Reduction of cost for R&D
Federal Public Service FINANCE Tax reasons to use Belgium as a hub in Europe Decrease your cost for Logistics and R&D Increase your IP-profits Bart ADAMS Fiscal Department for Foreign Investments Tokyo, Tuesday 12 May 2015 Federal Public Service FINANCE Tax incentives aiming at cost reductions 1. Reduction of financing cost available for all companies Notional interest deduction 2. Reduction of cost for intercompany logistic services Favorable transfer price rulings for distribution centers In combination with notional interest deduction Reduction of employment cost Cost reduction of 18% till 20% in case of shiftwork through salary withholding tax exemption Avoidance of VAT payment on importation 3. Reduction of cost for R&D Reduction of investment cost Investment deduction or tax credit for investments in R&D activities Reduction of employment cost Salary tax exemption for researchers with master degree Special expat status for foreign researchers Federal Public Service FINANCE Tax incentive for increase of IP-income 4. Tax exemption for income related to the use of patents Patent income deduction 5. Dividend withholding tax exemption for repatriation of benefits New tax treaty: royalty withholding tax exemption? Federal Public Service FINANCE Belgium as a regional hub for holding activities 6. Dividends received exemption and capital gains taxation Federal Public Service FINANCE NOTIONAL INTEREST DEDUCTION Reduction of financing cost available for all companies Federal Public Service FINANCE Reduction of financing cost available for all companies NOTIONAL INTEREST DEDUCTION • What is it? - A notional interest calculated and deducted yearly from the taxable basis - used to off-set operational or financial income (thus lowering effective tax rate) • How does it work? Annual Tax Deduction = [EQUITY X RATE] - equity = in the opening balance sheet of the taxable period - rate = 10-year government bonds rate = fixed yearly: for 2015 (Tax Year 2016): 1,630 % 2,130 % (SME) Federal Public Service FINANCE Reduction of financing cost available for all companies Assets EXAMPLE: (Return on Equity: 4%) P&L Account Profit before tax N.I.D. (1,630 %) Liabilities Patent development center Share Capital 100 000 100 000 Before N.I.D. After N.I.D 4000 4000 / - 1630 Taxable 4000 2370 Corporate Tax (33,99 %) 1360 806 Effective Tax Rate 33,99 % 20,1 % Federal Public Service FINANCE Reduction of financing cost available for all companies • The evolution of the NID rate - Current NID rate is based on the 10 year government bonds (average of Q3 previous yr) - NID rate AY 2016 is 1,630% - NID rate has been reducing over the past years 0.005% 0.005% 0.004% 0.004% 0.003% 0.003% 0.002% 0.002% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Federal Public Service FINANCE LOGISTIC SERVICES Reduction of cost for intercompany logistic services Federal Public Service FINANCE Reduction of cost for intercompany logistic services 1. FAVORABLE TRANSFER PRICE RULINGS FOR DISTRIBUTION CENTERS PARENT COMPANY e.g. Japan Belgian DISTRIBUTION Centre Operational Companies Belgian SERVICES Centre Cost plus % case-by-case ruling * *OECD accepted norm: arm’s length standard Operational Companies Federal Public Service FINANCE Reduction of cost for intercompany logistic services 1. FAVORABLE TRANSFER PRICE RULINGS FOR DISTRIBUTION CENTERS Cost plus 3 to 4% ruling for European Distribution Center (EDC) Example: Income is 104% on operational expenses (mark up 4%) Expenses Income Transport (27.000 €) Warehousing (27.000 €) Staff (46.000 €) Interco Reinvoicing European Distribution Centre 100.000 € Income Expenses 104 % X 100.000 € = 104.000 € 104.000 € - 100.000 € profit Corporate tax rate Corporate tax 4.000 € 33,99 % 1.360 € Federal Public Service FINANCE Reduction of cost for intercompany logistic services Same example: but working capital financed by equity Combination with notional interest deduction Expenses Income Transport (27.000 €) Warehousing (27.000 €) Staff (46.000 €) Interco Reinvoicing European Distribution Centre 100.000 € Income Expenses Profit 104 % X 100.000 € = 104.000 € 