for purposes of many of these foreign locations is generally broader than traditional R&D activities and typically includes improvements to existing products, manufacturing processes, and capital infrastructure.
Below is a summary of the foreign R&D tax incentives offered by countries considered to have the most robust programs.
Canada allows a deduction and a 20 percent tax credit for expenditures related to scientific research and experimental development (SR&ED). Many provincial governments also encourage research activities through additional deductions and tax credits. Further, provinces offer standalone incentives, such as:
- Quebec offers a refundable tax credit on qualifying expenses, including a 17.5 percent tax credit on salaries and wages
- Alberta offers a 10 percent tax credit on qualifying expenses for a maximum credit of $400,000
Similar to other foreign R&D credits, Canada allows a "carryback" and "carryforward" of unused R&D credits. Claims for the tax credit may be filed up to 18 months after the end of the fiscal year, and should be filed along with the annual tax return.
Mexico offers a prospective R&D incentive program that directly refunds (via a cash grant) a percentage of R&D-related expenses incurred by companies.
- Large companies with projects that increase their competitiveness and foster generation of R&D infrastructure are eligible for an economic incentive equal to 22 percent of qualifying expenses incurred in the national territory; the maximum amount of incentive to be awarded per company is MX$36 million
- Small and medium companies in Mexico may be eligible for an economic incentive equal to 35 percent of qualifying expenses incurred within the country and eligible companies must demonstrate that their projects will increase their competitiveness; the maximum amount of incentive to be awarded per company is MX$21 million
- Small and medium companies are those with up to 250 employees and MX$250 million in annual sales
- Companies that promote collaboration with institutions of higher education and research centers are eligible for a higher incentive and receive priority in the approval process
Filing deadline: March 2013, for calendar year 2013 expenditures.
Brazil offers tax incentives in the form of multiple deductions ("super deductions") ranging from 10 to 200 percent of R&D expenses incurred by the company.
- R&D incentives are available at both federal and state levels
- R&D for tax purposes is defined as activities involved in the creation of new or improved products, processes, or services, and the application of developed knowledge in the design and creation of pilot and test projects as a preliminary step toward the development of new or improved products, processes, or services
Filing deadline: July 31, 2012, for 2011 expenditures for a taxpayer with calendar year-end. The filing requires an overview of company operations as well as a detailed report of the R&D activities performed.
R&D expenses in France are deductible in the year in which they were incurred. Additionally, France offers an R&D credit the Crédit d'Impôt Recherche (CIR), which is available to any industrial, commercial, or agricultural company engaged in research and development activities. The credit applies to basic research, applied research, and experimental development.
- The tax credit equals 30 percent of the current-year eligible expenses (up to €100 million)
- Qualified expenses over €100 million are eligible for a 5 percent credit; the amount of credit is not limited
- For taxpayers who are filing for the credit for the first or who have not had R&D credits in the preceding five years, the credit increases to 50 percent eligible expenses; the second year the credit is reduced to 40 percent; for the third year and all subsequent years, the credit reverts to 30 percent of expenses
- Qualified activity must occur within France, in an EU member state, or in countries that are members of the European Economic Area for which a tax collection agreement is in place
Italy offers a tax credit that is 10 percent of R&D expenses incurred by a company in the current fiscal year. The percentage increases to 40 percent if the expenses are related to contracts with universities or research centers.
- The tax credit is limited to R&D expenses of up to €50 million per fiscal year
- The credit can be applied to federal income tax liability; state R&D credits are also available
Filing deadline: July 31, 2012, for 2011 expenditures for a taxpayer with calendar year-end. The R&D tax credit is filed with the corporate tax return of the current year. The corporate tax filing deadline is seven months after year-end.
The United Kingdom is in the process of repurposing its R&D credit and, in the short term, instituting a refundable credit for 2013 in addition to exploring the use of an "above the line" credit.
Similar to the US and Canada, product and process improvements implemented on products within the United Kingdom may be eligible for the R&D tax incentives. Products with improved functionalities or manufacturing processes that generate efficiencies or improve products typically involve the level of uncertainty required in order to qualify for the tax incentives.
- The tax incentive is in the form of a 130 percent deduction of R&D expenses
- Capital expenditures related to R&D may be fully expensed for tax purposes
- R&D for tax purposes involves a project that seeks to achieve an advance in science or technology, and includes activities that directly contribute to achieving this advance through the resolution of scientific or technological uncertainty
- Some level of consultative- or wage-based R&D activities can take place outside the UK
- Some capital equipment related to R&D activities may also be deducted immediately for tax purposes
- Companies may file retrospective R&D claims looking back up to two years
- Tiered R&D incentives (including a refundable credit feature for small and midsized companies) are made eligible according to a designation as a small, medium, or large company
Filing deadline: Deadline occurs two years after fiscal year-end, claimed on the corporate tax return.
Spain’s chief R&D tax credit equals 30 percent of current-year eligible expenditures plus 50 percent of the increase in expenditures over the average of the prior two years.
- An additional credit of 20 percent is available for expenses related to the salaries of qualified researchers (or simply "certified engineers") assigned exclusively to R&D activities and for expenses related to projects that are contracted to universities or research organizations
- Capital investment in R&D assets, excluding land and buildings, receives a tax credit of 10 percent, and taxpayers may choose the amount of depreciation to use each year
- Unlike the US, the credit even applies to R&D conducted outside of Spain so long as no more than 25 percent of total expenses come from foreign activity
Australia’s R&D tax incentive provides a targeted tax offset designed to encourage more companies to engage in research and development in Australia. The R&D tax incentive has two core components:
- A 45 percent refundable tax credit to eligible entities with an aggregated turnover of less than $20 million per annum
- A nonrefundable 40 percent tax offset to all other eligible entities
China’s credit is relatively new and allows an additional 50 percent deduction of actual R&D costs incurred during the year; this incentive only applies to tax resident enterprises (TREs).
- If an intangible asset is generated, the enterprise can amortize it based on 150 percent of the capitalized costs in no fewer than 10 years
- The program allows for accelerated depreciation for research and development equipment
- Amounts of unused R&D expense deductions can be carried forward for five years
R&D deductions must be included in the annual tax return for the current year; local tax authorities may require an R&D application filing prior to including in the tax return.
South Korea allows a 100 percent deduction for R&D expenses.
- The deduction amounts to a tax credit of 40 percent of incremental R&D expenses for the current year, exceeding the average of the R&D expenses incurred during the previous four years
- All R&D incentives are claimed on the tax return
Taiwan provides an income tax credit for innovation-related R&D expenses incurred by Taiwan-based enterprises at their facilities located in the country
- A company is allowed to take a credit against its tax payable up to 15 percent of its total R&D expenditure for the current year
- The tax credit is capped at 30 percent of the taxpayer’s corporate income tax payable for the current year and cannot be carried forward
- All tax credits are claimed on the tax return
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