industries such as information technology, high-tech manufacturing, biotechnology, and sustainable energy. By lowering the cost of R&D and encouraging the commercialization of innovative products, the Netherlands fosters a dynamic environment for research and development.

Example Calculation

Consider a company that conducts R&D in the Netherlands and incurs €1,000,000 in eligible R&D expenses related to employee wages (e.g., €600,000 for wages and €400,000 for materials). The company is eligible for the WBSO tax credit.

• Wages: The WBSO benefit for wages is €14 per hour. If the company spent 20,000 hours on R&D, this equals €280,000 in tax benefit.
• Additional Tax Relief: If the company qualifies for the Innovation Box and generates €500,000 in profits from a patented product, the tax on this income would be calculated at the reduced rate of 7%, resulting in a tax payment of €35,000 (instead of the regular corporate tax rate of 15-25%).

Conclusion

The Netherlands offers a comprehensive and attractive R&D tax relief system designed to encourage innovation and technological development. The WBSO tax credit provides substantial relief for R&D labor costs, while the Innovation Box offers a significant reduction in tax rates on income derived from intellectual property. These incentives, combined with other support for investment in R&D infrastructure, make the Netherlands an ideal environment for businesses focused on research and development.