One of the many reasons startups are well-advised to establish themselves in the Netherlands is that the Dutch government has hidden several incentives within the Dutch tax system for innovative companies and businesses. Martin Lambregts, tax attorney at Wintertaling, explains the WBSO as an advantage for startups in the Netherlands.
A tax break essentially always amounts to a tax credit, or a tax subsidy. For an international audience, we often refer to this as a "tax bonus" (because that's catchy). A tax bonus that's interesting for startups is the WBSO (Funding for Research and Development Act). WBSO stands for the Act on the Promotion of Research and Development (Wet Bevordering Speur- en Ontwikkelingswerk). The title of this act speaks for itself: the Dutch government wants to promote research and development (R&D). R&D activities are—in English—research and development activities, that is, activities within a company that lead to the development of a new product or the improvement of an existing one. In short: innovative activities.
How does the WBSO work?
A concrete example of R&D activities is developing an application for a website or mobile phone. If you've already developed an app, it may need improvement, for example, because it's overloaded at certain times due to too many users (a so-called "bottleneck"). You'll spend time resolving such a bottleneck. The man-hours associated with such innovative work are eligible for the WBSO (Funding for Work and Income (Capacity for Business) Act).
The WBSO (Funding for Innovative Workers) reduces payroll tax on the hours a company invests in innovation. For example, if three technicians in your company spend 40 hours per month developing a specific product, you'll receive a reduction in the payroll tax payable to the Dutch Tax and Customs Administration for those hours. How much is this reduction? It depends on the number of hours spent on innovative activities and the hourly wage.
Lower payroll tax
The minimum hourly wage for the WBSO is €29. If three developers are working full-time on innovation for a month, this generally results in a discount of €35%, or 3 x 40 hours (full-time) x €29 x €35% = €1,218 per month. For startups, the percentage is €50%, so the discount in this example amounts to €1,740. This amount would normally have to be paid to the tax authorities as payroll tax, but thanks to the WBSO, the company keeps this amount for itself.
To qualify for the WBSO, an application must be submitted to the Netherlands Enterprise Agency (RVO). The application must precisely describe the innovative nature of the activities for which the WBSO is being applied. Once the WBSO is granted, it opens the door to other tax incentives such as the R&D deduction and the innovation box. The WBSO is essentially your ticket to many other tax breaks and tax bonuses.
