In a globally mobile business world, R&D investment is a key factor in enhancing skills, developing jobs and economic growth. Governments of most countries of the world increasingly recognise the attraction of tax benefits to encourage companies to invest in high-value, knowledge intensive industries and technologies.The schemes of various countries of the world are broadly similar but unique to each country’s tax system.
 We here endeavour to   bring out   synopsis of the tax incentives, grants, cash benefits, subsidies currently being granted by  various countries of the world for encouraging R&D.

Global R&D Incentive at Glance
The Corporate Tax Incentives for important countries is summarized as under:


Counter/Region

Typical SME benefits

Typical large company benefits

Australia

45% refundable offset at 28.5% tax rate

40% non-refundable offset at 30% tax rate

Bangladesh

100% deduction at 25% tax rate

100% deduction at 25% tax rate

Brazil

160%-200% deduction at 34% tax rate

160%-200% deduction at 34% tax rate

China

150% deduction at 25% tax rate

150% deduction at 25% tax rate

Czech Republic

200% deduction at 19% tax rate

200% deduction at 19% tax rate

Hong Kong

100% deduction at 16.5% tax rate

100% deduction at 16.5% tax rate

India

200%* deduction at 30.9%

200%* deduction at 30.9%

Indonesia

100% deduction at 25% tax rate

100% deduction at 25% tax rate

Japan

12% credit up to 25% of tax due, tax rate 23.9%

8% credit up to 25% of tax due, tax rate 23.9%

Lithuania

300% deduction at 15% tax rate

300% deduction at 15% tax rate

Malaysia

200% deduction at 19-24% tax rate

200% deduction at 19-24% tax rate

Papua New Guinea

150% deduction at 30% tax rate

150% deduction at 30% tax rate

Phillippines

100% deduction at 30% tax rate

100% deduction at 30% tax rate

Romania

150% deduction at 16% tax rate

150% deduction at 16% tax rate

Russia

150% deduction at 20% tax rate

150% deduction at 20% tax rate

Singapore

400% on first SGD 400,000 then 150% on remainder at 17% tax rate

400% on first SGD400,000 then 150% on remainder at 175 tax rate

South Korea

25% credit at 10%/20% tax rate

25% credit at 20%/22% tax rate

Sri Lanka

300% deduction at 28% tax rate                

300%deduction at 28% tax rate

Taiwan

15% credit up to 30% of tax due, tax rate 17%

15% credit up to 30% of tax due, tax rate 17%

Thailand

200% deduction at 20% tax rate

200% deduction at 20% tax rate

United Kingdom

230% deduction  at 20% tax rate

130% deduction at 20% tax rate

Vietnam

100% deduction at 20% tax rate

100% deduction at 20% tax rate

A complete guide on Global R&D Incentives .

Note*
200% weighted Deduction will be in Assessment year 2017-18 and onwards -150%
Capital work in progress and payments – super deduction will be allowed @ 150% (w.e.f 01-04-2017)

 

 
Austria

Austria’s corporate tax rate is 25%. Austria provides a cash back Incentive for R&D activities.The incentive available for research intensive entities includes a 12% volume-based tax credit on all qualified R&D related expenditures, even if the company is in a tax loss or low profit position. This benefit is refundable to the extent the credit exceeds the amount of the tax liabilities.

 

Belgium

Belgium’s general corporate tax rate is 33%. R&D Tax Credit and Investment Deduction: Beginning onJanuary 1, 2014, taxpayer may elect a 13.5% one-time deduction of all R&D Investments recorded on the balance sheet (tangible and intangible) or 20.5% of the total depreciation amount for the same R&D Investments (i.e.,taxpayer computes the depreciation amount and multiplies this amount by 20.5%). This is in addition to the standard depreciation deduction for such expenses; resulting in a super deduction of 120.5% of the amount of depreciation for capital assets, etc. used in research. Excess deductions may be carried forward indefinitely or converted into a tax credit refundable after 5 years.

Patent Income deduction,super deduction and wage tax exemptions are also available..

 
 Brazil

Brazil’s general corporate tax rate is 34%.Super Deduction equal to 160% of the total R&D expenditures. Enhanced Super Deduction  If the entity increases the amount of researchers exclusively dedicated to research projects by up to 5% in a given year, super deduction increases to 170%; and if headcount increases more than 5% in a given year, the super deduction increases to 180% of the qualified expenses. Employees who relocated internally to work exclusively in research projects may also be consideredin the increase of the number of researchers.Unutilized R&D Deduction may not be carried forward.