104.000 € - 100.000 € 4.000 € Notional Interest Deduction -1.630 € Taxable basis 2.370 € Corp.tax rate: 33,99 % Corporate tax 806 € Effective tax rate: 20,1% (on a limited base) Federal Public Service FINANCE Reduction of cost for intercompany logistic services 2. AVOIDANCE OF VAT PAYMENT ON IMPORTATION • Basic principle - Input VAT payable upon entry of the goods into the EU - (refundable after +/- 6 months) • Deferral under Bonded Warehouse status - If EDC applies for a Bonded Warehouse status (BW) or for another deferral system, the import VAT is not due upon entry of the goods into EU, but can be postponed - Under Belgian legislation it is possible to avoid input VAT at the time the goods leave the EDC. • VAT deferral upon importation as Belgian VAT-payer - Upon simple request (ET 14000 license) - The import VAT is not due upon entry of the goods into EU, but can be postponed to the next periodical VAT return = cash flow advantage ! - Since 1/10/2012: abolishment of the deposit (warranty payment) for the license to defer import VAT to the VAT return Federal Public Service FINANCE Reduction of cost for intercompany logistic services 2. AVOIDANCE OF VAT PAYMENT ON IMPORTATION Other EU State No input VAT Incoming goods No input VAT EDC BW or other deferral system Outgoing goods Non - EU State No input VAT License ET14,000 No input VAT Belgian VATperson Federal Public Service FINANCE Reduction of cost for intercompany logistic services 3. REDUCTION OF EMPLOYMENT COST • What is it? - Employers may claim a partial exemption from payroll tax payment with respect to employees involved in night or shift work. • Basic exemption: 15.6% - The exemption currently amounts to 15.60% of the taxable salary paid to the employee in case of night work or shiftwork based on a number of teams from 2 upwards • Increased exemption: 17,8% - Starting from 1/1/2014 the exemption was increased by 2.20% to 17.80% in case of 24/7 continuous shift working based on 4 teams upwards Federal Public Service FINANCE Reduction of cost for R&D Federal Public Service FINANCE Reduction of cost for R&D Belgian company Acquisition of patents One-time R&D investment deduction / R&D tax credit External contract R&D In house R&D • One-time or spread R&D investment deduction / R&D tax credit • Payroll tax exemption • Expat regime R&D funding Notional interest deduction R&D centre Licensing Patent income deduction on patent license fees Sales Funding Licenses to third parties Sales to customers Patent income deduction on patent remuneration embedded in sales price of patented products Federal Public Service FINANCE Reduction of cost for R&D 1. REDUCTION OF INVESTMENT COST = Investment deduction or tax credit for investments in R&D activities 1.1. R&D Investment deduction • What is it? - Investment deduction for R&D related investments - Investment deduction in patents or licenses on patents = acquired or self-developed by the company • How does it work? One time deduction Spread deduction • Example Annual Tax Deduction = [INVESTMENT COST X 13.5%] [DEPRECIATION COST X 20.5%] Federal Public Service FINANCE Reduction of cost for R&D 1.2. R&D Tax Credit • What is it? - Optional system in stead of investment deduction for R&D related investments and investments in patents or licenses on patents - Option is irrevocable • How does it work? One time deduction Spread deduction Annual Tax Credit = [INVESTMENT COST X 13.5% X TAX RATE] [DEPRECIATION COST X 20.5% X TAX RATE] • Example Tax rate Capitalised R&D expenses (Accelerated) depreciation Tax credit 100 33.3 3 years In one time 100 x 13.5% 33.99% 4.6 Spread credit 33.3 x 20.5% 33.99% 2.4 Federal Public Service FINANCE Reduction of cost for R&D R&D Tax Credit (cont’d) • Advantage? - Refundable credit if not offset against company tax within 4 years - Impact on the financial reporting by multinational companies = the tax credit directly reduces the cost center R&D and thus improves its EBIT Federal Public Service FINANCE Reduction of cost for R&D 2. REDUCTION OF EMPLOYMENT COST 2.1. Exemption from payroll tax for researchers • What is it? - Principle: the salary withholding