Research & Experimentation Tax Credit
Initially temporary, the US R&D tax credit was introduced in 1981 for a period of 4 years, since then it has been always extended. The incentive became permanent in 2015 as the Congress proposition was accepted (PATH Act of 2015).
The US tax credit is considered generous as each state can also offer its proper R&D tax credit, which is normally combined with the federal one.
U.S. Companies can benefit from an incremental R&D tax credit, made up of two different incentives known as the Traditional R&D Tax credit and the Alternative Simplified Credit.
Companies applying to the ACS scheme will be able to offset 14% of the difference between the current year qualified research expenses (QRES from now on) and 50% of the average of QRES of the 3 prior taxable periods.
On the other hand, taxpayers qualifying for the Traditional R&D Tax credit will be eligible for a 20% tax credit based on the excess amount of QREs over a determined base amount.
- Development or design of new products or processes
- Improvement of existing products or processes
- Development or improvement upon existing prototypes and software
Wages paid to employees for qualified services – Supplies used and consumed in the R&D process – Contract research expenses paid to a US-based third-party outsourcer (65% of the cost is allowed) – Basic research payments to educational institutions and scientific research organizations (up to 75% of the cost).
Traditional Tax Credit
20% tax credit based on the excess amount of QREs over a determined base amount.
Alternative Simplified Credit (ASC)
14% tax credit on the difference between the current year qualified research expenses and 50% of the average of QREs of the 3 prior taxable periods