Generic innovation incentives in perspective, looking beyond opportunities in West-Europe

Before the crisis that began in 2007, many West European countries employed large grant budgets to drive innovation in their country. This according to the idea, innovative companies are successful in the market and thus create jobs. The crisis however led to reduced tax revenues for governments; governments decided to cut costs drastically and many national funding programs were aborted.

The generic easily accessible innovation incentive schemes did not disappear. These often don’t take the form of cash funding, but of reduction of corporation tax or income tax. These schemes however in practice are not primarily intended to stimulate innovation, but to prevent companies from moving their research and development or entire businesses to other countries. In short, generic innovation support is part of a total business condition package, by which a country shows itself as an attractive business location.

So Dutch companies should know surrounding countries have similar arrangements promoting research and development as the Dutch authorities have. Some examples:

  • Belgium: a super deduction of 120.5% of the amount of depreciation for R&D capital assets, 20% -25% contribution to the R & D labor costs, tax deduction on patent income.
  • France: Crédit d'Impôt de Recherche, a tax deduction of 30% on all incurred R & D expenses over the past three years.
  • Italy: a tax credit on all incurred R & D costs; 25% on depreciation of laboratory equipment and patents, 50% on highly qualified personnel and outsourcing to universities or research institutes.
  • Netherlands: a contribution of 32% over the R & D labor costs and other R & D expenses till € 350,000, a contribution of 16% of the costs exceeding € 350,000. Further, a tax credit on income from innovations.

This means the R&D incentives in the different countries do not differ much. Your choice to establish your business in a specific country and / or to have your research and development performed there won’t depend on the available funds, but they’re obviously a bonus. A more important prerequisite is the adequate availability of qualified R & D personnel. Unfortunately, in West Europe, the low popularity among young people for technical studies caused in recent years a low supply of suitable recruits. It is worthwhile to focus your gaze on other countries in Europe; especially a country like Poland has good universities producing large numbers of engineers, IT specialists and other technically skilled people. Moreover, this country has generic incentives on offer, surpassing those of West European countries:

  • Support for investments in R & D infrastructure (both tangible and intangible R & D resources, including construction) up to 70% of the total cost;
  • Support for research and development projects with innovation on national (Polish) level. The grant amounts to 80% for research and 60% for development over project costs of at least € 500,000;
  • Support for the development and verification of the demonstration (commercialization) of innovative R & D results. The grant is 60% for small businesses and 50% for medium-sized businesses, on minimum project cost of € 1.16 million; large companies get 40% of project cost of at least € 4.65 million.
  • Support for SMEs in the implementation of R & D results. The grant amounts to 70% (depending on region) for mainly investments (cost between € 2.3 and € 50 million), also for consultancy and research and development (both maximum cost € 232,000).

In all abovementioned cases the government support takes the form of non-refundable cash grants. Poland also has its package of tax measures:

  • Development activities are 100% deductible for corporate income tax;
  • R & D centers in Special Economic Zones are subject to a deduction of up to 50% (depending on region and company size) of 2 years of R & D labor costs and / or R & D capital investments.
  • Tax credit up to 50% on the purchase of intangible R & D resources (property rights, patents, other types of know-how).

For example, Poland has a lot of highly skilled software developers at its disposal. Should you consider having your software development executed in Poland, don’t forget to use the Polish incentives!

Vincent van den Bosch

June 30, 2016

Vincent van den Bosch

 

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