A deep dive into subsidy programs in the Netherlands
Finding funds for innovation is a shared struggle for all start-ups. It is common to see entrepreneurs seek help from banks, venture capitals, and angel investors. It is not easy to pick the right investors, especially if a start-up is not sure about where it stands in the funding life-cycle. On top of that, paying high-interest rates or having to sell a part of the business to investors can be parts of the deal. If this is what you would like to avoid with your start-up, it is time to look into subsidy programs.
Subsidies are cash grants or loans from the government that usually come in the form of cash payments or tax reduction. In the Netherlands, the government subsidizes entrepreneurs and start-ups based on different schemes on behalf of various ministries and the European Union. Furthermore, there are regional and local incentives. Subsidies fall into three categories:
- Fiscal Incentives (or Tax Incentives).
- Cash Subsidies.
Let’s find out more about the big subsidy schemes of each type in the Netherlands!
Fiscal incentives include tax reduction schemes and are available in most European countries. Applying for fiscal incentives is the easiest way to obtain subsidy programs. In the Netherlands, WBSO and Innovatiebox are the two central schemes.
WBSO is the abbreviation of ‘Wet Bevordering Speur & Ontwikkelingswerk’- a Dutch tax incentive that provides compensation partially for the wages of the R&D process (as well as material costs and expenditures, if applicable) for innovation.
WBSO is to support R&D that contains:
- Developments of technically new physical products, physical production processes, or software.
- Technical-scientific researches that seek to explain phenomena in fields such as physics, chemistry, biotechnology, production technology and information, and communication technology.
How does it work?
A business, when successfully applied for WBSO, can deduct the tax benefit in the tax return to the Netherlands Tax and Customs Administration (Belastingdienst). In 2018, R&D tax deduction was 32 percent over the first €350,000 of the total R&D wage costs and 14 percent over the remainders. For start-ups, the benefits are up to 40 percent over the first € 350,000 and 14 percent of wage costs and costs/ expenditures that may be applied for.
- R&D employees need to be on the company’s payroll (no ZZP).
- The proposed R&D activities take place in your own company.
- The technological development is new to your organization.
- The development is accompanied by technical problems.
- The R&D work has yet to take place.
Innovatiebox (Innovation Box)
Note: Start-ups can only apply for the Innovation Box subsidy program once their WBSO applications have been approved. However, not all WBSO-funded projects get granted for the Innovation Box.
Through the Innovation box, a part of the profit earned with R&D projects qualifies for a corporate income tax rate of 7 percent (instead of 20 or 25 percent). All profits that start-ups make with innovative activities fall into this scheme.
The Innovation Box is to promote innovative technological developments and support investments in new technologies.
How does it work?
The Innovation Box classifies applicants into two groups: Small Taxpayer and Big Taxpayer. Startups are most likely small taxpayers.
A Small Taxpayer is defined as a company/start-up that has total worldwide net sales below €250 million in the year of application and the four years prior. Furthermore, the profit attributes to intangible assets for which a WBSO Decision was issued in the year of application and in the four years prior is in total less than €37.5 million. If the business is consolidated with other companies, then the conditions are also applied to the group to which the business belongs.
Together with Belastingdienst, startups will examine which part of the EBIT derives from R&D (apart from sales, entrepreneurship, etc.). That part will have a lower tax rate. Usually percentages are between 25% and 40%.
- For Small Taxpayers, the WBSO Decision is the access ticket.
- SMEs can apply for Innovatiebox themselves by the forfaiting scheme. Otherwise, an appointment could be made with Belastingdienst to discuss R&D percentage.
Credit (Loan) Programs
Besides tax reductions and tax refunds, the Dutch government also finances start-ups and innovation through loans. The two major instruments are Vroege Fase Financiering (Early Stage Financing) and Innovatiekrediet.
Vroege Fase Financiering- VFF (Early Stage Financing) and Take Off
Start-ups always struggle to go from doing research to completing a product and bringing it to the market. The VFF and Take-off programs were created to help entrepreneurs go from planning to take-off, and bridge the death valley.
The programs have three target groups:
- SMEs (small and medium-sized businesses).
- Innovative starters (≤ 5 years).
- Academic / HBO / TO2 starters.
The two organizations running these schemes are the Netherlands Enterprise Agency, known as the RVO, and the NWO- the Netherlands Organization for Scientific Research. RVO focuses on SMEs and innovative start-ups, whereas NWO implements the program for innovative academic, HBO and TO2 (Applied Research Organizations) starters.
