The program

Why an R&D Tax Relief?

Economic growth in the 21st century is driven in large part by innovation, much of it originating from investments in research. The challenge for governments is to adjust national policies in order to promote the growth of R&D within their countries. Therefore, many of them have designed incentives to promote innovative activities.

The main instruments used to implement research policies are tax incentives based on the type of activities (Investigators, Patents, Environmental investments, Learning, Intellectual property, Export, Multimedia, Information Technologies, Telecommunications, etc), competitive grants and aids.

Depending on the country, the following types of tax incentives can be found:

Deduction: Reduces taxable income like any other business expense.

Super-deduction: Taxable income reduced by more than the R&D expenditures.

Immediate write-off or accelerated write-off: Faster depreciation of capital assets such as R&D equipment or purchased intellectual property (IP).

Investment tax credit (ITC): Direct reduction of taxes payable by some percentage of the R&D expenditure.

Refundable cash benefit: Same as investment tax credit but with possibility of refund.

Our thorough and specialised understanding of R&D incentive programs available in certain countries as well as the complex legislation that surrounds them will ensure companies of our ability to optimize R&D costs with minimum burden on the staff and the organisation.

Difference between a Tax Credit and a Deduction

Tax credits are given to companies as incentives for certain kinds of activities, like spending money on R&D programs, develop environment friendly systems, training programs, etc… Tax credits result in a direct, "dollar for dollar" reduction in tax liability. Tax deduction, on the other hand, is a legitimate business expense that reduces business income, and thus reduces tax liability. Tax deductions are determined after the adjusted gross income is calculated.

For example, a business which sells goods will first determine a net income after cost of goods sold. Then all the business deductions (allowable expenses) are subtracted from income to get the business profit, or the taxable income.

In conclusion, tax credits and tax deductions are both of benefit to business owners, because they reduce the taxable income of the business but a tax credit is generally more valuable than a deduction as it directly reduces the actual amount of tax that must be paid.

What is a Research and Development Tax Credit (RDTC)?

RDTC generally deals with tax relief for research and development (R&D). In some cases, R&D tax credits allow for deductions, which lessen the amount of taxes due. In other cases, research and development costs are offset by sums of money awarded by a government.

In some countries, R&D tax credits are temporary. Many parts of each country’s tax code are considered permanent, although they may be adjusted from time to time.

Many countries offer generous incentives to encourage Research and Development (“R&D”), and investments in innovation. Studies demonstrate that companies that invest in R&D grow and prosper in increasingly competitive markets.

Governments have acknowledged the significance of retaining scientific and technological knowledge and their commitment is evidenced by the wealth of benefits available across the globe for companies investing in R&D. These R&D incentives apply to much more than the traditional scientific research performed in laboratories, and cover activities within a range of industries including engineering, manufacturing, energy, and software.

R&D incentives vary from country to country in terms of the mechanics of making a claim, the level of benefit available and the approach adopted by the tax authorities in reviewing claims for relief. Within most jurisdictions offering R&D incentives, the benefit is delivered through a reduction in taxes payable or, in some countries where the credit provided cannot be used to offset tax payable due to losses, via a cash payment.

Most importantly, the differences in the detail of the programs and their interaction often present opportunities for companies to take full advantage of their global structure.

Although the basic definition of “research and development” is similar across many countries, distinctions exist within sovereign laws.

Some countries offer particularly lucrative incentives, subject to few restrictions on the location of the qualified research activity, funding of R&D, ownership of IP, etc.; while others offer basic incentives with significant limitations, including eligible industries, qualified costs, and applications procedures.

Most research incentives are designed to encourage companies to maintain a level of R&D, with additional incentives for increased research spending.

A few regimes offer tax benefits for capital investments in R&D, while most offer incentives for operational costs, i.e., wages, supplies, and contractor fees. Moreover, many countries offer enhanced tax incentives for start-up companies.