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Setting up R&D activities in Flanders
Research and development can take on many forms in Flanders, and may receive support in the form of subsidies and grants. Generally, there are 5 organization types for R&D activities that are eligible for one or more of Flanders’ R&D tax incentives.
- Type 1: Global R&D center
- Type 2: Young Innovative Company (YIC)
- Type 3: Contract Research Organization (CRO)
- Type 4: Manufacturing company
- Type 5: R&D consulting company
Rooted in innovation
Innovation is deeply embedded in Flanders. Thanks to steady crosspollination occurring between the public, the private and the academic sectors, Flanders’ capacity to innovate ranks 13th worldwide. Meanwhile, Flanders and Belgium as a whole are the European #1 for innovation linkages between the private, public and academic sectors, according to the 2017 European Innovation Scoreboard.
Flanders ranks #3 in the 2017 Innovation Indicator compiled by the Fraunhofer Institute for Systems & Innovation Research (ISI) and the Center for European Economic Research (ZEW). .Strong points include education and the quality of scientific research.
But the good news doesn’t end there! Belgium ranks 6th when it comes to the quality of scientific research institutions and 9th worldwide for collaborations between universities and the industry in the 2017-2018 WEF Global Competitiveness Report.
Flanders has your back
Innovation is highly supported by our government at both federal and regional levels. In particular, Flanders focuses its support on:
- sustainable chemicals;
- specialized manufacturing solutions (smart textiles, urban mining, mechatronics, port engineering, etc.);
- personalized healthcare;
- added-value logistics;
- food, health, and specialist agrofood applications;
- various niches in construction, environment and energy;
- ICT niches in both hardware and software.
To assist the government of Flanders, the Center for Research & Development Monitoring (ECOOM) has developed a consistent system of R&D indicators.
Flanders provides a wide range of R&D funding options in the form of fellowships, grants, subsidies, etc. Funded projects include:
- feasibility studies – funding rate of 50%, ceiling fixed at EUR 50,000.
- SME innovation projects for the realization and commercialization of innovation activities that come with a certain level of risk – funding rate of 45% for SEs and 35% for MEs, ceiling fixed at EUR 250,000.
- R&D programs of more than EUR 100,000 for the development of new innovative products – 25% funding rate for development activities, 50% for industrial research activities, with possible increases of 10% for SMEs or international projects. The grant is capped at EUR 250,000.
- ‘Sprint’ projects to gain new (technological or other types of) knowledge to realize an important innovation – funding rate of 25% and possibly an additional 10% in case of international cooperation between SMEs, ceiling fixed at EUR 250,000.
- the ‘Baekeland-mandates’ program – provides funding for pre-doctoral researchers for four years. The pre-doctoral researchers are expected to cooperate with private companies in a specific sector – funding rate of 60% for SMEs and 50% for LEs, ceiling fixed at EUR 40,000 per year.
Belgium offers some of the best R&D related tax incentives in Europe. Thanks to these fiscal regulations, companies in Belgium can recover up to 80% of the withholding tax on professional income for their researchers, provided certain conditions are met.
Good to know: federal tax benefits for R&D are not limited to the R&D activities themselves. There are also incentives that relate to commercialization. In fact, Flanders offers 8 unique tax incentives to foreign businesses engaged in R&D:
Up to 85% of a Flanders-based company’s net earnings from innovation is exempt from corporate taxation. This incentive is valid for innovation revenues from patents, plant variety rights, orphan drugs, data and/or market exclusivity, copyrighted computer programs (software), and more.
This R&D payroll tax incentive exempts companies from paying 80% of the taxes withheld through the payroll system to tax authorities, therefore allowing companies to use the savings to further their interests.
A company investing in R&D in Belgium benefits from a considerable deduction or tax credit, provided the investment is used for its main business activity.
Belgium offers an attractive tax status for executives and researchers who are hired abroad to work temporarily in Belgium. This tax status reduces the cost of attracting and hiring foreign specialized personnel.
This premium is granted for an innovation that is developed by an employee and that creates added value for the normal activities of the company.
If a company receives grants from Flanders, these grants will not be considered as taxable income.
In some cases, the tax office refrains from taxing the profits of a Flanders-based entity that it could not have realized in a stand-alone situation.
Fiscal ruling, officially called ‘preliminary decisions in tax matters’, is a judicial treatment that explains to prospective investors which laws are applicable to their future projects. A ruling commission will formulate a decision on the correct application of tax regulations, which is valid for a five-year period.
Companies in Belgium receive a notional interest deduction for invested equity. The basis for calculating the NID is the equity based on Belgian GAAP from which some adjustments (e.g. investments in shares) can be deducted.
In principle, dividends distributed by a Belgian company are subject to a Belgian domestic withholding tax of 25%. However, a reduced rate of only 15% is possible in certain circumstances.
In addition, foreign companies from treaty countries also have the option to repatriate their European profits unlimitedly without having to pay any dividend withholding tax.