Some tax incentives for investment in research and development

Some tax incentives for investment in research and development 

1.   Increased investment deduction 

• General principle: an “off balance sheet” tax deduction will be available for part of the purchase price or cost price of fixed assets depreciable over at least three years

• Deduction in a single instalment in the assessment year relating to the taxable period in which the asset was acquired or created. Companies employing fewer than 20 workers on the first day of the taxable period concerned, however, may elect to stagger the investment deduction over the depreciation period for the fixed asset concerned.

• Eligible investments: 

o 1. patents;

o 2. fixed assets intended to promote research and development of new products and advanced technologies that are environmentally neutral or intended to minimize negative environmental impacts;

o 3. fixed assets intended to improve energy efficiency, improve the energy use of industrial processes and, more especially, for energy recovery in industry

• Rate: for the 2008 assessment year: 13.5% (single instalment deduction) or 20.5% (staggered deduction); for the 2007 assessment year: 14.5% and 21.5% respectively.

• Can be carried over indefinitely, but only up to a maximum amount for any assessment year

2.   Tax credit 

• Companies can opt for a tax credit instead of the investment deduction for the patents and fixed assets referred to in points 1 and 2,.

• Once made, this choice cannot be changed.

• Amount of tax credit: 33.99% (standard corporation tax rate plus supplementary crisis contribution - CCC) * share deductible for investment deduction (cf above)

• Can only be carried over for 4 assessment years; thereafter, the unused share is refunded, which may hold some benefit for loss-making companies.

3.   Partial exemption from payment of withholding tax on earned income 

The Income Tax Code 1992 (hereafter, “C.I.R. 1992”) contains a series of measures exempting certain employers from paying on to the Treasury the withholding tax on earned income that they have deducted from the salaries paid to their “scientific personnel”.

The exemption has no impact on the tax situation of the workers concerned, in that their income tax liability is calculated taking into account the full amount of income tax deducted at source even if their employer is exempted from having to pay on part of it to the Treasury.

This is a benefit for the employer only, who can retain and freely allocate the amount of the unpaid income tax liability withheld.

The maximum amount of exemption is 50% of the income tax liability withheld from the salary concerned. In certain circumstances, and subject to certain conditions, the exemption can be applied retroactively.

The entire Deprince, Cherpion & Associates team is at your service for a preliminary feasibility study of your particular case.

The fixed allowance scheme

The fixed allowance scheme - for employees and company officers 

Under article 31, para. 2.1° of the 1992 Income Tax Code, workers are taxed on “wages, salaries, commissions, perquisites, bonuses, compensation and all other similar remuneration, including tips and other allowances, including incidental allowances, arising out of or in connection with the carrying on of an occupational activity in any capacity, other than reimbursement of the employer’s own costs”.

In other words, “reimbursement of the employer’s own costs”, i.e., expenditure incurred by the worker for the account of and repaid to him by his employer, is not taxable income for a worker.

Correspondingly, such reimbursements will normally be deductible by the employer.

These rules also apply to company officers, i.e., individuals who hold office as directors, managers, liquidators or a similar function (1), or who hold an executive management or day-to-day commercial, financial or technical management post in the company other than under a contract of employment (2).

The tax authorities will scrutinise reimbursements of “employer’s own costs” closely to ascertain that they are not in reality disguised remuneration on which the recipient would be liable to tax.

“Employer’s own costs” may be reimbursed at their actual amount as evidenced by supporting vouchers or as a lump sum reimbursement.

Lump sum reimbursements will not be treated as taxable disguised remuneration if the amount has been fixed “according to standards derived from a large number of observations and tax audit verifications” (Com. I.R. (Income Tax Practice Notes) 1992, No. 31/36). In other words, the flat-rate amounts allocated must be estimated on the basis of strict standards that are provable by reasonable, consistent and verifiable criteria.

It should be noted that, provided the fixed allowances are not higher than those which the State allows to civil servants, the tax authorities will accept that they are based on credible standards. Apart from this fixed framework, certainty about the tax consequences of such allowances can be had by applying for a prior tax agreement from the “Advance Income Tax Rulings Department”. 

There are several different kinds of  fixed allowance. They may even be combined provided there is no duplication, and if certain conditions are met. The main allowances are:

• the daily fixed allowance for travel and assignments in Belgium

• the daily fixed allowance for travel and assignments abroad

• the daily fixed allowance for assignments abroad

• the fixed monthly allowance

• the fixed mileage allowance

The entire Deprince, Cherpion & Associates is at your service for a preliminary feasibility study of your particular case.

