The WBSO offers employers (i.e. wage tax withholding agents) a deduction from the total amount of payroll withholding tax they are required to pay. The so-called R&D remittance reduction consists of a discount (i.e. a tax credit) on payroll tax and the employer’s social insurance contributions due by a withholding agent. Self-employed persons are granted a fixed tax-deductible item for their R&D activities. Start-ups are moreover entitled to an additional tax credit. Good reasons therefore to discuss the WBSO tax credit in more detail.
Who can benefit
To qualify for the tax credit, the R&D employer concerned needs to obtain – in advance – an R&D certificate (also called WBSO declaration) from the ‘Rijksdienst voor Ondernemend Nederland.nl. (rvo.nl)’. This is a Dutch government body commissioned by the Dutch Ministry of Economic Affairs and Climate Policy to implement the WBSO. Self-employed individuals that are engaged in business activities and who work on R&D for at least 500 hours in a calendar year are also eligible for an R&D tax credit.
Qualifying R&D activities
There are two types of R&D activities for which an application can be made as follows:
Technological Scientific Research
Under this heading, R&D activities must generate new technical knowledge. The purpose of technical-scientific research is to find an explanation for a phenomenon that cannot be given based on generally accessible knowledge. With the research, the applicant should generate new theoretical or practical knowledge by himself. The “technical” element refers inter alia to physics, chemistry, biotechnology, production technology, and information or communication technology. Economic, social or psychological research, however, does not fall into this category.
Product, process or program development
This concerns the development of technically new physical products or parts thereof, new physical production processes or parts thereof, or new software programs or parts thereof. The development of a prototype without commercial value serves an example. Software development (ICT software), may therefore also qualify.
In general, an R&D project should have technical risks or uncertainties as to whether the intended result can be achieved. Without such risks or uncertainties, there will be no qualifying R&D work. Copying, imitating or reverse-engineering of existing technology is not covered by the WBSO. Feasibility studies and modeling of software programs are also not eligible for the R&D remittance reduction. However, the technical novelty will always be assessed solely from the perspective of the withholding agent. A WBSO application should therefore contain an explicit specification of the technical problem or the bottleneck that you are addressing and of the outline solution that you have adopted or intend to research.
In the explanatory notes to the WBSO Act, explicit reference is made to the development or construction of applications, such as databases, spreadsheets, word processing systems and CAD systems with the help of programmable (standard) packages. It is possible to build such applications by using already existing parts or building stones whose performance has been demonstrated before. Ultimately, the functionality is new and not the underlying technology, which is a requirement for R&D. The (technical) connection of already existing systems to each other however falls outside R&D, unless the software has been developed and applied within the business of the R&D withholding agent. The WBSO covers the development work up to the stage in which the operating principle is demonstrated. This can, for example, be demonstrated with a prototype, model or application that has no commercial or production value.
The WBSO Act provides for an extensive list of activities that do not qualify as eligible work and thus not covered by the WBSO. Note that the list includes activities such as market research, organizational and administrative work and also R&D work carried out outside the European Union!
Note further that the development of new technologies (parts of) software is only eligible once the non-physical logical subsystem of an information system with formal programming language has been established. The (technical ) design, the description of the architecture and the preparation of instructions in normal (‘natural’) language do not however constitute a qualifying R&D work. Emphasis is placed on in-house technical development.
An application for a certificate needs to be made in advance: i.e. the tax credit can only be deducted in the payroll administration after receipt of a WBSO certificate. A withholding agent can apply for an R&D declaration no more than three times each year, for three months up to a maximum of twelve months (art. 22-1 Dutch Act on reduction of Wage Tax and Social contributions). An application must be submitted at least one (1) full calendar month before the start of the application period. The deadline for an application request for the last quarter of 2019 therefore ends on 31 August 2019 in case of wage tax withholding agents (employers).
The R&D hours worked by trainees and students working on their graduation project may also be included in the specification of R&D hours worked for the WBSO, however only if they are employed by the wage withholding tax agent and all the R&D conditions are met.
A WBSO application can be submitted using the online application form on mijn.rvo.nl/wbso. Assurance Level 2+ of eRecognition is a requirement for this, or via the eLoket: www.rvo.nl/eloket.The delivery time for the eRecognition is approximately one week. Intermediaries can submit a WBSO application with their eRecognition 2+. It is possible to submit an application for multiple businesses using a single eRecognition.