Also,financial support with reduced interest rates are also available for the R&D entities.

 

 
 Canada

Federal and provincial corporate tax rate (combined) on business income is between 11% and 31%  (rate is dependent
upon the size of the corporation, ownership, and provincialjurisdiction).

SR&ED Deductions (Scientific Research and ExperimentalDevelopment): Immediate deduction for all qualified current
and capital expenditures (no super deduction).Expenditures may be carried forward indefinitely to be deducted in future
years.

SR&ED Investment Tax Credit: 15% federal tax credit
for all qualifying R&D costs for eligible activities carried on in Canada by a corporation, partnership, individual or trust. The credits can be used to offset federal tax liabilities. Unused credits can be carried forward for  20 years (10 years in some provincial jurisdictions) and carried back 3 years. The credit rate is 35% for small Canadian-controlled private corporations (on first $3M of
expenditures per year). This 35% credit is 100% refundable for non-capital related expenditures; 40% refundable for capital expenditures.
Provincial SR&ED Incentives: Tax credits ranging from 4.5% to 30% depending upon the provincial jurisdiction. Many
provincial jurisdictions offer refundable credits.

Sri Lanka

A triple deduction is allowed for income tax purposes where R&D is carried out by a government instutition.
Double the total amount expended (including capital expenditure) is allowed as an immediate tax deduction for income tax purposes for all the other companies.
Direct and indirect tax benefits to researchers - VAT exemption on supply of R&D services.
Tax holidays and concessionary rates for new businesses.

 
 Germany

Germany's corporate tax rate is 30%.Germany offers grants for eligible R&D projects, but does not offer tax incentives
Grants which covers cash grants(non-refundable),loans (soft loans) and separate grants for energy efficiancy,CO2 reduction and renewable energy Projects.

R&D loans can be an alternative to R&D grants. R&D loans are not contingent on conducting R&D activities in a specific technology field and there are no application deadlines. R&D loans are provided under different governmental programs, e.g.  ERP Innovation Program offers 100% financing of eligible R&D project costs up to €5M.
Eligibility is not limited to particular industries. Some industries are usually excluded from eligibility:Banks and companies in financial services, Insurance companies.

 

Hong Kong

100% tax deduction for R&D projects whether expenditure is capital or revenue in nature. .
Immediate tax deduction for R&D expenditure whether revenue or capital in nature.
Deduction can be claimed for payments to an approved research institute for R&D which is specific to the requirements of the person’s trade, profession or business, or which is relevant within the class of the person’s trade, profession or business.
Deduction is only available for original research.

 
China

150% pre-tax ‘superdeduction’ can be claimed on qualifying R&D expenditure.Additionally, government-certified High and New Technology Enterprises (HNTE) may pay a reduced rate of corporate income tax at 15% instead of the 25% statutory rate.

Use of relief :  150% superdeduction will be  deducted in the year the expenditure is incurred.  If the company is in a tax loss position, losses can be carried forward for up to five years.

Also,business tax exemption for the transfer of qualified technology.

 

Israel

Companies engaging in qualified R&D activities in the Pharmaceuticals,Software & hardware development and Energy & utilities industries are generally eligible for R&D incentives.
Conditional grants  of up to 50% of the approved R&D expenditure, and up to 60% in Priority Area A offered. If the R&D project is successful, the company must repay the grant through royalty payments.
 Israel also offers the following:
 A large Corporation (over NIS100M annual taxable income) establishing R&D centers in Priority Areas in Israel will be granted up to 60% of the approved R&D expenses. The corporation must invest a cumulative amount of at least NIS60M in a period of 24 to 36 months.
 A multinational Corporation (over $2B of annual revenues) investing (money or assistance) in R&D projects may be entitled to joint ownership in IP with the Israeli company.

 

Italy

Tax relief for investments in “R&D Intensive Start-up companies” (IST): For 2014, 2015 and 2016, corporations investing in an IST can have an immediate deduction equal to 20% of the invested amount  (the maximum eligible investment is equal to €1.8M per year). Italy offers a tax credit for all qualifying R&D costs.
 Individuals investing in an IST have a 19% tax credit for 2014, 2015and 2016 (the annual maximum investments is €500K per year).  
  35% tax credit is available for total labor cost incurred by companies hiring qualifying researchers subject to a cap of €200K per company annually.  Wages of employees involved in R&D activities are fully deductible for IRAP purpose.  A wide range of non-repayable regional cash grants are available for R&D intensive entities.R&D expenses must at least equal to 20% of total revenues or total costs. 

