Just one of the many attractions for startups to settle in the Netherlands is, that the Dutch government has hidden a number of gifts in the Dutch tax system governing innovative businesses and companies. Martin Lambregts, tax lawyer at Wintertaling, sets out the advantages the WBSO offers start-ups in the Netherlands.
A tax gift is nearly always actually a tax reduction or, in other words, a tax subsidy. In international circles, such subsidies are often referred to as a ‘tax bonus’, which has a nice ring to it. The WBSO is a tax bonus that should interest startups. WBSO is short for Wet Bevordering Speur- en Ontwikkelingswerk (Promotion of Research and Development Act). The name of the Act speaks for itself: the Dutch government wishes to promote research and development (R&D, or S&O in Dutch). R&D activities are activities aimed at the development of a new or the improvement of an existing product. In other words: innovative work.
How does the WBSO work?
The development of an application for websites or mobile phones is a specific example of an R&D activity. An app developed earlier may require improvement at some point, for example in the case of congestion due to an excessive number of users (so-called ‘bottleneck’). Resolving the bottleneck will require time, and the hours involved in such work are eligible for the WBSO.
The WBSO reduces payroll taxes on the hours a business spends on innovation. If, in your company, three techies spend 40 hours each month on (further) development of a specific product, the Dutch Tax Authority will grant the company a discount on payroll taxes payable for those hours. The extent of such a discount depends on the number of hours spent on innovative activities and the relevant hourly rates.
Lower payroll taxes
The minimum hourly rates for WBSO purposes are € 29. If three developers spend 40 hours in one month on innovation, this will result in a discount of 35%, i.e. of 3 x 40 hours x € 29 x 35% = € 1,218 per month. For start-ups, the percentage is 50%, as a result of which the discount in this example would come to € 1,740. This amount would normally be payable to the Dutch Tax Authority in payroll taxes, but thanks to the WBSO, the company doesn’t have to pay it!
In order to be eligible for the WBSO a business must submit an application to the Rijksdienst voor Ondernemend Nederland (Netherlands Enterprise Agency). The application must state in detail the exact innovative nature of the activities with respect to which WBSO is requested. Once WBSO status has been granted, the door is open to other tax facilities, such as R&D deduction and the Innovation Box (Innovatiebox). This means that the WBSO is in fact your ticket to a number of other tax gifts and tax bonuses.