Now it’s time for the number one tax niche for research and development in Belgium: the “partial exemption from payment of withholding tax for ‘Researchers'”. Known as the PTE, it is synonymous with a significant tax break on the payroll, provided that the contours are mastered. Explanations.

Research and development (R&D) is now essential for all major economies and many companies. Today, competitiveness and innovation are linked. Investing in R&D has therefore become an imperative for managers and entrepreneurs. Thus, governments are scrambling to boost their respective ecosystems.

PTE, a succes story

This tax scheme was introduced in the early 2000s. The aim was to gain access, under certain conditions, to an exemption of 80% of the wage tax paid to the State. A tax, deducted at source, on the salary of ‘Researchers’ carrying out one-off projects or structural R&D programs. The aim is to create the conditions for companies to hire high profiles at a lower salary cost. In other words, to support Belgian scientific research by stimulating employment. Although the calculations depend on each situation, the average gain can be up to 10,000 euros per year per researcher (between 15 and 25% in terms of benefit). Over the years, this mechanism has continued to evolve – for example, by being extended to bachelor’s degree holders – and to confirm its success. The PTE is open to all employers, “regardless” of the subject matter of the search. Moreover, this niche is very interesting from the point of view of the company’s cash flow since it can benefit from an immediate cash advantage.

To start the process, it should be noted that the criteria are open to interpretation; several parameters will have to be analyzed, in particular the definition of “one-off projects or structural R&D programs”.

What is search and development?

This is one of the stumbling blocks of the PTE, sometimes leading to under-use of the mechanism or, worse, to situations with serious financial consequences.

What activities are eligible for PTE? The question may seem trivial, but it is fundamental. An example? The company carries out blood tests as part of routine health check-ups. This is outside the scope of R&D. However, if the blood tests are part of a project to evaluate patients taking a new pharmaceutical product, then it is R&D. The nurses who perform these tests could, in this case, benefit from the exemption.

The « Frascati » base

For more than half a century now, the OECD’s Frascati Manual has laid the foundations for a common language to deal with the subject and has established itself as an essential reference. It is no coincidence that its definition of R&D has largely inspired most national regulations.

« Research and experimental development (R&D) encompasses creative work undertaken in a systematic way with a view to increasing the stock of knowledge, including knowledge of man, culture and societý as well as the use of this stock of knowledge for new applications ».

It should be noted that the term “R&D” covers three types of activity:

• Fundamental research: this is all “experimental or theoretical work carried out with the aim of acquiring new knowledge about the foundations of phenomena and observable facts”, but without envisaging, at the outset, a specific application or use.
• Applied research: in contrast, this type of research is designed to achieve a practical goal or objective determined beforehand.
• Experimental development: this is all “systematic work based on existing knowledge, with a view to initiating the manufacture of new materials, products or devices, to establishing new processes, systems and services, or to significantly improving existing ones”.

The 5 R&D criteria’s

Behind these definitions, the Frascati Manual also provides five essential criteria, which allow for a clearer delineation of the scope of R&D.

1. Innovation: The activity should aim at obtaining new discoveries (results, methods, techniques, models, etc.), which are not yet present in the economic or industrial world. But it can be variations or derivatives of existing results…
2. Creativity: It must be based on original and non-obvious notions and hypotheses that can improve knowledge. This means that all ‘routine’ tasks are out.
3. Uncertainty: Its final outcome must be uncertain. In other words, it is not possible to anticipate precisely either the type of outcome or the cost (and time allocation) of the project in relation to the objectives set.
4. Systematic: R&D is a formal activity, which must also be planned, documented and budgeted.
5. Transferable and/or reproducible: Finally, it must lead to new knowledge that can be replicated or transferred, enabling other researchers to carry out their own R&D activities.

Documentation is essential

If the activities fit perfectly with the definition of R&D, then the vision must be justified. The balance is essential and it depends on the company’s ability to document its approach, with coherence, expertise and assiduity. In addition to the notification to the BELSPO (to be updated annually) and all the documents necessary to prove the approach (diplomas, timesheets, declarations to the professional deduction, etc.), the company will therefore be “invited” to justify the “R&D” dimension of each of its projects or programs.

• Claim regional subsidies, obtained for research, clinical studies, collaboration agreements, patent applications, etc. In this case, these elements attest to the R&D nature of the one-off project or the structural program.
• Show a well-crafted scientific report. This supports the whole fiscal edifice of the company and allows the approach to be defended before the BELSPO (Federal Public Service for Science Policy Programming), in accordance with the precepts of the Frascati Manual.
• Seek binding advice from the BELSPO. This is an important asset in order to secure the PTE process. This is optional – the tax authorities can also ask the BELSPO for an opinion – but it is strongly recommended.