1. Federal Public Service Finance Innovative fiscal measures For Research & Development 2014 Fiscal Department for Foreign Investments Michela Ritondo

2. Belgium Effective (Average) Corporate Tax Rate (ECTR) 2012* Sources : ZEW, Centre for European Economic Research, Manheim Effect Tax Levels – Final Report 2012 Especially in Belgium, the ECTR is considerably below statutory tax rates (-7,7%) 2

3. 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) Notional Interest Deduction

4. Who? Companies subjected to -Corporate tax -Non-residents / Corporate Tax Notional Interest Deduction

5. How does it work ? Annual Tax Deduction = EQUITY (in the opening balance sheet of the taxable period) X RATE ( 10-year OLO ) Notional Interest Deduction

6. Interest Rate  RATE = annual average of the monthly published rates of the long term Belgian Government Bonds (10-year OLO)  Fixed yearly: for 2014 (Tax Year 2015):  2,63 %  3,13 % (SME) 1.Notional Interest Deduction

7. EXAMPLE : (Return on Equity: 4%) AssetsLiabilities Group Financing 100 000 Share Capital 100 000 P&L AccountBefore N.I.D.After N.I.D Profit before tax 4000 N.I.D. (2,63 %)/- 2630 Taxable 4000 1370 Corporate Tax (33,99 %) 1360 466 Effective Tax Rate 33,99 % 11,6 % 1.Notional Interest Deduction

8. Net Result (Return on Equity) Effective Tax Rate ≤ 2,63 %0 % 4% (Previous slide)11,6% 5%16,1% 6 %19 % AssetsLiabilities Business Assets 100 000 Share Capital 100 000 1.Notional Interest Deduction

9. Other particularities  Permanent measure  No ruling nor agreement is needed  Suppression of the 0,5% capital duty as of 1/1/2006  EU compliant 1.Notional Interest Deduction

10. OPPORTUNITIES  It’s a valuable tool for further development of Coordination Centre activities  Opens possibilities for international groups of allocating new activities to a Belgian entity such as intra-group financing, central procurement or factoring Notional Interest Deduction THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.

11. 1. Patent Income Deduction 2. Investment deduction for R&D related investments and patents 3. R&D Tax Credit 4. Partial exemption salary withholding tax for researchers 5. Tax allowance for additional employee 10 good reasons to invest in R&D !

12. 6. Innovation premium 7. Expatriate status in R&D 8. Tax exoneration for regional grants 9. Accelerated depreciation of R&D intangibles 10. Deductible gifts 10 good reasons to invest in R&D!

13. 1/ Patent income deduction What is it ? Deduction of 80% of the income from patents from the taxable basis, resulting in an effective tax rate of maximum 6,8% on this income Who can benefit ? Belgian companies and Belgian establishments of foreign companies Unique tax features for R & D

14. 1/ Patent income deduction Example Patent income: 100 Deduction: ( 80) Taxable basis: 20 Corporate Tax (33,99%)(6,8) Net income after tax:93,2  Effective Tax rate: 6,8 % Unique tax features for R & D

15. 1/ Patent income deduction Patents concerned  self-developed or co-developed by a Belgian company or branch;  acquired by a Belgian company or branch provided they are being further developed in Belgium or abroad (by acquisition, or license,…)  Large companies must have in-house R&D activities in a R&D center that qualifies as branch of activity  As of 1 January 2013 SME’s are exempted from the R&D center requirement 3.Unique tax features for R & D

16. 1/ Patent Income Deduction Calculation of the deduction  For patents that are licensed: 80% of the patent income received, to the extend the income is at arm’s length  For patents that are used in the production process: deemed deduction of 80% of the at arm’s length royalty that would have been received had the patents been licensed to unrelated third parties Unique tax features for R & D

17. Federal Public Service FINANCE Développer une entreprise axée sur R&D

18. 1/ 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. Unique tax features for R & D

