As we analysed in our post on Tax advantages of setting up or investing in technology companiesThere are a number of tax incentives applicable to the start-up ecosystem.
Which companies or sectors are affected by the R&D&I deduction?
It is common to associate the existence of R&D&I with technological companies, although research and development or, more frequently, technological innovation, is an area present in a multitude of activity sectors: manufacturing, agriculture, services, etc.
An example of this is the fact that some of the large supermarkets in our country have a specific R&D area where they analyse and test new food, cosmetic, etc. products.
This only confirms that there are many companies that may have an R&D&I or IT component and do not know it, without benefiting from these very interesting tax incentives. For this reason, we always recommend that you do not take this type of issue for granted and go to your trusted advisor to make a preliminary assessment of this possibility.
What does the R&D&I deduction consist of?
This is a tax deduction on the amount payable in corporate income tax, which is divided into two parts:
- Deduction for Research and Development (R&D) which can amount to a rate of up to 42% of the expenses incurred.
- Deduction for Technological Innovation (TI) amounting to 12% of the expenses incurred.
What is meant by Research and Development (R&D)?
According to the definition in the Corporate Income Tax regulations [1]The latter encompasses:
- The original planned enquiry that pursues discovering new knowledge and a superior understanding of science and technology.
- The development and materialisation of the new products or processes in a plan, layout or design, as well as the creation of a first prototype non-marketable and initial demonstration or pilot projects.
- The design and development of the sample book for the launch of new products.
- The creation, combination and configuration of advanced software, through new theorems and algorithms or operating systems, languages, interfaces and applications for the development of new or substantially improved products, processes or services.
1) What is the R&D expenditure taken into account for the deduction?
The deduction is determined on the basis of the expenses incurred by the company in carrying out the R&D, and in particular:
A) Research and development expenditure.
It includes both third party invoices as personnel costs carrying out the activity (including social security costs)
In addition, there is the cost of the depreciation of the assets concerned to the above activities, provided that they are directly related to the R&D, are actually applied in carrying out these activities, and are individually detailed in the projects
B) Investments
The investments in tangible and intangible fixed assets excluding buildings and land. They must be in working order)
2) How much is the R&D&I deduction?
The deduction for R+D+i amounts to:
25% of total R&D expenditure + 8% of total investment in R&D fixed assets
And, in addition, if R&D expenditure in one year is higher than in the previous two years, 25% is applied to the average expenditure in the previous two years, on the excess, a percentage of 42% is applied. This results in a very interesting deduction amount.
The right to a additional deduction of 17% from the amount of staff costs which corresponds to "qualified researchers assigned exclusively to R&D activities".
And what is considered Technological Innovation (TI)?
The standard defines it as an activity whose result is a technological progress in the development of new products or production processes or substantial improvements to existing ones [2].
The Directorate General for Taxation, in various consultations, including V2822-20 of 17 September, has defined 3 essential requirements:
- First: New or substantially improved. The product or process obtained must be new or incorporate a substantial improvement.
This novelty must not be merely formal or ancillary, but must involve the existence of an essential changea modification of some of the basic and intrinsic characteristics of the product/process, attributing to a new nature to the modified element.
- Second: From a technological point of view. The novelty has to be in the technological field of the process or product.
- Third: From a subjective point of view of the taxpayer. It does not require the development of a new product or process that does not exist on the market (as this would be included in the concept of R&D), but rather the development of a new product or process that has not been developed so far by the entity that carries it out. corporal.
In other words, technological innovation can cover any new process within the company or any substantial and specific adaptation of an existing product for the company in question that carries it out. Examples include, but are not limited to:
- Significant improvements in production processes.
- Development of new products and improvement of existing ones.
- Incorporation of existing technologies that represent a subjective novelty for the company.
1) What expenses are included in the IT deduction for the deduction?
The deduction for technological innovation is determined on the basis of the costs directly incurred by the company for the ITi.e., carry out the following activities and specifically state individualised by project.