An attractive new tax scheme for bonuses

An attractive new tax scheme for bonuses, a paying tax incentive 

New rules on “non-recurring performance-linked benefits” came into effect on January 1st, 2008.

This scheme has particularly interesting direct and indirect taxation benefits: on certain conditions, it enables employers to pay some or all of their workers a bonus linked to company performance - whether or not measured by financial results - which will be tax-free for the workers who receive it. Employers will pay only a special social security contribution of 33% on it, and can set both the bonus and social security contribution off against business costs.

• Which companies and which “workers”? 

The scheme is for private sector companies and some state enterprises. Qualifying “workers” are those with employment contracts, but also people providing work services under the authority of another person other than under an employment contract, in particular indentured apprentices, and those on work experience or other forms of training contract.

The plan need not necessarily include all the company’s employees. It can be limited to a single defined group of workers (a department, category of workers, etc).

• “Non-recurring performance-linked benefits” 

To qualify for the new scheme, the bonus must be linked to the collective performance of a company, a group of companies, or a clearly-defined group of workers.

Eligible objectives may be financial or non-financial (improved customer satisfaction, etc.). They must be objectively measurable objectives.

As a general rule, these benefits cannot replace existing components of pay. 

• Maximum amount 

The bonus is capped at €2 200 a year per worker. Above this maximum, the bonus will be subject to normal tax and social security.

• Direct and indirect tax treatment 

No income tax will be payable on the bonus below the cap, and only a special social security contribution of 33% will be levied on it. The employer can expense both the bonus and social security contribution as business costs.

The entire Deprince, Cherpion & Associates team is at your service for a preliminary feasibility study of your particular case.

Contribution of shares

Contribution of shares, one way of releasing current and future cash assets from a company.

This is where one or more individuals resident for tax purposes in Belgium contribute the shares they hold in one or more operating companies to an existing or purpose-founded holding company.

The potential benefit of the operation is that cash assets up to the full amount of the holding company’s capital (comprised of the stock contribution) can be taken out of the target company tax-exempt and without social security contributions being deducted.

This can yield substantial tax savings of at least 25%/15% of the sums involved.

Contribution of shares is possible only in specific sets of circumstances, and there are some conditions to be met.

The entire Deprince, Cherpion & Associates team is at your service for a preliminary feasibility study of your particular case.

The society of common law as a means for patrimonial transmission

We summarize, in the following lines, the functioning of a society of common law from the point of view of a heritage planning.

A "society of common law", also named under the term "civil society", is a civil contract of joint ownership, which means that heritage, which is brought, is joint between its partners. It has no distinct legal personality from its partners. This is actually an organized joint possession.

It is stated by a writing note (meeting the requirements of article 1341 of the Civil Code) which can be a private agreement. Therefore, a deed executed by a notary is not necessary.

The purpose of the company will consist mainly in "common management and investment share of his assets in different investment tools (stocks, shares, bonds, certificates, etc..)". One should note that commercial acts are prohibited. They could indeed cause the redevelopment of the company into a commercial society of common law.

As part of estate planning, the Pater Familias and often his wife are appointed statutory managers in the articles of association of law, which keeps the management of donated goods and to be almost "impossible to budge".

Indeed, the articles will give the managers broader powers to manage: they perform, excluding of any other partner, all acts necessary or appropriate to achieve the object of the company, therefore managing the undivided heritage and representing the partners in the proceedings against third parties and in court.

Moreover, the statutory manager cannot be dismissed "without legitimate cause" and is in this case "protected"; his dismissal being supposed to demonstrate the behaviour of an abusive management or on the contrary to manifest the interest of a society and its associates .

The society of common law will have a limited duration (eg 30 years, ending at the latest at the death of the husband and the wife) because the law provides that in case of indefinite duration, dissolution may be requested by any partner at any time, which is obviously not desirable.

Once incorporated, the society of common law has an ordinary functioning. It is not necessary to hold a double-entry accounting and simplified accounts should not be published. It should simply organize once a year a general meeting of partners during which the "accounts" are approved.

In a perspective of patrimonial transmission, even by giving at your children, donations can be accompanied by terms such as keeping not only incomes of given properties but also a very wide control.

However, notwithstanding these provisions, there will always be a limit, that you can only spend what you have given. Therefore, if you sell the shares of SA Group Equip (decision which will be yours only as managers of the society of common law), you can reinvest the profits from the sale and enjoy the income and products of these reinvestments but you cannot spend what you have given.