Taxand launches new global guide to R&D tax incentives covering over 40 jurisdictions worldwide
We are delighted to announce the launch of our new "Taxand Global guide to R&D tax incentives" which compiles local Taxand knowledge from key jurisdictions worldwide.
Taxand has designed this guide as an essential desk top "ready reference" to assist executives faced with considering the tax impact of locating, expanding or closing R&D facilities across the world.
While economies worldwide are struggling through a downturn, many businesses are continuing to invest significantly in research and development. These businesses realise that cutting R&D budgets can limit future growth. Looking outside your home country can often lead to both highly qualified and less expensive labour as well as specific jurisdictional tax incentives such as R&D credits, deduction incentives and grants.
We predict that companies will continue to place R&D under the microscope to make sure their expenditures will result in products in the near term. And as companies focus on managing their R&D spend, undoubtedly these companies will also closely evaluate the jurisdiction where the R&D will take place.
NOTES TO EDITORS
GUIDE JURISDICTIONS & TAXAND CONTACTS
Don't underestimate the power of asking the right person the right question. The right answer might be worth much more than you ever suspected. Recently our Polish Taxand member identified an opportunity for one of our US clients to obtain a grant valued at US$8 million. In another situation, our Puerto Rican Taxand member identified an opportunity for a client to save over US$3 million. In both of these situations, it was simply a matter of our clients speaking with the local Taxand member to gain an understanding of the incentives available in these jurisdictions.
To contact your local Taxand advisor just choose your country of interest:
- Argentina - Matias Olivero Vila firstname.lastname@example.org
- Australia - Simon Clark email@example.com
- Belgium - Ilse Schoonaert firstname.lastname@example.org
- Brazil - Silvania Conceicao Tognetti mailto:email@example.com
- Canada - Sharon Bennett firstname.lastname@example.org
- Chile - Fernando Barros email@example.com
- China - Dennis Xu mailto:firstname.lastname@example.org
- Colombia - Mauricio Pineros Perdomo email@example.com
- Cyprus - Christodoulos Damianou firstname.lastname@example.org
- Denmark - Anders Oreby Hansen email@example.com
- Finland - Janne Juusela firstname.lastname@example.org
- France - Alain Recoules email@example.com
- Germany - Eberhard Kalbfleisch firstname.lastname@example.org
- Greece - Yerassimos Yannopoulos email@example.com
- Hong Kong - Dennis Xu firstname.lastname@example.org
- India - Mukesh Butani email@example.com
- Ireland - Brian Duffy firstname.lastname@example.org
- Italy - Alfredo Fossati email@example.com
- Japan - Eiki Kawakami firstname.lastname@example.org
- Luxembourg - Keith O'Donnell email@example.com
- Malaysia - Veerinderjeet Singh firstname.lastname@example.org
- Malta - Walter Cutajar email@example.com
- Mexico - Manuel Tamez firstname.lastname@example.org
- Norway - Einar Bakko email@example.com
- Philippines - Serafin U. Salvador firstname.lastname@example.org
- Poland - Andrzej Puncewicz email@example.com
- Portugal - Miguel C. Reis firstname.lastname@example.org
- Puerto Rico - Juan Zaragoza email@example.com
- Russia - Audrey Tereschenko mailto:firstname.lastname@example.org
- Singapore - Alan Ow email@example.com
- South Korea - Stephan Kim Sekim@sojong.com
- Spain - Vicente Bootello firstname.lastname@example.org; Alvaro de la Cueva email@example.com
- Sweden - Niklas Bang firstname.lastname@example.org
- Switzerland - David Ryser email@example.com
- Taiwan - Dennis Xu firstname.lastname@example.org
- Thailand - Hatasakdi Na Pombejra email@example.com
- Turkey - Saban Erdikler firstname.lastname@example.org
- United Kingdom - Kevin Hindley email@example.com
- United States - James M. Eberle firstname.lastname@example.org
- New Zealand
COORDINATED AND PRODUCED BY
- James M. Eberle; Michael Fishman; Kathleen King; and Brett Nowak of our US member, Alvarez & Marsal Taxand LLC
Taxand Global Marketing
T: +44 (0)20 7072 3251
Taxand recommends you consider tax incentives as well as all the business issues you face when deciding where to locate your R&D operations and invest your R&D budget. Choosing a location which is the most tax efficient to suit your needs can yield significant savings.