The project description in the application need to state explicitly what is to be developed or researched – a description of a technical problem or bottleneck and the solution pursued and the anticipated route from problem, research to solution. The so-called technical innovation criterion applies to each applicant if the work has been commissioned or will be carried out within a collaborative arrangement. Both a holding and an operating company employing personnel contributing to the R&D activity, are in principle eligible for the WBSO tax credit. Each employer/legal entity will need to apply. Regardless of where the employees carry out their R&D activities, the company formally employing these employees is considered carrying out the R&D work and therefore responsible for the WBSO application.
An estimate of the number of hours of work involved with the R&D activity must be provided for each application. If the withholding agent cannot provide this estimate within the deadline, a formal application can still be submitted followed by supplementary information as soon as possible.
Upon completion of each project or part of a project, an evaluation must be made of the actual number of hours spent versus the initial estimate. If fewer hours were spent than estimated, the remittance reduction will be adjusted downward; there is no upward adjustment should more hours have been spent than initially estimated in the application.
Each year the Dutch Ministry of Economic Affairs and Climate Policy will set the maximum budget available for WBSO reduction. The maximum budget for 2019 available for WBSO reduction amounts to € 1,205 million.
Calculation of the WBSO benefit (2019)
The rvo.nl will issue an R&D certificate for the total amount of the remittance reduction for the period concerned, this will be explicitly stated in the certificate. The remittance reduction percentages applicable, are determined each year. The percentages applicable for 2019 are as follows:
▪ 32 percent of the first EUR 350,000 of the wage tax withholding agent’s qualifying R&D payroll expenses plus other qualifying R&D costs and expenditures;
▪ 16 percent of the qualifying R&D payroll expense plus other qualifying R&D costs and expenditures, exceeding EUR 350,000.
Start-ups are entitled to a higher reduction, i.e. 40% instead of 32% of the first EUR 350,000 for 2019. A start-up is defined in the Act as a new withholding agent that has not been an employer subject to wage tax and social security payments during the preceding 5 years and had obtained an R&D certificate for a period not exceeding 2 years.
The amount of the remittance reduction is calculated as the product of the average gross wage per hour multiplied by the estimated R&D hours involved, times the applicable remittance reduction percentage(s). The formula for calculating the average (gross) wage per hour, assumes that the withholding agent already has a payroll track record with R&D activities. In the first year of election, start-ups may therefore opt for a fixed amount of € 29 per hour as the basis for the calculation of the remittance deduction.
Costs and expenditures
The costs and expenditures that can be taken into account must be directly attributable to R&D activities for which an R&D declaration has been issued. Rvo.nl will assess, on a case-by-case basis, whether the “directly attributable” criterion has been met. Costs must exclusively relate to R&D, but expenditures on the other hand may relate in part or in full to R&D, as significant expenditures on investment may relate to more than just R&D. Note that in such cases, only the costs relating solely to R&D investments will qualify for the reduction.
Not all costs are considered costs qualifying for the (RDA) remittance reduction. Qualifying costs are costs not previously taken into account in an R&D decision, exclusively related to R&D and for the taxpayer’s account.
Instead of an actual appraisal of the estimated costs and expenditures as a basis for the remittance reduction, an applicant can also opt for a flat-rate determination of the qualifying RDA costs and expenditures.
The first 1,800 R&D hours yield an amount of € 10 per hour for the basis for the R&D remittance deduction. The excess is good for € 4 per hour.
Note that no separate administration of the actual costs and expenditures incurred (RDA-deduction) is required if an applicant opts for the flat-rate or fixed determination of the (RDA) costs and expenditures.
Suppose a wage tax withholding agent/start-up receives an R&D certificate based on 800 qualifying R&D hours calculated on an annual basis. Suppose the applicant opts for a fixed amount of € 29 as the average wage per hour, then the resulting WBSO benefit can be calculated as follows:
(1) WBSO-part: 40% of € 23,200 (i.e. 800 hours x € 29) = € 9.280
(2) RDA-part: 40% of € 8,000 (i.e. 800 hours x € 10) = 3.200
Total benefit € 12,480
This amount can be offset against the wage withholding tax and social contributions otherwise due by the wage tax withholding agent in a calendar year (prorated).
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