The tax credit or investment deduction for investments in R&D
When an SME or large company invests in research and development (R&D) of new products or services, the government offers all kinds of advantages, including an additional deduction or a tax credit on these investments.
Delphine Vanassche, Senior Manager BDO Tax & Legal
The tax credit is deducted from the corporate tax owed, unlike the investment deduction, which is deducted from the taxable base. The tax credit is also refundable if not utilised after 4 years, while the investment deduction (simply) carries forward. That is why, if a company foresees that the benefit of this deduction will not result in an actual deduction within 4 years, a tax credit may be a better option.
The tax credit or investment deduction can be applied either all at once or in phases. If you decide on the one-time option, the deduction or credit will be calculated at a rate of 13.5% of the annual investments in R&D. If you opt for the spread benefit, the deduction or the credit will be calculated at 20.5% of the depreciation.
“If you invest in R&D projects, the tax credit or the investment deduction can be an attractive advantage.”
For a company to qualify for these measures, its investment must meet a number of conditions. The material conditions are largely in line with those of the investment deduction.
In addition, a few other conditions apply:
Since Belgian law does not define what belongs under the heading “research and development”, we are obliged to fall back on the provisions of the OECD’s Frascati Manual. The assessment must be done very carefully here and must be in line with any other measures in the context of R&D. If you fail to comply with the necessary formalities, the tax authorities may disallow the investment deduction or the tax credit.
Corona and investment deduction
Due to the COVID-19 crisis, the option for SMEs to make use of the ordinary one-time investment deduction of 25% has been extended. It is therefore interesting for them to opt for this rather than for the tax credit or investment deduction for R&D. The ordinary one-time investment deduction must satisfy the material conditions, but it is not necessary to demonstrate that the investments are part of a research and development project or whether they have a negative impact on the environment. Therefore, no certificate needs to be requested in this case.
It should be noted, however, that even though the ordinary one-time investment deduction has been extended until 31 December 2022, the possibility to carry forward the investment deduction remains limited. Under normal circumstances, the ordinary one-time investment deduction can only be carried forward for one year and cannot be combined with the application of the notional interest deduction. For investments between 1 January 2019 and 31 December 2021, the deduction can (exceptionally) be carried forward to the next two taxable periods. Therefore, if insufficient profits are expected in the near future, choosing the tax credit/investment deduction for R&D may be a better option.