Efficient use of research allowance

The Research & Development Tax Credit (United States) is a federal tax incentive designed to encourage companies to invest in innovation and technological development in the United States.

It’s a dollar-for-dollar reduction of federal income tax liability for companies that spend money on qualifying research and development activities. It was introduced under the Economic Recovery Tax Act of 1981 and made permanent by the Protecting Americans from Tax Hikes Act of 2015.

Any U.S. business that performs qualified R&D activities can potentially claim it, including advanced manufacturing, software and app development, F&B, financial services, agriculture, battery and semiconductors, pharmaceuticals and biotech, engineering, chemical manufacturing and virtually any other industry as long as there is R&D activities being undertaken. A company can be a start up, private or public and large or small. The company does not need to be profitable.

Activities must generally meet a four-part test defined in the tax code:

• Permitted purpose – Work must aim to improve functionality, performance, reliability, or quality of a product, process, technique, or software.
• Technological in nature – Based on engineering, computer science, physical sciences, or biological sciences.
• Elimination of uncertainty – The company is trying to resolve technical uncertainty.
• Process of experimentation – Testing, modeling, prototyping, simulations, etc.

The amount varies depending on the calculation method, but it typically equals roughly:

• ~6–10% of qualifying R&D expenses in many cases.

Companies usually calculate it using either:

• Regular Credit method
• Alternative Simplified Credit (ASC)

The R&D super deduction is an additional pre-tax deduction available to eligible resident enterprises that are subject to CIT based on actual accounting (not deemed taxation) and that can accurately collect, allocate, and account for qualifying R&D expenses on a project basis.

Since 1 January 2023, the general additional deduction ratio for eligible expense-type R&D costs has been 100%.

Standard rate (expense-type R&D):

For every CNY 100 of qualifying R&D expenses that are expensed in the current period, a total of CNY 200 may be deducted before tax (CNY 100 ordinary deduction plus CNY 100 additional deduction).

Capitalized R&D (intangible assets):

Where R&D activities result in the formation of an intangible asset, the asset is amortized for tax purposes at 200% of its cost. The amortization period may not be less than 10 years.

Strategic industry enhancement:

Enterprises engaged in integrated circuits (IC) and industrial mother machine sectors may apply a 120% additional deduction (i.e., a total tax deduction of 220%) in accordance with the relevant applicable policy documents and within the prescribed policy period.

Negative list:

Enterprises whose main business revenue accounts for more than 50% and falls within excluded industries — including tobacco, accommodation and catering, wholesale and retail, real estate, leasing and business services, and entertainment — are not eligible to apply the R&D additional deduction.

Entrusted (domestic) R&D:

For R&D activities entrusted to domestic third parties, 80% of the actual entrusted R&D expenditure may be included in the entrusting party’s deductible R&D base. The entrusted party may not claim an additional deduction on the same expenses.

Entrusted (overseas) R&D:

For R&D entrusted overseas, 80% of the actual expenditure may be included in the entrusting party’s R&D base. The additional deduction attributable to overseas entrusted R&D shall not exceed two-thirds of the domestic qualifying R&D expenses. R&D entrusted to overseas individuals does not qualify.

“Other related expenses” cap:

Certain ancillary R&D costs (e.g., travel expenses, IP-related fees, testing and trial production expenses) are subject to a 10% cap, calculated in accordance with the prescribed formula and applied on an annual aggregated basis across projects.

China provides accelerated depreciation and immediate expensing mechanisms to support technological upgrading and equipment renewal in accordance with applicable policy notices.

CNY 5 million threshold:

Equipment and instruments with a unit value not exceeding CNY 5 million may qualify for full expensing (100% tax deduction) in the year of acquisition, subject to applicable policy periods and official tax notices.

Higher-value assets:

For assets exceeding CNY 5 million, enterprises may apply shortened depreciation periods as permitted under tax regulations or accelerated depreciation methods such as the double-declining balance method or sum-of-years-digits method.

Local financial subsidies:

In addition to national tax incentives, local governments may provide fiscal subsidies or grants for R&D equipment upgrades. These subsidies are administered by local science and technology authorities and are separate from corporate income tax filing procedures.

10-year loss carry-forward:

Enterprises that qualify as High and New Technology Enterprises (HNTEs) or Technology-based SMEs in the relevant year may carry forward tax losses for up to 10 years, compared to the standard 5-year carry-forward period.

Prepayment claiming:

Enterprises may elect to enjoy the R&D additional deduction during July and October quarterly corporate income tax prepayment filings, provided they are able to accurately account for R&D expenses, rather than waiting until the annual final settlement.