- Activities of initial diagnosis to define the advanced technological solution.
- Industrial design and process engineering production.
- Acquisition of advanced technology in the form of patents, licences, know-how and designs.
- Obtaining the certificate of compliance with the quality assurance standards of the ISO 9000 seriesGMP or similar, not including the implementation of such standards.
2) How much is the R&D&I deduction?
The deductionIT is quantified as 12% of the expenditure incurred.
Procedure for taking advantage of the R&D&I deduction
There are a number of steps involved in taking advantage of the deduction:
1. Firstly, it is necessary to determine which expenses are eligible to form part of the basis for the deduction.
2. Obtaining technical report by certifying body.
Although it is not compulsory unless one wishes to opt for the monetisation of the deduction (also known as the "tax cheque"), it is advisable to have the reasoned report as it binds the tax administration.
In that case, as from 1 January 2021, it is required that the project is certified by a certifying bodyof those specially accredited by ENAC. These entities carry out a certification and a technical and economic report.
3. Obtaining a reasoned report by the Ministry of Economic Affairs and Competitiveness (today Ministry of Science and Innovation - MINCI)
Subsequently, on the basis of the technical report developed and the certification issued by an ENAC-accredited certifying body, a reasoned report is requested and issued by the Ministry of Science and Innovation.
The relevance of such a reasoned report is that, as we have indicated, it binds the AEAT and allows the taxpayer to have legal certainty on the amount of deduction to which you are entitled.
4. Registration in the corporate income tax return-settlement.
Once the amount of the deduction is known, the deduction is to be reported in the corresponding section of form 200where the amount of the deduction from the tax liability to which one is entitled must be stated.
This is particularly relevant because the taxpayer often finds himself in the situation that he does not have the reasoned report at the corporate tax filing date and has to fill in an amount of the deduction that is subject to change.
In practice, it usually happens that either taxpayers opt to wait for this report, so that they do not reflect the amount of the deduction in the Form 200 of the year in which it is generated, and it is recorded for the first time in the tax returns of subsequent years, or the preliminary amount of the deduction is included in accordance with the technical-economic report issued by the certifying body accredited by ENAC and, subsequently, the amount is regularised if necessary when the result of the reasoned report is known.
[1] Definition of R&D :
"Research shall mean planned original investigation aimed at the discovery of new knowledge and a better understanding of science and technology, and development shall mean the application of the results of research or any other scientific knowledge for the production of new materials or products or for the design of new processes or production systems, or for the substantial technological improvement of pre-existing materials, products, processes or systems.
The 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, in so far as these cannot be converted or used for industrial applications or commercial exploitation, shall also be considered as research and development activity.
Likewise, the design and preparation of the sample book for the launch of new products shall be considered as research and development activity. For these purposes, the launch of a new product shall be understood to be its introduction on the market and a new product shall be understood to be one whose novelty is essential and not merely formal or accidental.
The creation, combination and configuration of advanced software, by means of new theorems and algorithms or operating systems, languages, interfaces and applications intended for the development of new or substantially improved products, processes or services, shall also be considered as research and development activity. Software intended to facilitate access to information society services for people with disabilities will be assimilated to this concept, when it is carried out on a non-profit basis. It does not include routine or routine activities related to software maintenance or minor software upgrades.
[2] Definition of IT:
"Technological innovation shall be considered to be the activity whose result is a technological advance in obtaining new products or production processes or substantial improvements to existing ones. Products or processes whose characteristics or applications, from a technological point of view, differ substantially from those existing previously, shall be considered new.
This activity shall include the materialisation of new products or processes in a plan, scheme or design, the creation of a first non-marketable prototype, initial demonstration projects or pilot projects, including those related to animation and video games, and samples of textiles, footwear, tanning, leather goods, toys, furniture and wood, provided that they cannot be converted or used for industrial applications or commercial exploitation.
