Tax incentives for R&D&I are becoming increasingly important in view of the disappearance of other tax benefits to reduce corporate tax. However, this type of incentive has existed in Spain since 1979, although since then the legal framework that regulates it has evolved, giving this incentive greater potential, scope and legal certainty.
Deductions for research and development are set out in article 35 of Corporate Income Tax Law 14/2014.
Firstly, it should be noted that the R&D&I tax credit is established as a percentage of the expenses incurred by a company in R&D&I activities. These expenses, which are deductible in the company’s profit and loss account, will entitle the company to an additional tax deduction.
This is a mechanism to incentivize certain activities insofar as the results derived from them have an impact not only on the company that carries them out, but also on society as a whole. This tax incentive distinguishes between two types of activities:
Research and development activities
Where the basis for the deduction is investment in tangible and intangible fixed assets, excluding buildings and land. In general, the deduction percentage will be 25% of the expenses incurred in the tax period for this concept. However, if the expenses are higher than the average of those incurred in the previous two years, 25% will be applied up to that average and 42% for those above it.
Additional deductions may also apply:
- 17% on the personnel costs of qualified researchers assigned exclusively to R&D activities
- 8% of investments in tangible and intangible fixed assets, excluding buildings and land, provided that they are exclusively assigned to R&D activities.
Technological innovation activities
In which a deduction percentage of 12% will be applied to the expenses incurred in the tax period, although for projects started after 25 June 2020 and with effect for tax periods starting in 2020 and 2021, this percentage rises to 50%.
Activities that do not involve a significant scientific or technological innovation will not be considered as R&D&I activities: industrial production activities and the provision of services or the distribution of goods and services and exploration, drilling or prospecting for minerals and hydrocarbons.
For the application of the deduction regulated in this article, taxpayers may provide a reasoned report issued by the Ministry of Economy or by an organization attached to it, regarding compliance with the scientific and technological requirements, as well as submit queries on the interpretation and application of this deduction, the reply to which shall be binding on the Tax Administration.
Roberto Cerrato