Dutch based companies can benefit from an effective tax rate of only 7% (9% as of 2021) for income from intangible assets created by the Dutch taxpayer. The normal Dutch corporate income tax rate is 16.5% / 25% (2020). . 

Patented intangible assets as well as intangible assets that have been created by the taxpayer and for which an R&D statement ("WBSO verklaring") is obtained may qualify for the innovation box. In practice this means that in-house developed technological innovations qualify. The innovation box does not apply to marketing intangibles such as trademarks and logos.

Situations where the period between an application for a patent and the granting of the patent is unusually long are also covered. Subject to certain conditions, profits from the period starting from the year in which the patent was applied for up to the year that the patent was granted and that are attributable to the relevant patented asset may also be brought within the scope of the Innovation Box.

The innovation box does not apply to intangible assets for which a patent was obtained while the asset was already existing before 1 January 2007. Furthermore, the innovation box does not apply to intangible assets for which an R&D statement was obtained for the asset already existing before 1 January 2008.

The lower tax rate of 7% is claimed in the corporate income tax return filed by the taxpayer. The low tax rate is actually an exemption of 72% of the profits that can be allocated to the innovation box. By applying the general Dutch corporate income tax rate of 25% this gives an effective rate of approximately 7%. Costs made with the development of the intangible assets and losses on the exploitation of the intangible assets can still be deducted against the normal Dutch corporate income tax rate of 25%. The effective rate applies to profits exceeding the development costs and losses incurred.

As a result of EU discussions on favorable EU IP regimes and the introduction of minimum rules for preferential IP regimes (OECD BEPS project), as per 2017 the Netherlands has adjusted the innovation box regime in order to be compliant with EU law. The adjustments relate to the entrance tickets to the innovation box (requires an R&D declaration) and allocation of income that qualifies for the special tax rate of 7%. Originally, there was no cap on the amount of profits that can be allocated to the innovation box, but a taxpayer should be able to substantiate that the profit relates to the qualifying intangible assets. As per 2017, restrictions have been introduced (the "modified nexus" approach). It is generally advised to get an advance agreement with the Dutch tax authorities on the method that is used to determine the profit that can be allocated to the qualifying intangible asset. The Dutch tax authorities are accustomed to do so upon request. As per today, the innovation box regime has the following relevant features:

R&D Activities (entrance ticket)

Originally the innovation box regime could only be applied to income from registered patents, but this has been extended to include income from R&D projects for which an R&D statement has been obtained. A distinction is to be made between small and other taxpayers. Small taxpayers are companies with worldwide net group sales of less than EUR 50 million per year and a gross benefit from IP not exceeding a total of EUR 37.5 million in 5 consecutive years (an average of EUR 7.5 million per year). For small taxpayers the R&D statement is sufficient to apply the innovation box. A small taxpayer may also include unprotected IP in the innovation box regime. Large taxpayers not only need to obtain an R&D statement but should also have an acknowledged legal access ticket. For large taxpayers only income from patents, utility models, software, plant breeders' rights and pharmaceutical certifications qualifies for the innovation box regime. This group of taxpayers will thus be subject to a double test.

Maximum of revenues (allocation of income)

A restriction applies with respect to the level of income that can be allocated to the innovation box ("modified nexus" approach). It is relevant whether research and development will be performed in-house and how R&D costs are divided between related parties. This implies that the more R&D activities are outsourced to related parties, the less profits can be allocated to the intangible resulting from such R&D activities. The following formula is used to calculate the qualifying income:

{(Qualifying costs x 1.3)/Total costs} x overall income from the IP asset.

Qualifying costs stands for the qualifying R&D expenditures incurred by a taxpayer to develop a certain IP asset. The qualifying costs are multiplied by 1.3 (to discourage outsourcing of R&D within the group). Total costs stands for the overall R&D expenditures incurred to develop the IP asset. The outcoume is to be multiplied with the overall income derived form the IP asset.

Threshold

The innovation box can only be applied to qualifying income that exceeds a threshold. The threshold is determined by means of a complex calculation involving the development costs from the previous and current year, the economic value of the qualifying immaterial asset and the qualifying income. In order to make things easier, a simplification is available for the first three years of applying the innovation box. In these first three years the threshold is set at 25% of the profit with a maximum of EUR 25,000.

Tax rate

The normal corporate income tax rate in the Netherlands is 16.5%-25%. The effective tax rate of 7% is achieved by using the following formula: 7/25 (regular corporate income tax rate) of the total amount of net earnings derived from the intangible asset that has been allocated to the innovation box. This is recognized as taxable profit which is taxed at the regular corporate income tax rate.

Tax losses

Losses incurred can be offset against taxable profits in the previous year or the six following years. This means that the normal loss compensation regime is applicable. Situations in which the period between an application for a patent and the granting of the patent is unusually long are now also covered. Subject to certain conditions, profits that are attributable to the relevant patented asset may also be brought within the scope of the innovation box during the period between the year in which the patent was applied for up to the year preceding the year in which the patent was granted, .

Introduction flat regime

Alternatively, taxpayers can opt for a flat-rate regime i.e. a taxpayer can apply a flat-rate regime where 25% of the profits are qualified as benefits from intangible assets and as such are taxed in the innovation box. In such a case no threshold has to be taken into account. However, the amount which can be included in the innovation box is maximized at EUR 25,000. In practise this measure is primarily attractive for so-called small and middle-sized companies ("SME"). The company may decide on an annual basis whether or not to apply the flat-rate regime. This decision right is not unlimited. If a company wants to apply the flat-rate regime, it should meet the condition that the intangible asset which qualifies for the innovation box is developed in the respective year or in the two previous years. This implies that if a company has developed a qualifying intangible asset in 2017, and afterwards has not developed such an asset, can apply for the flat-rate regime in 2017 and/or in 2018 and 2019. In that case, it will not be possible to apply the flat-rate  regime in 2020.

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