Preferential CIT rates:

The R&D super deduction is an additional pre-tax deduction and not a refundable tax credit. Qualified HNTEs are subject to a reduced 15% corporate income tax rate. Small and Low-Profit Enterprises may benefit from preferential effective tax treatment on the first CNY 3 million of annual taxable income in accordance with the applicable policy rules.

Japan R&D Tax Incentives Overview (2025–2026 Framework)

1. General R&D Tax Credit (Volume-Based System)

Japan provides a tax credit for companies conducting qualifying research and experimental development activities.

Key features:

• Credit rate structure (large companies):

Large corporations can claim a tax credit generally ranging from approximately 1 percent to 14 percent of eligible R&D expenses. The exact rate depends on the company’s R&D intensity, measured by comparing current-year R&D expenses with the average R&D spending of the previous three fiscal years. Companies that increase R&D investment relative to this historical average may qualify for a higher credit rate within this range.

• SME preferential treatment:

Small and medium-sized enterprises benefit from higher effective credit rates under the SME regime, typically ranging from about 12 percent to 17 percent of eligible R&D expenses.

• Tax liability cap:

The credit is generally capped at a percentage of corporate tax liability, typically around 25 percent, with possible increases under certain conditions such as high R&D intensity or wage growth.

• Large company considerations:

For large corporations, broader tax incentive conditions, such as wage growth and domestic investment requirements, may affect eligibility for certain tax benefits, including aspects of the R&D tax framework.

This regime reduces corporate tax payable but does not result in a cash refund.

2. Open Innovation R&D Tax Credit

Japan provides enhanced credit rates for collaboration with external innovation partners.

Higher credit rate categories include:

• Universities and national research institutions: 30 percent credit rate
• Qualified R&D startups: 25 percent credit rate
• Other qualifying external partners defined under the tax law: 20 percent credit rate

These enhanced rates apply to qualifying joint research activities and certain technology acquisition structures as defined in the applicable legislation.

3. Innovation Box Regime (Effective from April 1, 2025)

Japan introduced an Innovation Box regime to incentivize domestic IP development and commercialization.

Core benefit:

• 30 percent deduction of qualifying IP income

This deduction applies to income derived from:

• Patents, including certain foreign-registered patents subject to applicable requirements
• Eligible software copyrights, including AI-related software where qualification criteria are met
• Intellectual property acquired or created on or after April 1, 2024

Nexus or Self-Creation Requirement

The deductible portion is adjusted using a self-creation ratio based on qualifying R&D expenditure compared to total R&D expenditure related to the specific IP asset. Certain costs, such as acquisition costs, license fees, foreign related-party outsourcing, and certain foreign permanent establishment expenditures, are excluded from qualifying R&D expenditure.

Certification Requirement

Application of the regime requires a formal confirmation procedure and supporting documentation in accordance with the official administrative guidelines.

4. Outsourcing and Geographic Considerations

Under the Innovation Box self-creation framework:

• Outsourcing to independent third parties, whether domestic or overseas, may be included in qualifying R&D expenditure.
• Outsourcing to foreign related parties and certain foreign permanent establishments is excluded from qualifying expenditure.

Eligibility under the general R&D tax credit depends on statutory definitions of qualifying research and experimental development activities.

5. Practical Impact for Companies

Japan’s tax incentive framework offers:

• Ongoing tax relief for companies investing in research and development
• Enhanced incentives for collaboration with universities, startups, and research institutions
• A structural benefit for companies commercializing patented or AI-based technologies in Japan

All incentives operate as reductions of corporate tax liability and require appropriate documentation and compliance procedures.

Overview

India supports research and development (R&D) through a combination of tax deductions, tax concessions for intellectual property income, startup tax incentives, and government-backed financing programs. Earlier “super deductions” for in-house R&D are no longer available. Instead, companies can benefit from standard deductions for eligible R&D expenditure, targeted tax regimes, and new public financing instruments that support technology development and commercialization.

A new Income-tax Act, 2025 has been enacted and will come into force on April 1, 2026, replacing the Income-tax Act, 1961. Until that date, the current provisions of the 1961 Act continue to apply. The new law largely maintains the existing R&D deduction framework while reorganizing it.

Scientific Research Deduction (Section 35 / Section 45 from 2026) Companies in India can deduct eligible R&D expenses from their taxable income. Under Section 35 of the Income-tax Act, 1961, qualifying scientific research expenditure related to a company’s business is generally deductible at 100% of the eligible amount.

This includes:

• Revenue expenditure (such as salaries, materials, and consumables)
• Capital expenditure used for research activities (except for land)

A specific rule exists for companies that operate an approved in-house R&D facility (Section 35(2AB)). This applies mainly to companies engaged in biotechnology or manufacturing. In these cases, eligible R&D costs incurred at the approved facility are also deductible at 100%.

