Belgian R&D tax exemption for Young Innovative Companies no illegal state aid Commission says


On 23 January 2015, the European Commission finalised its investigation of the tax incentive for innovative companies which aimed at encouraging R&D activities of new small companies in Belgium under the EU state aid rules. According to the Commission, this tax system complies with the EU state aid rules and can thus be maintained. Note that the official decision has not yet been published.

Since 2006, under strict conditions, so-called ‘Young Innovative Companies’ can benefit from a partial salary withholding tax exemption for their scientific personnel. The system was approved by the European Commission, provided that the types of research that were eligible for the incentive were by domestic legislation to be aligned with the EU definition by Belgium.

On 4 December 2013, the European Commission opened an investigation under the EU state aid rules, arguing that, since Belgium only in 2013 had specified the different research categories that could benefit from the R&D tax incentive, the possibility existed that certain companies in Belgium had obtained an unjustified advantage and hence the EU state aid rules were not complied with. Furthermore, expiring in 2011 after 5 years, the system was extended by Belgium and the rate was even increased over the years from 50% over 75% to 80%, without ever notifying the European Commission.

The European Commission now concludes that no indications were found of irregular practices in granting the benefit that would fall beyond the scope of the EU framework for state aid for research, development and innovation. The positive outcome of the investigation means that the tax incentive will not be reclaimed from the Belgian companies that benefited from it. However, the European Commission still expects Belgium to bring its domestic legislation in line with the changed EU Directives in respect of state aid for research, development and innovation.