This guide has been coordinated by Alvarez & Marsal Taxand, the US member of Taxand and includes contributions from Taxanders around the globe and a recent Policy Brief from the OECD entitled "Research and development: Going global" to provide a worldwide perspective. Delivering a country by country evaluation to R&D incentives principally the guide focuses on the income tax incentives offered in these jurisdictions. Here is a short description of the incentives offered in each country included in the publication:
Argentina -- Argentina continues to expand its tax regulations to encourage R&D efforts throughout the country. Tax deductions are offered on costs associated with attaining intangible property. Tax credits are offered to all companies performing R&D, with larger credits available to small and mid-sized companies. Additionally, Argentina offers large incentives to the software industry as the country has a focused effort on this industry.
Australia -- Australia offers tax incentives to companies registered with the Industry Research and Development Board. A 125 percent deduction of R&D expenses (which can be larger for small companies) along with a credit (only allowed for small companies) is offered. Unlike the majority of countries offering R&D tax incentives, Australia allows amounts that qualify for the credit to be spent in Australia and abroad (with certain limitations).
Austria -- The Austrian government formed the Austrian Research Promotion Agency to promote the advancement of R&D within the country. Tax deductions are offered in a variety of forms of relief for qualifying R&D expenditures.
Belgium -- Belgium allows companies to take a deduction on expenses related to new patents. The country also offers companies the opportunity to convert certain deductions into tax credits. The government continues to work to provide additional incentives for particular science and research fields.
Brazil -- Brazil's recent efforts to support companies performing R&D has resulted in the country being considered the most technologically advanced Latin American country in several fields. While Brazil does not currently offer R&D tax credits, it does offer tax deductions to R&D expenses that meet specific criterion. Incentives can range anywhere from a 160 percent deduction to a 180 percent deduction.
Canada -- Canada offers a scientific research and experimental development credit in an amount equal to 20 percent of qualifying expenditures creditable against tax liability or, in the case of Canadian-controlled private corporations, 35 percent fully refundable. The country also offers immediate expensing of 100 percent of allowable expenditures. Several provinces offer additional tax incentives.
Chile -- In 2008, the Chilean government expanded the tax incentives offered for R&D. The government offers a tax deduction that can be taken in full in the year the expenditures are spent. Additionally, a tax credit is offered to specific private companies, universities and research centers.
China -- China has recently sought to improve its technological capabilities while continuing to draw large companies to headquarter their operations in China. Companies can deduct expenses specifically allocated to particular product development as well as expenses allocated to general R&D.
Colombia -- Colombia has some of Latin America's highest corporate tax rates. To incentivise companies to continue to do business within their country, the government allows companies to deduct certain business expenses (including R&D). The country also offers tax credits for particular expenses related to reforestation.
Cyprus -- Cyprus is a strong European contender for companies searching for a friendly business locale in which to conduct their activities. While the country does not offer specific R&D incentives, it does boast a low 10 percent tax rate. Additionally, the country offers several investment incentives. Furthermore, the high-tech industry in Cyprus is flourishing, with a large number of projects in the information technology development and IT service industries.
Denmark -- Denmark allows companies to deduct qualified expenditures in either the year in which they occur or over a four-year period. Denmark allows (in specific circumstances) expenditures that occurred prior to the official start of a business to be deducted.
Finland -- Finland ranks second in the Organisation for Economic Co-operation and Development in terms of R&D as a percentage of gross domestic product. This is largely due to the deduction of expenses (including R&D expenses) related to income-producing products. The country also allows companies a deduction for purchasing or constructing buildings and other tangible property related to R&D.
France -- France encourages the health of large companies and the growth of small and mid-sized enterprises by supporting R&D. France allows a credit for R&D expenses (which include manpower and equipment dedicated to in-house R&D, subcontracted research activities, technological surveillance, patent filing and patent protection). In certain situations, France's research credit can become refundable.
Germany -- The German government works to promote R&D within its country through measures such as allowing companies performing R&D in Germany to fully deduct all R&D expenditures (treated as business expenses) from their current taxable income. Germany is currently working to increase state-provided aid for R&D efforts.
