Belgium committed to strong tax incentives for innovation and R&D

Belgium has long recognised the role of research and development (R&D) and innovation in its economic development and competitiveness – and the need to remain an attractive destination for companies looking to invest in cutting-edge technologies.

A comprehensive range of tax incentives has aimed to support businesses in their efforts to innovate and remain competitive in the global market. These allow Belgian businesses to identify opportunities to maximise their potential through the optimisation of their tax liabilities.

The newly established federal government in Belgium – known as the Arizona coalition – has made clear it values the importance of the R&D sector for the nation's economy and reputation and has expressed its intention to maintain these advantageous tax regimes and make them even more attractive.

Investment deduction

Investing in R&D, as well as other fixed assets, can generate an "investment deduction" in addition to yearly amortisations. The investment deduction allows taxpayers to deduct a percentage of the acquisition value of the investment, on top of the annual depreciation meaning that the tax-deductible amount will exceed 100% of the acquisition value of assets that qualify.

The investment deduction applies to all companies, whatever their size. Some measures are nevertheless reserved for small to medium-sized enterprises (SMEs).

For patents and environmentally friendly R&D investments –  known as a "technology deduction" –  the investment deduction would amount to 13.5% of the acquisition value if the deduction is applied as a "one shot", or 20,5% if the deduction is spread over the duration of the depreciation of the investment (rates applicable for investments realised in 2025). 

The investment deductions is, however, not limited to patents and R&D investments. Other investment deductions also apply to a broad range of investments that are not harmful for the environment and climate and depending on their nature.

The deduction can be carried forward for an unlimited period of time in case of insufficient taxable profits.

It is also possible to opt for a tax credit rather than for the investment deduction, which, for R&D, cannot be combined with the R&D tax credit.

R&D tax credit

The tax credit for R&D is similar to the investment deduction and patent investments. The difference is that the tax credit is a reduction of the due corporate-income taxes, while the investment deduction is a deduction of the taxable base. It is possible to make the irrevocable decision to select a tax credit rather than a tax deduction.

The company can opt for a one-shot tax credit or for a R&D tax credit spread over the depreciation period. The one-shot tax credit is calculated at 25% of 13.5% of the acquisition value of the qualifying R&D investments or patent, resulting in a €3.38 tax credit per €100 invested in qualifying investments. The spread tax credit is calculated at 25% of 20.5% of the amortisations on qualifying investments, resulting in a €5.13 tax credit per €100 invested in qualifying investments.

Unused R&D tax credit (that is, in the absence of any tax due) can be carried forward. After four years (previously five years) any remaining unused tax credit is automatically reimbursed to the company, which can represent a source of cash depending on the involved amounts.

Regional grants and subsidies

Belgium, being a federal state, is divided into three regions (the Brussels-Capital region, the Flemish region and the Walloon region). Each region boosts R&D investments in its own territory. The federal state boosts the national R&D policy and these can take the form, for example, of loans, grants, recoverable advances and reductions of social security contributions.

Regional grants for the acquisition or constitution of tangible or intangible assets can be exempted from tax, if conditions are met. Consequently, the subsidised assets cannot be transferred for a period of three years.

The innovation income deduction

In a nutshell, the innovation income deduction (IID) is the ideal tax regime for any innovative or R&D company which, after having invested in its projects, start generating income out of their innovations.

Any company subject to (non-resident) corporate income tax is eligible. The IID covers income generated by qualifying intellectual property (IP) rights such as patents, copyrighted computer softwares, plant breeders’ rights, orphan drugs and even to some phytopharmaceutical products and medicinal products for human or veterinary use. (a provisional application of the IID is also applicable for IP rights (for example patents) that are still in the process of being obtained.

The deduction is for up to 85% of the net income derived from the qualifying IP rights (that is, an effective tax rate of 3.75% on qualifying net IP Income.

IID and 'net' amount

The IID applies to the "net" amount of qualifying IP income (this is, the gross revenue reduced by various expenses defined by the law). It is applicable only if sufficient economic substance exists in Belgium. This assessed of sufficient through the R&D expenses claimed in Belgium by the company, which is known as the nexus approach.

Accordingly, the net amount of qualifying IP income has to be reduced if and to the extent that R&D work is outsourced to related entities or that qualifying rights are acquired. This net amount is limited by a fraction of which the numerator is the company’s own R&D expenses – including those outsourced to unrelated parties – with an uplift of 30% that is capped at the amount of the global R&D expenses. The denominator is the global amount of R&D expenses, including the expenses outsourced to related parties and the acquisition price of the IP rights.

