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New R&D Tax Credit Regime
A new federal tax law amendment brings a uniform and consistent approach to the tax credit for research and development ("R&D") expenses. This new tax credit unifies a confusing dual system consisting of a tax credit for research and development expenses or alternatively a tax allowance on such expenses. The tax allowance is abolished and the tax credit upgraded. The new regime is applicable from financial years starting after 31 December 2010.
The highlights of the new regime include the following:
- The tax credit is increased from 8% to 10%.
- The tax credit can be claimed irrespective of whether a profit or loss is recorded.
- The tax credit is unlimited for internal R&D.
Taxand Austria reviews the new R&D tax credit regime and how businesses in Austria can now benefit.
The tax credit can be claimed regardless of whether a profit or loss is recorded. In a loss-making situation the tax credit will be available and may be refunded in cash to a bank account.
The system has been simplified and there are now fewer legal formalities. Even in the case of research that has been discontinued a tax credit may still be taken on expenses.
The definition of 'R&D expenses' has been adopted from the OECD's 2002 Frascati Manual. The base for the tax credit is R&D expenses. R&D expenses include costs of personnel and materials, overhead costs, financing costs and capital expenditures (including the acquisition of real estate). Attention should be paid to the fact that in the year of the acquisition of a fixed asset the entire acquisition cost needs to be taken into account. Depreciation, on the other hand, is not part of the base in the following years. If a fixed asset is only partially used for R&D, the acquisition cost is allocated proportionally.
The tax credit may also be claimed for external R&D expenses. The base for external R&D expenses is capped at EUR 100,000. In the case of external R&D the tax credit can basically be claimed by either the principal or the agent.
Even if the tax credit is claimed, R&D expenses remain deductible for corporate income tax (CIT) purposes, whereas the credit is exempt from CIT.
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The new tax credit will attract R&D to Austria. The fact that the definition of R&D expenses adopted from the OECD is very broad makes it easier to claim the tax credit. Austria's R&D tax credit regime now competes with R&D aid systems in other countries.
The redesign of the tax relief in this area brings is a positive development, and simplifies the existing regime. Additionally, the tax credit is now applicable even in a loss-making situation. To minimise the effort in applying for the tax credit, care should be taken to document R&D expenses throughout the year.