Withholding tax R&D
Frequently Asked Questions about the discount on withholding tax on knowledge worker salaries
Which companies are required to report their R&D activities?
Any firm that is engaged in industrial or commercial activities and would like to apply the advance business tax exemption to its knowledge workers’ salaries, is required to report its R&D projects or programmes to the Public Service for Science Policy (BELSPO).
It must show that its R&D activities are in the area of fundamental research, industrial research or experimental research.
When should R&D activities be reported?
New projects or programmes must be reported after 1 January 2014.
In the case of existing R&D projects and programmes, companies have until 31 December 2014 to meet this obligation.
Where do I report a punctual, time-bound R&D project?
An R&D project, or a time-bound R&D activity, is one in which knowledge workers are employed flexibly to effectively achieve a specific plan within a given timeframe.
This is generally done in the area of experimental development, where existing knowledge is transformed to a specific application, such as a new or improved product or a new or improved production process.
Time-bound R&D projects can be reported here.
BELSPO recommends that the technical/scientific information be reported by personnel who are directly involved in the R&D activity.
Staffing can change during the course of the R&D project (archive time sheets). Once the project reaches an end changes are no longer possible.
What is an R&D programme?
An R&D programme is a continuous - structural or recurrent - R&D activity.
Systematic R&D is often a feature of the business organisation itself, in which some units, such as R&D centres, clinical test centres, pilot factories, etc., are constantly doing (largely) fundamental and industrial research or (less frequently) experimental development.
An R&D programme can also take the form of in-house / on-site activities in the area of engineering or software development. In terms of R&D spectrum, these companies are involved in industrial research and (in the main) experimental development, and therefore do their research in a recurring manner.
The notification describes a business unit’s generic R&D strategy or establishment plan, as well as descriptions of the tasks, assignments and qualifications of the knowledge workers involved in the development of this strategy.
Does the notification have to be submitted before a new R&D activity commences?
The project does not have to be reported beforehand, but the advance business tax discount cannot be applied until the R&D activity has been reported.
Is there a difference between reporting an R&D activity and asking for advice?
Reporting is mandatory, a request for advice is optional.
When a company asks for advice or enquires as to whether an activity qualifies as R&D or not, BELSPO will respond to the request within a period of 3 months. BELSPO’s position is binding and therefore gives legal certainty as regards application of the advance business tax exemption.
How is the non-paid advance business tax entered to the books?
The measure is a subsidy and must be entered to the books as revenue.
The measure cannot be used to reduce labour costs; in the case of seconded research, or external R&D financing, the advance business tax is applied at 100%.
Is the measure a form of state aid?
The payment exemption as of the master’s diploma, which applies in all companies (depending on the size or R&D intensity of these companies) is a non-selective support measure.
Only the exemption from the advance business tax payment for support staff (without the qualifying master’s) in YIC companies is considered a selective state aid, but compatible with Article 87 of the EC Convention. We recommend payroll administrations and employers to place only this category under exemption code 31.
What are the eligible qualifications?
All those at master’s level totalling at least 240 study credits and not among the following fields of study at university colleges or universities (fields that do qualify are listed in the electronic return form).
- Audiovisual and Visual Arts
- Commercial Science and Business Administration
- Music and Performance Arts
- Social and Social Welfare Work
- Applied Linguistics
- Archaeology, History, Art Sciences, Language and Literature
- Criminological Science, Law
- Economic and Applied Economic Science and Transport Studies
- Religion, Morality and Philosophy
- Educational Science and Psychology
- Political and Social Science
The qualification level need not apply for "Young Innovative Companies" (YIC) or companies that cooperate on a project basis with universities and other non-profit research organisations.
For YIC companies the reduced withholding tax payment can be applied, except for knowledge workers with qualifying master's qualifications, to the technical / support staff (administrative and commercial functions are excluded here).
In the case of partnerships between companies and universities or research organisations the exemption measure is also applicable to R&D personnel (employed by the company in the partnership context), who do not have the diploma, but qualify through experience.
What is a Young Innovative Company
A YIC satisfies the conditions of a small company of the type defined in Article 15 §1 of the Companies Code; i.e. a YIC must not exceed more than one of the following criteria:
- annual average of 50 staff;
- annual turnover - excluding VAT - of 7,300,000 Euros;
- balance sheet total of 3,650,000 Euros; unless the annual staffing average is greater than 100.
