Author: Paul Waite, CEO Aspen Waite Group
Many countries across the world have identified that it is commercially attractive to offer a range of incentives for companies to invest in qualifying research and development. In so doing companies find it easier to bring new products or processes to market and once this has happened the central coffers are boosted by increased tax revenues.
At Aspen Waite we pride ourselves on understanding the basic principles and the most favourable regimes so we can offer appropriate advice especially to international organisations. Many organisations do not have sufficient regard as to how best to plan their affairs. So R and D might be carried out in a country with no tax breaks when it could be carried out in one that is more favourable. At this time we are happy to talk to any business on a general advisory level but can only deal with the UK and Ireland when handling anything that requires more specific advice or action. We hope to file our first R and D claim in Italy next year.
There are a range of incentives;
(1) r and d tax credits leading to reductions in corporate tax payable
(2) r and d super deductions
(3) patent box, which involves revenues from Intellectual Property being taxed at favourable rates
(4) r and d tax credits turning losses into cash back
(5) r and d grants
At Aspen Waite we believe in offering clients the best possible advice and have built on our UK r and d tax credit expertise by now offering a service throughout Ireland. The legislation in Northern Ireland is the same as the rest of the UK but in the Republic while it is broadly comparable there are quite a few differences.
Inevitably the net benefit to a company is dependent on the local corporate tax rate. In the UK the rate is 20% for SME's but only 12.5% in the ROI.
Both rates are highly competitive compared to the world norm.
This article is intended to set the scene and I will subsequently draw out more specific points and focus on individual countries in the future.
Across the world there is a general lack of understanding in the business community regarding the help available. This can be at national level and also wider, for example the availability of EU grants. Our aim is to help raise awareness and give the best possible advice not just locally but on an international basis.
For instance in an international group it is important executives understand the consequences of their actions and can receive advice that maximises their group position.
Not only do they need to know the applicable legislation in each country in which they are represented but apply that so as to best plan their affairs.
This may involve an appreciation of for instance the definition of Intellectual Property as this varies considerably.
Most countries do not allow for losses to create a cash benefit immediately so if cash flow is highly important in the short term then routing r and d expenditure into a country that offers this solution is advisable if the business is building up. In any event in a group r and d should take place in the country offering the most benefit. There is nothing to stop management charges etc working with this to create the net effect the group wants.
Certain countries do stand out as being especially attractive taking into consideration overall rates and the incentives.
Only 8 countries allow for refundable credits with the UK being especially attractive. The UK also allows for retrospective claims to be made as long as the tax return is still in scope (normally 2 years).
Belgium, Ireland., Portugal, Spain and the UK reward those that have developed IP with tax rates from 2.5%.
No two countries are alike so a number of factors have to be considered. My next article will consider the most important areas and I will build on this in those to come.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net