19. 1/ Patent Income Deduction  Very low effective tax rate of maximum 6.8% and absence of any capping rules;  Tax deduction in addition to normal tax-deductibility of R&D related expenses;  Can be combined with Notional Interest Deduction for invested equity, etc. Highly competitive measure Unique tax features for R & D

20. 2/ Investment deduction for R&D related inv. and patents  Investment deduction for R&D related investments: for assets which aim to promote R&D of new products and advanced technologies which are environment-friendly :  deduction of 13,5% on the investment value (in one shot) OR 20,5% on the annual depreciation (spread deduction)  Investment deduction in patents acquired or self-developed by the company  deduction of 13,5% on the investment value NB: In case of insufficient profits, deduction carried forward for an unlimited period. Unique tax features for R & D

21. 3/ R&D Tax Credit Corresponds to the tax saving linked with the investment deduction Ex.: Investment of 100 000 € Tax credit = 100 000 x 13,5% x 33,99% = 4 589 € ▪ Advantage: improved presentation in accounting terms of the cost price of R&D in Belgium ▪ In case of insufficient profits, the Tax Credit can be carried over to the subsequent 4 tax years; The part not used after 5 years is refunded.

22. 4/ Income tax reduction for researchers, in favor of employers  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 Belgian Treasury (= extra financial means for the employer)   80% exemption !  For researchers with a specific degree, engaged in R&D program Unique tax features for R & D

23. 5/ Tax allowance for additional employee Exemption of 15 220 € (year 2014) from the enterprises profits: -for the manager of Total Quality department -for the manager of Exportations department

24. Unique tax features for R&D 6/ Innovation premium ▪ Principle: the premiums must be granted for an innovation which creates genuine added value for the normal activities of the employer  exemption from personal income tax for the beneficiary  exemption from social security contributions  deductible against corporate income tax for the employer ▪ Conditions: -the amount paid per worker may not exceed one month’s gross salary per calendar year -Publication within the company of the criteria, identification of the project,…and communication to the Ministry of Economic Affairs

25. Unique tax features for R&D 7/ Expatriate status in R&D Attractive conditions for foreign executives and researchers: ▪ 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 Attractive conditions for employers: ▪ Reduction of employment cost for expatriates with simple proceedings

26. Unique tax features for R&D 8/ Tax exoneration for regional grants in favor of R&D ▪ Subsidized assets or intellectual property out of a subsidized project can not be transferred during a 3 year period

27. Unique tax features for R&D 9/ Accelerated depreciation of R&D Intangibles Tax depreciation rules on R&D investments (intangibles):  accelerated depreciation in 3 years instead of 5, according to the straight-line method of depreciation

28. Unique tax features for R&D 1O/ Deductible gifts Cash contributions aiming at sponsoring public R&D programs  deductible from the net taxable income  max. 5% of the net income or € 500 000

29. People Wage withholding tax exemption Tax allowance for additional employee Innovation premium Expatriate tax regime Belgian R & D Centre ActivitiesInvestments Patents Favourable transfer pricing rulings Investment deduction R&D Tax credit Accelerated depreciation Tax exoneration for regional grants Patent Income Deduction

30. 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: 13,5% x 20 000 = 2700  Patent Income Ded.: 80% x 3 000 = 2400  N.I.D. 2,63% x 100 000 = 2630  Taxable basis: 4 270  Corporate Tax: (4 270x 33,99%) = 1 451  Effective tax rate: 12 %

31. Other tax incentives  Tax ruling (advanced decisions system on tax matter)  Dividend withholding tax exemption  Holding regime  Bonded warehouses and VAT deferal  Etc.,……

32. Federal Public Service Finance Fiscal Department for Foreign Investments Rue de la Loi, 24 (Parliament Corner) 1000 Brussels - BELGIUM Michela RITONDO Email: michela.ritondo@minfin.fed.bemichela.ritondo@minfin.fed.be Tel.: +32 257 938 69 Fax: +32 257 951 12 Need to know more ? INVEST IN BELGIUM – increase your profits