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Belgian enterprises make scant use of R&D support measures

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February 26, 2018

Ayming publishes the results of the R&D Barometer, the first investigation of the challenges, financing and future vision of innovative enterprises. The research involved 128 CEOs, CFOs and R&D Managers of enterprises representative of the innovative sectors in Belgium. Based on the results Ayming now forms three conclusions:

  1. ALL MEASURES IN SUPPORT OF R&D IN BELGIUM ARE UNDERUSED

  • 3 out of 10 enterprises do not apply the substantial partial exemption from the payment of withholding tax on wages for researchers (WT deduction) (federal measure), mostly on account of non-eligibility of the projects

Geert COUPEZ, COO Ayming Belgium:

“The concept R&D is clearly defined in the OECD’s Frascati Manual. If a project satisfies the set criteria the measure may be applied. In practice we often observe that enterprises are not always aware of the extent to which, or even whether or not, they engage in research and development. Researchers often say R&D and innovation in the same breath, but there’s an important difference: R&D is innovation, or can lead to innovation, but not every innovation will satisfy the OECD criteria for R&D. Here there’s clearly more leeway for the policymakers: do we place the emphasis on R&D ‘pur sang’, or on job creation and economic growth? In that last case the scope of the measure could be extended to innovation in the broader sense”.

  • Half of the enterprises do not apply the increased investment deduction or tax credit (federal measure), mostly on account of lack of information

Geert COUPEZ:

“This measure allows 13,5% of the capitalized investments to be deducted from the tax assessment basis. The main reason why it is not applied is a lack of information about the measure. The potential is therefore perhaps not fully used, although the measure is most interesting in terms of reducing the financing costs of the R&D investments of the beneficiary enterprises.”

  • 60% of enterprises do not make use of the deduction of revenue from patents or innovations (federal measure) on account of lack of eligible projects

Geert COUPEZ:

“This measure, which allows deduction of revenue from patents, was changed in 2016 to deduction of revenue from innovation. The measure is underused mainly because of its complexity and the cost of implementation. Seeing the lack of knowledge you can’t always expect enterprises to be aware of all the technical ins and outs. Obtaining this deduction in a safe and secure manner can indeed be a complex, difficult and time-consuming affair, and in many cases it’s the work of specialists, for instance when the revenue taken into consideration is generated from own-produced innovative goods or services. The necessary means are not always at the disposal of SMEs, while bigger enterprises are more familiar with this sort of complexity and have easier access to the necessary knowledge.”

  • Only 1 in 10 SMEs makes use of SME Instrument financing (European measure)

Geert COUPEZ:

“SME Instrument is a form of direct financing that is a component of the H2020 programme. This programme allows enterprises, among other things, to scale up to international level. Its under-use may be ascribed mainly to the lack of information about the measure. There also seems to be a misconception about what is regarded as an SME: enterprises that might otherwise be eligible wrongly assume that they would not satisfy the criteria. In general, we’re happy to be able to say that Europe intends to simplify the application procedure, this outside any theme laid down in advance.”

  1. BELGIAN ENTERPRISES ARE OPTIMISTIC ABOUT THE FUTURE OF THEIR INNOVATION

  • 90% are optimistic about the number of innovations that they will launch;
  • 90% are optimistic about the success of their future innovations.

Geert COUPEZ:

“We were not able to determine whether the existing measures in support of R&D – in their present form – are instrumental in this optimism. Taken as a whole, the impact of these measures is clearly positive. But once we look at the various factors of R&D separately, such as the recruitment of R&D personnel (an important challenge for most innovative enterprises), the intensity, the turnover of launched innovations, or even international presence, the measures don’t appear to be giving those factors separately any significant boost. Enterprises therefore don’t always have the feeling that the measures have any direct or significant impact on their growth. This may be an invitation for politics to pursue a more transparent innovation policy. R&D, for example, could be treated less ambiguously, as also could innovation, leading to the marketing of innovative products and services and, thus, to job creation.”

  1. PARTIAL EXEMPTION FROM PAYMENT OF THE WITHHOLDING TAX ON WAGES FOR RESEARCHERS: STRICTER APPLICATION OF THE LAW, BACHELOR DEGREES NOW ELIGIBLE

  • Since 2018 bachelor degrees are also eligible for the partial exemption from payment of the withholding tax on wages for researchers. This is the answer to a prayer encountered by the R&D Barometer among Belgian enterprises (53%);

Geert COUPEZ:

“We’ll have to see whether the measure will in fact find its mark, seeing the increased complexity and the less favourable system. The extension mainly seems to be more interesting for the big enterprises than for small and medium-sized enterprises. Big enterprises that already have a critical mass of exempted masters in house will now also be able to turn the valuable R&D work of their bachelors to their best fiscal advantage.”

  • The results show a stricter application of the law over the past 3 years: 2 out of 3 Belgian enterprises were audited for the application of the partial exemption from withholding tax on wages for researchers (66%) and 4 out of 10 had to pay a corrected demand (39%).

Geert COUPEZ:

“This shows that the tax authorities take applicability seriously, but that enterprises don’t always succeed in underpinning or documenting the application of the measure in a comprehensible manner. Practice also teaches that there are quite a few problems with interpretation within the tax administration. These lead to a hybrid application of the measure and, thus, less legal certainty. The results also indicate that the number of corrections of demands is more limited if the enterprise is able to produce a detailed documentation file that it has created in connection with the actual application of the measure and that it updates on an annual basis.”

CONCLUSION

The results of the 1st R&D Barometer show that R&D financing supports optimism about the future of R&D in Belgian enterprises, but does not yet set it in motion. The study indicates that R&D financing should be a strategic element on the agendas of innovative enterprises rather than simply a post-factum operational given. Enterprises therefore can only stand to gain by integrating R&D financing in their R&D strategies before the event. Ayming and its R&D Barometer will follow and communicate the developments of these results each year.

ABOUT THE RESEARCH

The respondents to the research survey included 128 CEOs, CFOs and R&D Managers from enterprises representative of the innovative sectors in Belgium. The random sample included 37 % small enterprises, 29 % medium-sized enterprises and 34 % big enterprises. The replies were obtained via the survey platform CheckMarket from November to December 2017.

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