Tax counseling relating to the R&D innovation box

Innovative companies in the Netherlands which invest for their own account and risk a great deal in research and development activities can claim tax benefits if they comply with the conditions. The benefits constitute an 80% discount on corporate income tax due on the net income from qualifying intellectual property which has contributed to the innovation box. This net income is effectively taxed at a rate of 5% Dutch corporate income tax, to the extent that the net income exceeds the total development costs of the qualifying assets.

A taxpayer can opt for the innovation box for any intangible asset that meets requirements. As such, it must have been developed by the taxpayer and be patented in the Netherlands or abroad. It is also expected that the patent will contribute at least 30% of the earnings generated from the intangible asset and lastly that the intangible asset was not developed prior to 1 January 2007. Breeders’ rights to newly developed plant varieties do qualify as a patent for the innovation box.

Besides patented intellectual property, certain designated and pre-approved assets such as software qualify for the innovation box too. The Dutch Ministry of Economic Affairs gives approval with a so-called R&D certificate. In this respect, it is relevant that the result of the research and development activities is a technical innovation at taxpayer level.

It is preferable to conclude an agreement with the Dutch tax authorities for a term of four years in which all the tax consequences of the innovation box are described in detail. Relevant in this agreement is, amongst others, which part of the total profit can be allocated to the innovation box and will therefore be taxed against the effective corporate income tax rate of 5%.

As an employer, the company may further be entitled to a substantial discount on the wage tax due on wages related to the employees who are actively involved in research and development. Lastly, there is a ‘research and development’ deduction in the (corporate) income tax which is based on the amount of investments and expenses related to the research and development activities.

We have broad experience in applying and implementing the innovation box in diverse branches such as the high tech industry, life sciences, seed refinement, oil and gas industry and mechanical engineering. In our experience, in branches with intense research and development efforts as in the life sciences, it is possible to allocate more than 50% of net taxable income to the innovation box and thus be taxed at an effective tax rate of 5%.