Greece -- While Greece currently has a rather high tax rate, the government offers deduction incentives to counteract the rate and to incentivise companies. Additionally, the government plans to lower the tax rate by approximately one percent each year after 2009, until the rate has decreased 5 percent. The government allows corporations to fully deduct qualified R&D expenditures in the year in which they occur (or over three years for certain fixed equipment).
Hong Kong -- Hong Kong helps foster innovation by allowing companies to deduct expenses related to R&D in the year in which they are incurred. The government continues to work to create an environment that can assist companies in creating innovative products and performing scientific research.
India -- India is on track to become one of the world's top knowledge-producing countries by 2020. While IT firms are often associated with India, the country also has a strong presence in the pharmaceutical and biotechnology sectors. India currently offers a deduction for R&D expenditures of between 100 percent and 150 percent (depending on the specific category such expenses fall under). Additionally, special economic zones offer large incentives for companies that operate within them.
Ireland -- Ireland is becoming world renowned for its R&D knowledge base. The Irish government created the Science Foundation Ireland to determine optimal areas in which to invest in R&D. Companies carrying on an Irish trade or business may take a corporate tax deduction for non-capital R&D expenditures incurred wholly and exclusively for the purposes of their trade or business. Ireland also offers a tax credit of between 20 percent and 25 percent (depending on the year in which expenditures were incurred) for companies performing R&D within Irish borders.
Israel -- Israel has recently become an important center for R&D in the technology sector. Currently, expenses related to an R&D project approved by the Israeli government can be deducted in whole for that tax year, up to a specified ceiling (which is usually 40 percent). Qualifying projects must have a goal of making advancements in industry, agriculture, transportation or energy.
Italy -- Italy allows companies to fully deduct R&D expenses in the year in which they occur or over a five-year period. Companies must be engaged in qualified innovation in order to qualify for the tax deductions. The government also offers a 10 percent tax credit (40 percent for activities carried out with certain qualified institutions).
Japan -- Japan views incentives as an important way to improve technical knowledge and strongly encourage investment in R&D. The country offers a tax credit of up to a 30 percent for qualifying expenditures. Additionally, small or mid-sized companies can choose from a host of additional credit options.
Luxembourg -- Luxembourg has a renowned multilingual workforce that dedicates much of its time to improving R&D in the country. The public expenditure in this area has grown significantly in the last five years and is set to reach one percent of the country's gross domestic product in the near future. Luxembourg offers tax credits and grants for qualified R&D expenditures. Small and mid-sized corporations are able to take additional deductions. Additionally, regional deductions are offered across the country to promote R&D in particular areas.
Malaysia -- Malaysia offers direct incentives in the form of income tax relief and indirect incentives in the form of sales tax and duty exemptions. R&D is mostly incentivised through the Promotion of Investments Act. Through this act, the government offers incentives based on the type of company involved and type of activities being performed. Additionally, the government offers tax allowances to qualified companies performing qualified activities.
Malta -- Malta has a favorable environment conducive to business and has established agencies to incentivize business growth. The government recently enacted legislation to govern industrial development. This legislation incentivises companies engaged in R&D by granting a deduction equal to 150 percent of qualified expenses. Additionally, the government offers investment tax credits.
Mexico -- The Mexican government has pushed innovation efforts to the forefront, aiming to greatly increase the nation's R&D expenditures. The government allows companies to deduct R&D expenses as incurred. Mexico also provides a 30 percent tax credit for qualified spending.
New Zealand -- The New Zealand government allows companies to claim a current tax deduction on R&D expenditures that are neither a depreciable capital asset nor of a revenue nature. Additionally, the country offers a 15 percent tax credit on qualifying activities.
Norway -- Norway is increasing its R&D incentives in order to incentivise companies to keep their R&D efforts in, or move them to, Norway. Currently, the Norwegian government offers tax deductions of 20 percent to small and mid-sized companies. It also offers smaller deductions (with a cap) to larger companies performing R&D. Additionally, Norway offers grants for companies focusing their efforts in specific economic sectors.
Philippines -- The Philippines actively promotes the development and use of renewable energy sources by offering tax incentives. The government allows companies to deduct qualified R&D expenses either as incurred or amortised over a 60-month period. Additionally, the country's Board of Investments grants further tax holidays for specific qualified projects.
Poland -- Poland allows companies to deduct 50 percent of qualifying expenditures related to new technology. This incentive is in addition to the option to deduct depreciation on the initial value of new technologies. While large companies are not currently offered an R&D tax credit, small and mid-sized enterprises may obtain a subsidy granting technological credit for qualified activities. Additional research grants are available for projects related to specific fields.
