R&D tax deductions
The tax deductions associated with carrying out Research and Development (R&D) and Technological Innovation (TI) projects make it possible to reduce the payment of Corporate Income Tax by up to 42% of the expenses incurred. It is a very flexible financing instrument as it depends on the R&D performance of the entities, it is calculated individually for each fiscal year and it is not limited by budget or by competitive evaluation processes.
At Euro-Funding we have been advising for over 25 years on the definition of tax strategies to maximise the return on deductions, making use of the instruments of legal certainty that the tax regulations contemplate: Binding Reasoned Reports, Prior Valuation Agreements and Administrative Consultations.
What are R&D tax deductions?
It is a tax incentive, regulated in Article 35 of Law 27/2014 on Corporate Income Tax, from which all entities that carry out innovative activities can benefit. Regardless of their turnover, size or sector of activity, tax deductions for R&D activities allow them to reduce their corporate income tax payments.
For those companies that, due to insufficient taxable income, cannot effectively apply tax deductions for R&D activities, the tax regulations include mechanisms that allow the deduction to be monetised (cash back or off-limit application) so that the impact of the incentive as an element that stimulates innovation activities is real.
What activities can generate this deduction?
Within this deduction we can distinguish two types of activities:
- Activities dedicated to research and development (R&D): They involve the development of new products, technologies, processes, or substantial improvements to existing ones that go beyond the state of the art. The deduction ranges between 25% and 42% of the expenses incurred in a fiscal year for the development of the projects. In addition, there are additional deductions that allow this percentage to be raised to 59%.
- Activities dedicated to Technological Innovation: They involve the development of new products, technologies, processes or substantial improvements to existing ones for the company that develops them. In this case, the deduction is 12% of the expenses incurred for the development of the projects.
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Guarantee of success in tax deductions associated with R&D projects.
Which expenses form part of the deduction base?
The expenses that can be included in the basis for the deduction must be directly related to the execution of the project, correctly recorded in the accounts and be individualised by project.
In the case of Research and Development projects, the expenses associated with the activities involved will be deductible:
- Research for the manufacture of new materials or products for the design of new processes or production systems, as well as for the substantial technological improvement of pre-existing materials, products, processes or systems.
- Design and preparation of the sample book for the launch of new products.
- Materialisation of new products or processes in a plan, scheme or design, as well as the creation of a first non-marketable prototype and initial demonstration projects or pilot projects.
- Creation, combination and configuration of advanced software.
For Technological Innovation projects, focused on activities whose result is a technological advance in obtaining new products or production processes or substantial improvements to existing ones, the expenses included in the deduction base must correspond to one of these concepts. - Technological diagnosis
- Industrial design and engineering of production processes (this category includes expenditure on sample books).
- Acquisition of advanced technology in the form of patents, licences, know-how or designs.
- Obtaining the certificate of compliance with ISO 9000, GMP or similar standards.
How can we help you with the management of R&D tax deductions?
Under a success-based remuneration model, we collaborate with companies to achieve the maximum tax deduction through the following phases:
- dentification of projects and preparation of technical and economic justification reports.
- Support in defining the tax strategy
- Continuous information on regulatory or procedural changes
- Assessment of compatibility with other incentives
- Support in the application of mechanisms for monetisation of the deduction.
- Management of certificates for R&D&I projects in entities accredited by ENAC (Spanish Accreditation Body)
- Management and processing of Reasoned Reports
- Assistance in Tax Administration inspections
Are R&D deductions compatible with subsidies and/or grants?
Deductions for R&D activities are compatible with aid received for the same activities that are the object of the deduction. It will only be necessary to subtract the subsidies recognised as income from the deduction base.
Likewise, for those companies that have the Innovative SME seal, the application of bonuses in Social Security contributions for research personnel and deductions for R&D&I activities will also be compatible, even when they are applied to the same workers.
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