Innovation Box 2021
Lowers the corporation tax for profits from innovative activities > Innovation Box. These profits are only taxed at a maximum tax rate of 9%.
The reduced tax rate of 9% instead of 25% increases the return of companies on R&D investments. The reduced R&D costs allow companies to invest more, which speeds up the R&D process. This causes the organization to increase in value.
How does Innovation Box work?
Who can use Innovation Box?
Every company that can demonstrate sufficient investment in innovation is eligible for a tax reduction through the innovation box. This may involve Research & Development (R&D) or improving existing products or processes. It is important that you first take a good look at the financial benefit it brings before you apply Innovation Vox.
What are the conditions?
- A WBSO decision
- Depending on the sales size or industry, a patent may or may not be required:
Mandatory: for the ‘small’ taxpayer (less than €50 million net group turnover per year and a net turnover from innovative assets of less than €7.5 million per year), a WBSO decision is imperative for access to Innovation Box.
Not required: a patent is not required for an IT company (but it is possible to apply for a patent for IT!).
Mandatory: for a “large” taxpayer, in addition to a WBSO decision, a patent (or a similar right) is also required. - A settlement agreement is drawn up in collaboration with tax authorities
How much is the tax benefit?
Innovation Box offers a special rate within corporate income tax. Profits that qualify for Innovation Box are taxed at a low corporate tax rate of 9% instead of the usual rate of 15 or 25%. Innovation Box can lead to the effective corporate tax rate not being 25% but, on average, approximately 16%.
Flat-rate Innovation Box
To allow SMEs to benefit more from Innovation Box, the flat-rate innovation box has been introduced. This flat-rate method has been created for companies where the benefits do not outweigh the administrative burden of determining the attributable benefits. This measure makes it possible to declare a maximum of 25% of the profit as a lump sum. It is then unnecessary to determine to what extent the innovation has contributed to profit. The maximum eligible profit is €100,000. This means that a maximum of €25,000 is taxed at 9% corporation tax, instead of the usual 15% or 25%. The flat-rate innovation box may be used for the same innovation project for a maximum of 3 years.
Example calculation
For your company, the 2021 financial year is the same as the 2021 calendar year. Qualifying benefits amount to a total of €2,000,000.
The amount on which you calculate the corporation tax:
(9/25) x 2,000,000 = €720,000
Up to and including € 245,000, the corporate tax rate is: 15%.
From €245,000+, the corporate tax rate is: 25%.
In this example, the corporation tax that you have to pay is €155,500.
An integrated approach
For a proper application of the WBSO and Innovation Box, a combination of technical knowledge and fiscal legal knowledge is necessary. Baker & McKenzie and De Breed & Partners have entered into a strategic partnership in the field of these tax arrangements. Thanks to this, our united cooperation, knowledge, and experience offer you integrated advice regarding applications for WBSO and Innovation Box.