Portugal -- Portugal offers an investment deduction for qualifying R&D expenses. In addition to the deduction, the government offers several incentive programs to foster innovation. These incentives are available through programmes such as the Incentive Scheme for Business Modernisation, which provide subsidised loans and grants.
Puerto Rico -- Puerto Rico has longstanding policies of encouraging outside investment and attracting pharmaceutical and biotechnology companies. To help attract business investments, Puerto Rico offers a 200 percent tax deduction for qualified expenses for qualified companies. Additionally, Puerto Rico provides a 50 percent tax credit, which if used against electric power, water or sewerage expenses, may be used in full; otherwise, only 50 percent of the credit may be used currently, and any remaining credit may be used during subsequent taxable years.
Russia -- Russian tax incentives introduced between 2006 and 2008 illustrated the government's initiatives to grow its national R&D spending. Expenditures on new or improved products are now deductible. Additionally, a company conducting scientific research or experimental development work, re-equipping its manufacturing, or engaging in implementation or innovation activity can be granted an investment tax credit.
Singapore -- Throughout the past decade, Singapore has increased productivity and focused on encouraging technology development. During 2008, the government introduced a new R&D incentive package offered to companies. The package includes liberalised R&D tax deductions, a new R&D tax allowance scheme and additional R&D incentives for start-up enterprises.
South Korea -- South Korea is on the rise in science and technology. The country offers deductions for R&D expenditures in the form of depreciation in the case of acquisitions of R&D equipment or facilities. Additionally, the government recently made permanent its R&D tax credit.
Spain -- The encouragement of technological improvement and innovation (including R&D) has recently become a priority for public authorities in Spain. Spanish corporate income tax law allows the application of unrestricted amortisation to assets and expenses related to R&D activities. Additionally, Spain offers an R&D tax credit on certain expenses defined as R&D activities as well as technological innovation.
Sweden -- Sweden has consistently ranked high in R&D investment. Business-related R&D expenditures are deductible in Sweden, although the pace at which the deductions occur may vary depending on the nature of the activities.
Switzerland -- Switzerland has become a global leader in the IT industry by incentivizing companies to continue and/or begin their development efforts in the country. Activities relating to R&D are deductible. Generally, the Swiss government distinguishes between a project's research phase and development phase. The expenditures during the research phase are tax deductible at the time that the costs are incurred, whereas the costs for development may be capitalised on the balance sheet if certain conditions are met.
Taiwan -- For many years, Taiwan has considered R&D to be integral to its national economy. The Taiwanese government enacted the Statute for Upgrading Industries and offers tax holidays and credits to companies performing R&D within Taiwan. Specifically, the statute offers a 30 percent tax credit for qualified expenses.
Thailand -- Thailand offers several R &D tax incentives and programs to foster innovation within the country. Two options are available for companies performing R&D: a 200 percent deduction for the cost of hiring qualified researchers working on R&D projects and a special initial depreciation on the date of acquisition for machinery used in R&D projects. The Thai government is continuing to increase the incentives offered to companies.
Turkey -- The Turkish government is working to reduce its budget deficit and incentivise companies to perform R&D within Turkey. Deductions offered include a 100 percent deduction for qualified companies. Additionally, companies can benefit from "technopreneurship" capital subsidies on certain personnel (including personnel with particular degrees or personnel working specifically on R&D).
United Kingdom -- The United Kingdom offers R&D incentives as well as Vaccine Research Relief to companies performing qualifying activities. Because of the importance of these credits, the U.K. has set up separate specialist units to review claims. Credits and deductions are offered to large and small to medium-sized companies. Small and medium-sized enterprises are offered much larger incentives to assist in their growth.
United States -- The United States offers both a tax credit and tax deductions for R&D expenditures. While the tax deduction tends to be fairly straightforward, companies face significant complexity when it comes to calculating and documenting the credit. In addition to considering several calculation alternatives, taxpayers often spar with the Internal Revenue Service as to whether or not activities meet very subjective qualification tests. Many states also offer income tax incentives for R&D activities taking place within their jurisdiction. Furthermore, numerous states and localities offer additional types of incentives for R&D activity (e.g., sales tax exemptions, property tax exemptions, etc.).