tax is normally retained on the remunerations paid to the researcher - but the amount of tax so retained must not be totally paid to the Revenue Collector • How does it work? Annual Tax Exemption = [PAYROLL TAX X 80%] • Who can benefit? - Benefit for the employer creating jobs in R&D = extra financial means for the employer - The employee is a researchers with a specific degree - Special reporting obligation as of 1 January 2014 with description of the R&D program or project Federal Public Service FINANCE Reduction of cost for R&D 2.2. Special expat status for foreign researchers • What is it? - Attractive conditions for foreign executives and researchers • How does it work? - Exclusion from the taxable remuneration of expatriation allowances max € 29,750 per year for repetitive expenses (cost of living, cost of housing, tax equalization) tax free reimbursement of installation costs, school fees,… - Exclusion from the taxable remuneration of workdays performed outside Belgium Federal Public Service FINANCE Tax incentive for increase of IP-income Federal Public Service FINANCE Tax incentive for increase of IP-income PATENT INCOME DEDUCTION • What is it? - 80% tax exemption for income related to the use of patents or licenses • Patents or licenses concerned - self-developed or co-developed by a Belgian company or branch - If not self-developed only the further development is taken into account - Large companies must have in-house R&D activities organized as branch of activity • Example Patent income Deduction Taxable income Effective tax rate 100 80% 20 6.8% 100.0 Corporate tax 33.99% Net income after tax 6.8 93.2 Federal Public Service FINANCE Tax incentive for increase of IP-income Schematic overview Patent license or sale of patent- based products / services Affiliates Patent Development Center (Belgium) 3rd parties Initial patent developer Patent Income Deduction • Applies to variable income streams, fixed income streams, as well as upfront fees, milestones, etc. • Other intellectual property rights (copyrights, know-how, designs, trademarks, etc.) do not qualify. INVEST IN BELGIUM – increase your profits Example Manufacturing company with a R&D division: Share capital: 100 000 (of which 20 000 = contributed patent value) Return on equity: 12% Net profit: 12 000 (+) (of which 3 000 = patent income ; 9 000 = product revenue) To deduct − − − − Invest. ded. on patents: Patent Income Ded.: N.I.D. 13.5% x 20 000 = 2 700 80% x 3 000 = 2 400 1.630% x 100 000 = 1 630 8 730 (-) 5 270 Taxable basis: Corporate Tax: Effective tax rate: (5 270 x 33.99%) = 1 791 14,93% Federal Public Service FINANCE Tax incentive for increase of IP-income REPATRIATION OF BELGIAN PROFITS TO JAPAN NEW TAX TREATY JAPAN – BELGIUM Federal Public Service FINANCE Tax incentive for increase of IP-income DIVIDEND WITHHOLDING TAX EXEMPTION PRESENT SITUATION Parent company (treaty partner of Belgium) • No WHT • 10% shareholding • No LOB • 12 months Belgian Subsidiary Federal Public Service FINANCE Tax incentive for increase of IP-income DIVIDEND WITHHOLDING TAX EXEMPTION NEW TREATY? JAPAN • No WHT • 10% shareholding • No LOB • 12 months BELGIUM Federal Public Service FINANCE Tax incentive for increase of IP-income ROYALTY WITHHOLDING TAX PRESENT SITUATION: 10% WITHHOLDING TAX NEW TAX TREATY: EXEMPTION? Japanese Licensor Belgian Licensee Federal Public Service FINANCE HOLDING REGIME Belgium as a regional hub for holding activities Federal Public Service FINANCE Belgium as a regional hub for holding activities HOLDING REGIME • Participation exemption dividends received = deduction of 95%; • Deductibility of interest paid to acquire shares; • No capital duty; • Capital gains tax - Low taxation of 0,412% on realized capital gains on shares if minimum holding period of 12 months is fulfilled; INVEST IN BELGIUM – increase your profits Need to know more ? Federal Public Service Finance Fiscal Department for Foreign Investments Rue de la Loi, 24 (Parliament Corner) 1000 Brussels - BELGIUM Bart ADAMS Email: [email protected] Tel.: +32 257 938 68 Fax: +32 257 951 12
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