 

Japan

Japan offers separate credits for small and medium enterprises and large companies ,as well as an additional credits for entities of all sizes.

SME (Companies whose capital does not exceed JPY 100M, excluding a SME held by a large company/companies, whose
capital exceeds JPY 100M): A credit of 12% of total R&D expenditures allowed.  
Large Companies: A credit of 8% to 10% of total R&D expenditures. Additional Incremental Credits (for both SME & Large
Companies): upto  5% of the incremental R&D subject to certain conditions. Generally, unused R&D tax credits may be carried forward 1 year.
Tax incentive for research centre : A tax incentive allows  a qualifying entity to deduct 20% of its income that is attributable to the approved business activities for the first 5 years of receiving the research center designation.No prior approvals from government/regulatory agencies are required.

 

Lithuania

300% Super Deduction is available for expenses  incurred by companies conducting research activities, and expenses incurred to acquire research technologies conducted within EEA countries or countries with tax treaties.
Accelerated depreciation : Certain capital assets used in the R&D activities (e.g. plant and machinery and installations cost, computer and communications equipment including networks and equipment, software purchases) may be depreciated with a shorter period of time i.e. from 8, 5, 4 or 3 years to 2 years.
Qualified activities can be undertaken anywhere, as long as a Lithuanian entity pays for the research.
The super deduction also applies to a Lithuanian entity which acquires research technologies only if the acquired technologies  have been conducted within EEA or a country with a tax treaty for the avoidance of double taxation.  

 

Malaysia

Investment Tax Allowance (ITA):
Companies performing in-house R&D to further its business may qualify for an ITA of 50% on the qualifying capital expenditure incurred within 10 years.
R&D service providers may qualify for an ITA of 100% on the qualifying capital expenditure incurred within 10 years. Company can offset the ITA against 70% of its statutory income for each year of assessment.Any unutilized allowances can be carried forward to subsequent years until fully utilized.Generally, R&D service providers should have at least 70% of their income derived from R&D activities in order to qualify for the ITA. If an R&D company does not claim the benefit for services provided to related companies, the related  companies can receive a 200% super deduction for payments made to the R&D Company for services rendered.
200% Super Deductions allowed to Companies  to further its business for non-capital expenditures incurred in qualifying R&D, if approved by the Govt.  and  can also be claimed for cash contributions or donations to approved research institutes, and payments for the use of the services of approved research institutes, approved research companies, R&D companies and to  Companies residing in Malaysia for registration of  IPR if these expenses are primarily and principally incurred for the purpose of promoting the exports of goods or agricultural products manufactured, produced, etc. in Malaysia and for· expenditures on R&D activities undertaken outside of Malaysia.  Payments for technical services performed outside of Malaysia may qualify for  200% super deduction when the amount expensed is less than 70% of the total allowable expenditure for the super deduction.Pioneer Status  granted to R&D companies, high tech companies, software development, companies, and manufacturing companies capable of producing world-class products and income earned by it  is exempt from tax for a period of 5 years.

 

Mexico

General corporate tax rate in mexico is 30%.

R&D incentives are provided in cash grants (ranging from 22% to 75% of eligible R&D expenses paid by the Mexican   company) through the following three programs:
High Added Value Technological Innovation for Technological Research, Development, and Innovation (INNOVAPYME): Granting economic support to micro, small,and medium-sized enterprises (MIPYMES) for activities preferably performed in conjunction with higher education institutions or research centers.
Development and Innovation of Precursor Technologies for Technological Research, Development, and Innovation (PROINNOVA): Granting economic support to MIPYMES and large companies.
Technological Innovation to Enhance Competitiveness for Technological Research, Development, and Innovation (INNOVATEC): Granting economic support to large companies.

 
Netherlands

General tax rate is 25%.

Reduced wage tax and social security contributions for employees engaged in R&D activities if the taxpayer qualifies  to  38% (up to 50% for start-up companies) of the first €200K in R&D wage costs and 14% for the remaining wage costs with a maximum  reduction of €14M per taxpayer.
R&D Allowance (RDA) :  super deduction of 160%  of qualifying non-wage expenses directly attributable to qualified research activities allowed.  RDA makes a distinction between operating costs  and capital costs.
Innovation Box   applies to patented and non-patented innovations alike  provided that the R&D efforts qualify for the
above wage tax benefits. There is no cap on the amount that can be allocated. Development costs and losses on the exploitation of IP that are allocated to the “innovation box” can be deducted against qualifying income. Effective tax rate for
income attributable to qualifying inventions (net of the invention’s  development cost) allocated to the “innovation box” is reduced to 5%. Qualifying intangible should mandatorily be developed for the risk and reward of a Dutch company.