Companies can also claim deductions for contributions made to approved scientific research institutions or research associations.

From April 1, 2026, the new Income-tax Act, 2025 will move these rules to Section 45 while largely keeping the same deduction principles. The new law also confirms that certain R&D costs incurred up to three years before a business starts may be treated as deductible once the business begins, subject to certification requirements.

Startup Tax Holiday (Section 80-IAC) India provides a tax holiday to encourage innovative startups. Eligible startups that are officially recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) may claim a 100% deduction on profits for any three consecutive years within their first ten years of operation.

To qualify:

• The startup must be incorporated between April 1, 2016 and March 31, 2030
• Turnover must not exceed ₹100 crore in any financial year since incorporation
• The business must be genuinely innovative
• The company must not be formed by splitting or reconstructing an existing business

Applications are assessed through the Startup India framework and the Inter-Ministerial Board.

DSIR Recognition for Deep-Tech Startups The Department of Scientific and Industrial Research (DSIR) grants official recognition to in-house R&D centers. This recognition is often required for companies to access certain R&D tax benefits.

Since January 2026, deep-tech startups can apply for DSIR recognition earlier because the previous requirement that a company must exist for three years before applying has been removed. This change allows young technology companies to formalize their R&D activities sooner, although the recognition itself is not a separate tax incentive.

Patent Box Regime (Section 115BBF) India offers a reduced tax rate for certain income derived from patents. Royalty income earned from patents developed and registered in India may be taxed at a concessional rate of 10% (plus surcharge and cess).

To qualify:

• The patent must be developed mainly through R&D activities carried out in India
• At least 75% of the relevant R&D expenditure related to the invention must be incurred in India by the patent owner

The regime applies to resident patentees and only to royalty income from qualifying patents.

ANRF Research, Development and Innovation (RDI) Scheme In addition to tax incentives, India has introduced a major financing program for technology development. The Research, Development and Innovation (RDI) scheme, implemented through the Anusandhan National Research Foundation (ANRF), provides long-term financing for companies developing advanced technologies.

Key features:

• Overall outlay of about ₹1 lakh crore
• Funding delivered through specialized financial institutions and investment funds (not directly by the government)
• Support forms: concessional loans, equity investment, or hybrid financing instruments

The scheme focuses on projects beyond early research stages (Technology Readiness Level 4 and above) and targets strategic sectors such as:

• Semiconductors
• Artificial intelligence
• Quantum technologies
• Bio-manufacturing

Public financing typically covers only part of the project cost, meaning companies are expected to co-invest alongside private investors or their own capital.

For qualifying capital expenditure incurred on assets used for R&D that does not qualify for revenue-based claims:

• 100% first-year allowance under the Capital Allowances Act 2001, allowing the full qualifying cost to be deducted from taxable profits in the year of expenditure.

The CIR is a permanent tax credit available to companies carrying out eligible R&D activities in France and subject to corporate income tax (IS) or income tax under a real taxation regime, irrespective of size or sector (including certain entities benefiting from specific tax regimes under statutory conditions).

Rates

• 30% of eligible R&D expenses up to €100 million.
• 5% for the portion exceeding €100 million.
• 50% rate applicable in the Overseas Departments (DOM).

Eligible Expenses (rules applicable to expenses incurred from 15 February 2025)

• Personnel costs: salaries and mandatory social security contributions for researchers and technicians directly engaged in R&D.
  • The former enhanced calculation for “jeunes docteurs” (young PhD holders) is suppressed for expenses incurred from 15 February 2025; such costs are included at their actual amount.
• Operating expenses (forfait): calculated as
  • 40% of eligible personnel costs. (The personnel forfait was reduced from 43% to 40% for expenses incurred from 15 February 2025.)
• Subsidies and public funding: qualifying public subsidies relating to the same R&D expenses must be deducted from the CIR base.

Excluded from the base (from 15 February 2025)

• Expenses related to technological watch (“veille technologique”),
• Patent- and plant variety right (COV)-related amortisation and related fees (filing and maintenance),
• Amortisation (depreciation) of assets previously included in the CIR base.

Imputation and Refund

• The CIR is offset against the corporate income tax due for the year in which the expenses are incurred.
• Any unused credit becomes a receivable against the French State.
• Immediate refund is available for:
  • SMEs within the EU definition,
  • Young Innovative Companies (JEI),
  • Certain new companies under statutory conditions,
  • Companies subject to insolvency or conciliation proceedings.
• Other companies may obtain a refund after a three-year carry-forward period if the credit has not been fully utilised.