A YIC must also
- be under 10 years old, before 1 January of the reference year;
- not have been set up as part of a concentration, restructuring, expansion of a previous activity or takeover of such activities;
- devote 15% of its total costs for the previous taxable period to research and development.
The YIC must meet the requirements at the end of the previous taxable period, prior to the taxable period in which the remuneration was paid.
What is the case for non-profit research organisations?
Non-profit research organisations are exempt from this duty to report, but do have to be recognised as research institutes by the Council of Ministers under the RD before the payment exemption can be applied.
The exemption can be applied to personnel of a similar qualification level and with a similar or higher amount of time spent in R&D as assistant academic personnel at universities.
Research organisation criteria:
- Main objective is acquisition of knowledge, dissemination of knowledge and education.
The main aim of the organisation is to acquire and disseminate knowledge. The research results are disseminated through knowledge or technology transfer or publications.
- Research activities consist of fundamental / industrial research or experimental research
The organisation’s activities mainly focus on fundamental research, industrial research and/or experimental research. If the activities tend towards commerce (or activities beyond the stage of experimental development), the organisation is not considered a research organisation..
- Profit entirely reinvested in activities
The entity’s profit is entirely reinvested in new research/development, education in relation to the results obtained and/or dissemination of knowledge.
- Shareholders do not have preferential access
Companies (for example, the research organisation’s sponsors) / shareholders that might influence the organisation, must not have systematic preferential access to the organisation’s research capacity, research programming or research results. Incidentally, as regards results, an exception can be made; if, for example, a research organisation sells specific research results to a company / client at market price.
means experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any direct commercial application or use in view.
means the planned research or critical investigation aimed at the acquisition of new knowledge and skills for developing new products, processes or services or for bringing about a significant improvement in existing products, processes or services. It comprises the creation of components parts of complex systems, and may include the construction of prototypes in a laboratory environment or in an environment with simulated interfaces to existing systems as well as of pilot lines, when necessary for the industrial research and notably for generic technology validation.
means acquiring, combining, shaping and using existing scientific, technological, business and other relevant knowledge and skills with the aim of developing new or improved products, processes or services. This may also include, for example, activities aiming at the conceptual definition, planning and documentation of new products, processes or services. Experimental development may comprise prototyping, demonstrating, piloting, testing and validation of new or improved products, processes or services in environments representative of real life operating conditions where the primary objective is to make further technical improvements on products, processes or services that are not substantially set. This may include the development of a commercially usable prototype or pilot which is necessarily the final commercial product and which is too expensive to produce for it to be used only for demonstration and validation purposes. Experimental development does not include routine or periodic changes made to existing products, production lines, manufacturing processes, services and other operations in progress, even if those changes may represent improvements.
- Place the project in the context of the company
- What new scientific progress is (was) the project designed to make?
- What sort of research activity will be (was) carried out to acquire this new knowledge?
- What hypotheses, theories, laws will be tested (or have been formulated) through these research activities?
- Place the project in the context of the company.
- What new knowledge and skills are (were) sought through the research?
- What sort of R&D activities will be (were) carried out to acquire the new knowledge and skills?
- For what new products, processes, methods or services will the knowledge and skills be used?
- Or, if not new but improved products, processes or services are (were) pursued, what was the basis for this and of what does (did) the improvement consist?
- Place the project in the context of the company.
- What existing scientific, technical or commercial knowledge or skill formed the basis for the R&D activities?
- What technological progress does (did) the project attempt to bring about?
- What obstacles / uncertainties does (did) the project attempt to overcome in order to make this technological progress?
- What sort of activity is (was) planned in order to overcome these obstacles/uncertainties?
If the R&D activity involves the development of software:
- What is (was) the program’s area of application?
- What is (was) its functionality?
- Describe the technical challenge for which a solution is (was) being sought
- What is (was) the concept used in the development of the software? What thought processes (imperative, functional, logical, object oriented) and what program languages are (were) used?
- Describe the various stages used to reach the solution; e.g. during the planning stage (requirements analysis), the design stage, the construction stage and the test stage?
- What existing modelling programs, programming tools, components, methods and techniques are (were) used?
- What methods and techniques are (were) self-developed?
- How innovative for the company are the IT architecture, applications / interfaces, data architecture, and algorithms of the self-developed software?