 

Poland

General corporate tax rate is 19%

Research Expenditure: Expenditures incurred to conduct development activities are 100% tax deductible.
Tax Deduction and Exemptions for R&D Centers: Entities having R&D Center status  (which is granted subject to fulfillment of certain conditions) can establish an innovative fund. Monthly contributions to this fund amounting to 20% of revenue are treated as tax deductible costs.
R&D Centers: Public grants up to 50% of the cost of labor or fixed assets. If the R&D center is located in a special economic zone, the company can enjoy corporate tax rate relief up to 50%.  Real estate tax exemption, as well as rural and forest tax exemptions.
New Technology Tax Relief: A company can deduct from its tax base up to 50% of expenditures incurred for the acquisition of new technology in the form of intangible assets such as proprietary rights, licenses, rights under patents or utility models, know-how  that result in improvement of existing products/services.  In the case of loss, the tax deduction may be used during the subsequent 3 tax years.

Grants: There are also EU and national budget grants available for up to 100% of R&D costs. There are special training support grants available under Seventh Framework Program (FP7), which is a funding scheme throughout the EU that supports R&D activities in different disciplines

 

Russia

General corporate tax rate in russia is 20%.

Russia offers 150% super deduction for profits tax, reduced social security contributions, and a value added tax (VAT) exemption to Companies conducting eligible R&D activities can apply even if such R&D activities fail to produce a new product or new service. If a company is in a loss position, no refund is possible. Losses for tax purposes as a result of super deductions can be carried forward for 10 years.
Accelerated depreciation can be applied to fixed assets used in R&D activities.

Reduced Social Security Contributions: companies involved in developing software can enjoy a reduced rate of 14% on annual remuneration up to a cap of RUB568K.  Remuneration exceeding the cap is exempt. Otherwise, the contribution rate is 30% on annual remuneration up to the cap, and 10% on annual remuneration exceeding the cap.
Special Economic Zones: Russian legal entities registered in  a Technical and Innovation Special Economic Zone with no external branches or   representative offices can have their profits tax rate reduced from 20% down to 0% depending onregion. These companies also benefit from property tax exemption, a free customs zone, and a reduced rate of 14% for social security contributions.
Full VAT exemption is applied to the development of new products and technologies.
In Russia, there are no provisions stipulating specific restrictions on whether or not activities need to be conducted within the country, nor on whether or not overseas R&D contractors can be used.
If the R&D activities led to the creation of IP, the relevant expenses can also be multiplied by 1.5 and considered in profits
tax calculations within two years. The cost of acquiring IP is not
eligible for the super deduction.

 

Singapore

Tax deduction of qualifying R&D expenditures on R&D carried out in or outside of Singapore.
A 250% (for Singapore based R&D) or 300% (for non-Singapore based R&D) enhanced deduction is granted on the first S$400K of qualifying R&D expenditures incurred per year. This is in addition to the 100% (“base deduction”) and 50% (“additional deduction” for Singapore R&D only) on qualifying R&D expenditures.
With this enhancement, there will be up to 400% tax deduction available on the first S$400K of such expenditures incurred.
Above  deductions  are subject to combined cap of S$1.2M.
The R&D expenditures need not be related to the entity’s existing trade or business as long as the R&D is performed in Singapore.
Unutilized R&D expenditures may be carried forward indefinitely, subject to substantial shareholders’ test. They may also be carried back subject to certain restrictions.
 

South Africa

Super Deduction:Volume-based super deduction equal to 150% of the qualifying operational expenditures incurred directly for purposes of R&D.
 Accelerated Depreciation: Capital expenditures incurred to develop or construct assets used in the conduct of qualifying R&D activities qualify for favourable accelerated depreciation, as follows:
 For new and unused plant or machinery placed in service after October 1, 2012: 50% in the year that the asset is brought into use for the first time by the taxpayer, and 30% in second year of assessment: and 20% in final year of assessment. For used plant or machinery placed in service after October 1, 2012: 20% in the year that the second hand asset is brought into use, and 20% in each of the four succeeding years of assessment.Apportionment is not available for partial years.

 

 
 
 
 
 
 

 

 
 
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