How does it work?
The Take-off scheme from NWO consists of two phases: the feasibility studies stage and the early stage.
At the feasibility studies stage, researchers can request financing support that ranges from €20,000 to a maximum of €40,000. The studies need to result in reports in which the researchers state their innovations’ chance of success.
At the early stage, companies/start-ups can request financing support ranging from €50,000 to a maximum of €250,000. The interest rate is around four percent and the loans are to be repaid in five years.
The VFF scheme from RVO only consist the early stage, in which companies/ start-ups can request to a maximum of €350,000. The interest rate is also four percent and the loans are to be repaid in six years.
- The entrepreneur can prove through a business plan that the business will grow substantially.
- The entrepreneur prepares a renewal plan or early phase plan that focuses on the conditional requirements set by the investor.
- The entrepreneur received a letter of intent from a future investor who agrees to finance the business once it meets the requirements that the investor set. The offer must be at least the same amount that you receive from the government.
Innovatiekrediet (Innovation Credit)
The Innovation Credit scheme was created with the purpose of supporting promising technical or clinical development projects that can contribute to the innovation and sustainability of the Dutch economy and society.
Startups often struggle to fund their innovation wholly even with investors’ support. It can be a bigger frustration even when the companies are not able to generate profit yet. By providing this scheme, The Ministry of Economic Affairs and Climate Policy wants to help close the gap in the capital market.
How does it work?
Starting from January 1, 2019, each clinical development project can be funded with a €5 million maximum. As for technical development projects, the maximum amount is €10 million per project.
The amount of credit per project is calculated based on the size of the business and the development cost. In terms of business size, small companies, medium-sized companies, and large companies can be financed by 45 percent, 35 percent and 25 percent of the development cost respectively.
In case the project is a collaboration, the percentage increases to 50 percent for SMEs and 25 percent for large enterprises.
To apply for this scheme, the projects need to meet the following requirements:
- Are technologically innovative and unique to the Netherlands, Bonaire, St. Eustatius and Saba.
- Offer a positive and well-demonstrated market advantage with an excellent vision that will contribute to the Dutch economy.
- Are proved to be technically feasible through previous research.
- Have a systematic action plan to tackle the technical challenges.
- Involve a minimum of €150,000 in project cost.
- Lead to a market-ready product or service within the upcoming five years.
Government Subsidies Programs
Enterprises in the Netherlands can apply for subsidies at three levels: European, National, and Regional.
At the European stage, Eurostars (in Dutch, in English) and Horizon 2020 are the two main schemes for business at all sizes.
MIT Subsidy Programs (MKB Innovatiestimulering Topsectoren)
Nationally and regionally, MIT (MKB Innovatiestimulering Topsectoren) is a popular scheme for SMEs. The program is designed to support innovation in the Netherlands through a set of funding instruments.
In the Netherlands, top-sectors are a big focus of the government. To boost innovations in these sectors, the Dutch government offers a funding system that supports SMEs operating in these sectors.
- Agri and food.
- Chemistry and energy including bio-based.
- Creative industry.
- High tech systems and materials.
- Life sciences and health.
- Horticulture and starting materials.
The conditions vary depending on the instrument you apply. It is, however, not possible to apply for multiple instruments in the same application period. Nevertheless, applications for different schemes can be carried out directly after each other and can be done either nationally or regionally.
Your keys to Dutch subsidy programs
Overall, subsidies are complicated and do require a lot of research. Experts at SUBtracers advise you to start the process by evaluating the chance of success. Thinking of the possible fund size, application time, administration time, compliance risks, and the fee of intermediaries (if any) will help determine whether which subsidy program can help your business.
It’s also important to start considering next-generation products. One of the keys to subsidy success is to be not one but four steps ahead of all the non-technical matters such as partners, price point, employees, and so on. At the end of the day, you need a clear future vision and a detailed plan to be convincing. Aiming for just one or two schemes at a time is another key to ensuring your victory.
“Where do your business and R&D stand in 2025? Keep a five-year horizon in mind. Don’t think too big; some failed because they aimed for more money than they needed. Don’t think too small either; you can always seek for collaboration and assess foreign schemes. Afterward, it is all about accelerating your innovation by smart funding and making use of subsidies!”- Wim van der Flier, SUBTracers.
* The article was written based on information provided by experts at SUBTracers, a leading company in fueling innovative companies with the smarter organization and more efficient financing of innovation through applying for subsidy programs, tax credits, and other forms of funding.