Partial professional withholding tax exemption for R&D: a correct notification is important
Belgian tax law provides for various incentives in order to support companies with their research & development activities / investments. One of these tax incentives – which is often applied - is the so-called partial professional withholding tax exemption for R&D (hereinafter also referred to as the “R&D WHT exemption”).
Various conditions and (notification) formalities have to be respected in order to be able to benefit from the R&D WHT exemption. Non or incorrect / incomplete compliance with the (notification) formalities may, upon a tax audit, jeopardize the application of the regime. This has been confirmed by the Court of Hasselt recently again.
Please find hereinafter a high level and simplified overview of this regime.
Belgian tax law provides (subject to conditions) for a R&D WHT exemption for (amongst others) universities, colleges, recognized scientific institutions, companies which pay remunerations to researchers working on R&D projects in accordance with a cooperation agreement with the aforementioned institutions, as well as for companies that qualify as a so-called “Young Innovative Company” and which pay remunerations to certain scientific personnel employed by this company.
A Young Innovative Company is a company which executes research projects and, at the end of the taxable period,
If, at the end of the taxable period, the company no longer fulfills the conditions to qualify as a Young Innovative Company, the R&D WHT exemption can no longer be applied to the salaries paid / awarded from the following month.
Next to the above-mentioned institutions / entities, the R&D WHT exemption may (subject to conditions) also be claimed by companies which pay or grant remunerations to employees (“researchers”) employed by such companies in R&D projects or programs (i.e. projects or programs aimed at fundamental or industrial research or experimental development – these concepts are further defined in Belgian tax law) provided that the employees have one of the required diplomas.
Amount of the R&D WHT exemption
The R&D WHT exemption is capped at max 80% of the professional withholding tax due on the salary of the qualifying researcher and has to be determined in function of the actual time spent on R&D (i.e. pro rata temporis). Underling documentation has to be prepared / available in order to support this (e.g. via time sheets).
Since 2020, the R&D WHT exemption of max 80% is also applicable to qualifying bachelors (which was capped at 40% before). The total amount of R&D WHT exemption for qualifying bachelors may, however, not exceed 25% of the total amount of the exemption claimed for employees with a specific master or PhD. Said 25% threshold is doubled to 50% for small companies.
The above-mentioned projects or programs have – prior to the application of the R&D WHT exemption – to be notified to BELSPO. A specific registration tool has been made available in this respect. Important to note is that Belgian tax law stipulates that – amongst others - the following elements have to be reported:
BELSPO’s binding opinion regarding the qualification of the notified projects or programs can be requested in order to avoid future discussions.
Expected start and end date
As indicated above, BELSPO has to be notified prior to the application of the R&D WHT exemption whereby (amongst others) the expected start and anticipated end date of the project or program has to be mentioned. In practice, it is, however, often difficult to estimate the anticipated end date. Consequently, some companies do not report an anticipated end date in their notification. However, not mentioning an anticipated end date may, upon a tax audit, jeopardize the application of the R&D WHT exemption (and, hence, the tax authorities may claim that the professional WHT due still has to be paid).
Useful reference can be made to a Parliamentary Question of 2020 to the Deputy Prime Minister and the Minister of Finance whereby the Minister referred in his reply to the legal requirements with regard to the aforementioned notification (including the fact that tax law provides that the expected start date and the anticipated end date of the project or program has to be reported in order to be able to claim the R&D WHT exemption).
Although the Minister acknowledges that the expected / anticipated start and end date of the project or program may differ from the actual start and end date, the Minister stipulates that the expected / anticipated (reported) start and end date must be realistic. A notification that does not include an end date or that does not include a realistic, but a purely hypothetical end date does not meet the legal conditions regarding the notification requirement (and, hence, there is no legitimate basis to claim the R&D WHT exemption).
The fact that reporting an expected / anticipated start and end date is an essential condition for the possible application of the R&D WHT exemption was recently confirmed by the Court of Hasselt as well.
If you are currently applying the R&D WHT exemption, it is highly advisable to verify (amongst others) the correct application of the notification requirement. Upon request we can explain this in more detail.
If you are not (yet) applying the R&D WHT exemption and you are performing research and development activities, do not hesitate to contact us so we can discuss the potential application of this regime (and/or any other potential tax incentive) in more detail.