By 2020, Belgian companies will have invested more than 18 billion euros in Research and Development (R&D). This puts Belgium in second place among European Union member states with the most investments in this domain. Daan Steenackers, Senior Consultant at FI Group Belgium assists clients in obtaining R&D fiscal support measures and subsidies. He experiences first-hand why Belgium is the ideal place to carry out R&D activities. But also experiences the difficulties associated with an unclear legal framework and shares his insights.
The attraction of tax breaks
Especially among clients operating internationally, I regularly hear that the tax advantages in Belgium were an important factor in their decision to locate their R&D activities here. Thanks to my experience in the sector, I find that the exemption from withholding tax for researchers (BV exemption) is the most decisive tax measure. This allows the withholding tax pass-through on R&D staff salaries to be exempted up to 80%. In a country with one of the highest personal taxes in the world, this scheme is a crucial asset to boost competitiveness.
The exemption has gained popularity in recent years: over a 15-year period, spending on the R&D withholding tax exemption has increased tenfold. I am therefore not surprised that the support measure has come into the sights of the Federal Public Service Finance (FPS), responsible for taxes, among others, in the past two years. In fact, I see an increase in the number of tax audits among my clients, a trend confirmed by statistics.
What are the tax audits all about?
I notice that it is not so much the increase in the number of audits that is causing unrest in the industry, but rather the way they take place. The tax authorities use an unclear legislative framework to force rectifications of already exempt amounts on companies. Thanks to its extensive knowledge, FI Group supports clients with the necessary administrative tasks and technical documents. In this way, we keep the balance between the tax authorities and Belspo, the government department responsible for science policy, to meet all the requirements.
For example, companies that want to benefit from the exemption must report their R&D projects annually via the electronic Belspo notification portal. In addition to a description of the R&D activities, a start and (estimated) end date of the project must also be shown. However, for companies doing structural (continuous) R&D, it is difficult to estimate a realistic end date. So, as a consultant, I follow Belspo’s advice to take 1 January and 31 December as start and end dates each time, as the notification has to be renewed annually. But the unclear legislation in this case can create tricky situations.
FI Group’s assistance in the tax landscape
When a tax audit takes place, the tax authorities have the option to declare a client’s registration with this estimated end date illegal. It is then that FI Group has the necessary expertise to argue such rulings, review the conditions and rectify the exempt amount as best as possible. This is the negative consequence of tax uncertainty: an estimated date should not determine whether a company qualifies for a tax rebate on its research and development staff.
Judging whether certain activities fall under R&D or not requires certain (scientific) background knowledge. As a consultant, I see that the necessary knowledge is not always shared by tax auditors and remains too limited. When the question arises whether a company qualifies for the exemption, FI Group spends time in defending and correcting certain decisions. The Court of Audit already recommended that the tax authorities should be assisted by experts from Belspo for this purpose and encourage cooperation. So far, nothing has come of this but I always look forward to the reform of the tax landscape in Belgium.
Reforms for the future
In 2022, uncertainty remains for companies with R&D activities with the hope that a clear procedure will be established for the BV exemption in the future. Still, the new budget agreement appears to focus on saving rather than reform by, among other things.
If Belgium wants to remain a European frontrunner in research and development, a thorough reform of the fiscal support measure around the exemption of withholding tax for researchers seems badly needed. The current legislation is too unclear and allows the tax authorities to exploit these gaps. As an FI Group consultant, I remain hopeful that the reform of this support measure can provide more tax certainty and some savings should not come at the expense of Belgium’s innovative companies. To further encourage them to invest in R&D+I, FI Group helps to identify, understand, implement and maximise available financing opportunities.
FI Group has 20 years of experience and wants to support you in understanding and exploiting the available R&D+I opportunities. Our experts are at your disposal to analyse your project and take the next steps together with you towards innovation.