So the IID will be calculated as IID = 85% x net IP income x ((own R&D expenses x 130%) / global R&D expenses).

The IID can be carried forward for an unlimited period of time in case of insufficient taxable profits.   

In practice, the application of the regime implies a certain administrative on the company, which has to be able to identify qualifying IP rights , the income generated they generate as well as the R&D costs incurred in relation with this IP rights and distinguish between costs for outsourced R&D work and for R&D work within the company.

Researchers' partial exemption

As a general rule for any employee, Belgian employers withhold wage tax on employees' remuneration. This withholding constitutes an advance payment of the personal tax liability of the employee. The Belgian tax legislation, however, provides for a 80% exemption on the wage tax of researchers with a qualifying master or bachelor degree, such as applied sciences, medical science and veterinary medical science, who are employed in the R&D projects and programmes.

This can be used by businesses in order to either benefit from additional financial resources or reduce the remuneration costs of the qualifying researchers.

In application of this exemption, the company still has to withhold the wage tax in its entirety, but is exempted to transfer 80% of the withheld amount to the state (which is, therefore, kept by the company). The Belgian Tax Administration considers the wage tax as being entirely withheld, so that the exemption does not generate any additional personal tax liability for the employee.

Young innovative companies are new SMEs that have been incorporated within the last 10 years and are spending at least 15% of their operating expenses on R&D. They employ scientific personnel who would otherwise not qualify for the partial exemption on wage tax (e.g. researchers, research technicians, project managers in the ambit of research and development). These young innovative companies also benefit from a similar wage tax exemption.

Foreign executives and specialists

There is a specific tax regime for foreign executives, researchers and specialists working in Belgium. The Belgian tax regime offers significant benefits and decreases the cost of employing individuals in Belgium. In order to benefit for this specific regime, qualifying executives of researchers must receive a gross annual remuneration of at least €75,000 (among other conditions).

This specific tax regime for expatriates allows the employer to grant a tax-free lump-sum allowance up to 30% on top of the gross annual remuneration, with a maximum of €90,000 that is reached as of a gross remuneration of €270,000 a year. This aims at covering "recurring expenses" incurred by the expatriate worker in Belgium.

On top of the lump-sum allowance for recurring expenses, the employer may also cover certain non-recurring expenses, which are also exempt from taxes. These allowances (for recurring and non-recurring expenses) are also exempt from social security for the beneficiary and are treated as a tax-deductible expense for the employer.

The newly established Belgian federal government has already expressed its intention to reform this expatriates tax regime by lowering the minimal remuneration condition to €70,000, increasing the tax-free lump-sum allowance to up to 35% of the annual remuneration and removing the absolute cap of €90,000. These measures, if they are implemented in the future, will further boost  Belgium's position as an attractive destination for R&D activities and workers.

IT employees' copyright income

The Belgian tax legislation provides for an extremely attractive remuneration scheme for employees that create works protected by copyright in the course of their activity. Companies can indeed remunerate their creative employees in the form of copyright royalties which are only subject to a 15% tax rate for the employee under conditions: a lump-sum cost deduction of 50% further decreases the effective tax rate down to 7.5% on a first portion of copyright income.

A broad application of the regime led to its tightening in a reform implemented in 2022, which led to a drastic restriction of the scope of application: the regime is now only applicable to "real" artists or workers that produce copyrighted pieces of work that are communicated to the public (copyrighted works used within the company cannot qualify anymore).

Copyrighted computer software

There is an implicit exclusion of copyrighted computer software of the tax regime. While this aggressive reform obliged IT companies to find alternatives to remunerate and incentivise their workers, the sky seems to be clearing again for the IT sector.

The newly established "Arizona" government has already expressed its intention to reintroduce copyrighted computer software in the copyright income tax regime.

IT companies should keep in mind that the other modifications implemented in 2022 – especially the requirement of a communication to the public – would remain applicable, which may in practice limit the applicability of this regime in certain IT companies.

Osborne Clarke conclusion

Innovative and R&D activities are important factors for growth and development. Belgium offers a robust array of tax incentives aimed at supporting these innovation and R&D activities. These incentives provide significant opportunities for businesses to optimise their tax liabilities and invest in their innovative endeavours.

It is crucial for businesses to be able to identify and understand the relevant tax advantages applicable to their specific situation. However, each regime also comes with its own set of conditions and formalities that must be meticulously complied with in order to benefit fully from these incentives. By doing so, companies should be able to maximise their potential and maintain a competitive edge in their sector.