The WBSO (Wet Bevordering Speur- en Ontwikkelingswerk) is a Dutch tax incentive designed to encourage research and development (R&D) within companies. This subsidy aims to stimulate economic growth by reducing the costs associated with R&D projects. In this guide, we'll break down the WBSO application process and its benefits in a straightforward '101'.
Definitely some development going on here!
What is the WBSO scheme?
The WBSO is a scheme offered by the Dutch government to support companies in their R&D activities. The goal is to make innovation more accessible and affordable by reducing wage tax and social security contributions for employees involved in R&D projects. This incentive can be crucial for companies looking to innovate, as it significantly lowers the wage tax burden for R&D personnel. For early-stage innovative businesses, reducing wage tax costs can make a significant difference during investment-heavy years.
Who can apply for the benefit?
Any company, regardless of its size, that undertakes R&D activities can apply for the WBSO. This includes startups, SMEs, and large companies. Even self-employed entrepreneurs without employees can benefit from a deduction in their taxable profit. The main requirement is that the R&D work is systematic and directly aimed at technological innovation, such as scientific research or the development of new physical products, production processes, or software.
The development must be technically new for your company, meaning it surpasses your existing technical knowledge. However, it doesn't have to be an idea that nobody has thought of before. In your application, you describe the potential solutions you intend to investigate, elaborate on, and develop.
WBSO tax reductions have been granted for a lot less..
What activities qualify for the tax reduction?
The WBSO covers activities that fall under technical-scientific research and the development of technically new products, processes, and software. It does not cover market research, organizational, administrative tasks, or software maintenance. Specific exclusions are detailed in the Ministerial Regulation on WBSO, such as the maintenance of software or setting up courses/educational materials.
How to Apply for WBSO?
The application process for WBSO is managed by the Netherlands Enterprise Agency (RVO).
Here is a rough outline of the steps that need to be followed:
Preparation of the application: Ensure your project meets the criteria for R&D activities as mentioned above. You need to describe the R&D work, the period it covers, the expected hours, and the estimated costs and expenses.
Submitting your application: Applications must be submitted to the RVO before the start of the project. You can apply for WBSO multiple times a year, and since January 1, 2022, you can request WBSO declarations for overlapping periods as well.
Receive the S&O declaration: If your application is approved, you will receive an S&O declaration from RVO. This declaration details the R&D activities, the period, the estimated hours, and the costs involved. It is also possible that the RVO will ask additional questions to verify the applicability of the WBSO subsidy.
Implementing the wage tax reduction: Use the S&O declaration to apply the tax reduction in your payroll tax return. The reduction can only be applied if the company possesses a valid S&O declaration for the period in question.
Reporting the actual R&D hours and costs: At the end of the calendar year, report the actual hours and costs spent on R&D to the RVO. This ensures compliance and corrects any discrepancies between estimated and actual figures.
Benefits of the WBSO subsidy
The primary benefit of the WBSO subsidy is the reduction in wage tax and social security contributions, directly lowering the cost of your R&D personnel.
For 2024, the wage tax reduction percentages are:
First bracket: 32% of the first €350,000 of R&D expenses.
First bracket for startups: 40% of the first €350,000 of R&D expenses.
Second bracket: 16% of the expenses above €350,000.
For example, if your company spends €200,000 on R&D, you could save up to €64,000 in wage tax. This saving can be reinvested into further R&D activities or getting through the cash-burn phase so many start-ups are struggling with.
Flexibility in application
Starting January 1, 2022, the WBSO scheme has become more flexible. Companies can now apply for multiple overlapping S&O declarations within a calendar year, providing greater flexibility. This adjustment of the regime entails you can optimize your wage tax reductions more effectively.
Enhanced benefits: the Dutch 'Innovation Box'
The S&O declaration is required to be eligible for the Dutch Innovation Box, a corporate tax incentive that lowers the effective tax rate on profits derived from R&D. This regime taxes profits from self-developed intangible assets at a reduced rate of approximately 9% compared to the standard corporate tax rates of up to 25.8%. To qualify for the Innovation Box, small companies need a WBSO statement, while larger companies require a patent or plant breeder's right.
Combining the WBSO with the Innovation Box can significantly enhance the financial attractiveness of R&D projects, offering substantial cost savings by reducing wage tax costs and corporate income tax on profits. This greatly enhances the attractiveness of a startup/scale-up for investors.
WBSO and Innovation Box - An easy walk to those Series A and B rounds!
Conclusion
The WBSO is a great tax benefit for companies engaged in R&D. By reducing the financial burden of innovation, it encourages businesses develop new technology. Whether you are a startup or a larger scale-up, understanding and utilizing the WBSO is low-hanging fruit - ripe for the picking!
Applying for the WBSO might seem complex, but with some preparation and understanding of the process, it can be a straightforward application and well worth the investment.
Looking for guidance on applying for this benefit? We're happy to help!
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