Entrepreneurs who undertake technical innovation may apply for the Dutch R&D Promotion Act, also known as the Research and Development (R&D) tax credit. The Dutch acronym for this Act is WBSO which stands for “Wet Bevordering Speur- en Ontwikkelingswerk”. This can be loosely translated with “Law reducing income tax and national insurance contributions remittance”.
The WBSO provides a fiscal contribution to the wage and other costs for activities aimed at R&D by the own organization. The tax benefit consists of a reduction in wage tax and social security contributions (Dutch: Loonbelasting en premie volksverzekeringen). Usually, the salaries of employees who are working on R&D projects form a major part of the total R&D costs in a company.
Products, processes, software
Developments can concern (parts of) products, production processes, and software. Regarding products and production processes the development should concern tangible items. With R&D activities in the area of software, the project needs to encompass developments that are technically new for the applicant.
Whether the project is eligible for subsidy largely depends on:
- technical challenges and possible solutions for these; and
- technical novelty.
The WBSO is open to entrepreneurs and companies who undertake research into technological innovation and attempt to find their own solutions for the technical difficulties they encounter along the way:
- Entrepreneurs and companies with employees carrying out R&D;
- Entrepreneurs who perform R&D activities themselves;
- Companies that internally transfer R&D employees from one business unit to another within the same fiscal unit; and
- R&D work performed by trainees can be put forward for WBSO if they are on the payroll of the company and meet all usual WBSO specific criteria.
Self-employed entrepreneurs who carry out their own R&D are also eligible for the WBSO tax credit.
Two types of Research and Development activities are applicable for WBSO:
1. Activities focused on technical-scientific research seeking to explain phenomena in fields such as physics, chemistry, biotechnology, production technology and ICT.
2. Activities aimed at the development of:
- technically new (components of) physical products;
b. (parts of) physical production processes;
c. Technically new (components of) software.
To be eligible for the tax credit, the technological development has to be technological new to your organization, systematically organized and has to be carried out within one or more countries of the EU. Only for activities that meet these criteria, the R&D deduction is applicable.
Among others, the activities that are not eligible within the WBSO include:
– Market research;
– Research related to economic feasibility/profitability;
– Organizational and administrative tasks;
– All projects related to market introduction and commercialization;
– The development of systems that are only functionally new to the WBSO applicant;
WBSO and software development
The WBSO has been changed by January 1, 2016: An ICT project is only eligible for WBSO if technically new software is being developed by one or more developers on the organizations own payroll. The outsourcing of coding is explicitly excluded and thus must be performed from within the own entity. Just describing architectures, models, and algorithms is not enough; there has to be a translation into actual code for the technically new software.
Additionally, from 2016 onward a more strict definition of software development is applicable under the WBSO. To qualify for the WBSO the software has to be developed in a “formal programming language”, such as Java, C #, and C ++. The underlying idea is that formal programming languages are closer to the machine (computer) control, and will, therefore, lead more quickly to technically new software. This more strict definition of software development does not mean that other programming languages are excluded. The point is that technical innovation occurs at the code level. With a formal programming language this can be demonstrated more easily, but with a different programming language often also possible.
The WBSO benefit for employees in your employment in 2018 is as follows:
– 32% WBSO contribution over the first € 350.000,- of the total R&D-wage and 16% over the remainder;
– For techno starters the contribution is 40% over the first € 350.000,-, and 16% over the remainder;
– For self-employed entrepreneurs an S&O deduction is put in place of € 12.623,- that can be deducted from the taxable income from the enterprise.
– For self-employed starters, there is an additional deduction in 2016 of € 6.315,-.
The deadline for applying is at least one full month before the R&D activities are planned to start. There is a maximum of three applications per year for a period of three to six months per application. However, these periods cannot overlap.