The CICo supports effective research collaboration between companies and approved research and knowledge dissemination organisations (organismes de recherche et de diffusion des connaissances).

• Rate:
  • 40% for large companies,
  • 50% for SMEs.
• Cap: Eligible expenses are capped at €6 million per year.
• Key conditions:
  • The organisation must be approved under the applicable French rules,
  • It must carry out part of the research work itself,
  • The collaboration must be genuine and balanced,
  • The organisation must bear at least 10% of the eligible project costs,
  • The credit applies to expenses invoiced by the organisation under the collaboration agreement.

These regimes provide targeted exemptions to support young, R&D-intensive companies.

JEI (Jeune Entreprise Innovante)

A company may qualify as a JEI if it:

• Meets the EU SME definition,
• Is independent,
• Meets the age condition:
  • Created on or before 31 December 2022: less than 11 years old,
  • Created from 1 January 2023: less than 8 years old,
• Meets the R&D expenditure intensity condition:
  • At least 20% of total expenses, based on eligible R&D costs.

Application timing of the 20% threshold:

• For corporate income tax (IS): applies to financial years closed from 1 March 2025,
• For income tax (IR): applies to tax due from 2025,
• For CFE and property tax: applies from 1 January 2026.

Benefits:

• Exemptions from employer social security contributions for eligible R&D personnel, subject to statutory caps and conditions,
• Profit tax exemption:
  • Not applicable to JEI created from 1 January 2024,
  • Still applicable to eligible companies created before that date under transitional rules,
• Local tax exemptions (CFE / property tax) may apply subject to decisions of local authorities.

JEC (Jeune Entreprise de Croissance)

The JEC status applies to innovative SMEs that:

• Meet the general eligibility conditions,
• Combine significant R&D intensity with defined growth performance criteria.

Benefits:

• Exemptions primarily relating to employer social security contributions for R&D personnel, subject to caps and conditions similar to those applicable to JEI,
• No profit tax exemption applies under the JEC regime.

The CII is available exclusively to SMEs and covers downstream innovation activities, notably the design and testing of prototypes or pilot installations for new products.

• Rate: 20% of eligible expenses (rate reduced for expenses incurred from 15 February 2025).
• Annual cap: Eligible expenses limited to €400,000 per year per company.

Brazil grants tax incentives for technological research and innovation under Law No. 11.196/2005 (Lei do Bem).

Eligibility is restricted to legal entities taxed under the Lucro Real regime that maintain tax regularity (regularidade fiscal). The additional exclusion provided under Article 19 applies only up to the amount of taxable income (lucro real for IRPJ and the corresponding CSLL calculation base) in the relevant fiscal year. Accordingly, the benefit is only applicable where the company has taxable income. Any excess exclusion cannot be carried forward.

• Accelerated amortization of acquired intangible assets used in R&D activities.

These accelerated depreciation and amortization mechanisms do not apply for purposes of calculating the CSLL base, as expressly restricted by statute.

Eligible expenditures generally include:

• Personnel: Salaries and social charges of researchers and technical staff directly engaged in R&D activities.
• Contracts: Payments to universities, research institutions (ICTs), and other entities for the execution of qualifying R&D projects.

Expenditures of a purely administrative, commercial, or non-technical nature are not eligible.

The law requires that eligible R&D expenditures be properly identified and controlled in specific accounting records. Failure to comply with statutory requirements may result in disallowance of the benefit and recovery of unpaid taxes with applicable charges.

The Lei do Bem incentives are subject to statutory compatibility rules and may not be cumulatively applied with certain other federal incentive regimes where there is overlap in the underlying cost base or benefit, as defined in the law.

Annual Reporting (FORMP&D) Companies applying the incentive must submit the annual R&D report (FORMP&D) to the Ministry of Science, Technology and Innovation (MCTI). Under Portaria MCTI No. 9.563/2025, submission is permitted until 31 August of the year following the fiscal year in which the expenditures were incurred.

Tax Regularity and Sanctions Maintenance of tax regularity is required. Non-compliance or improper use of the incentive may result in loss of the benefit and recovery of unpaid taxes, plus interest and penalties, in accordance with the statute.

Non-Refundability and No Carry-Forward The additional exclusion under Article 19 is limited to the taxable base of the respective fiscal year. Any unused portion cannot be refunded or carried forward to subsequent years.

Italy – R&D and Innovation Incentives (2026 Overview)

Italy offers a strong and structured incentive framework for companies investing in research, development, and intellectual property. For 2026, the system combines a confirmed R&D tax credit, a targeted design incentive, and a new depreciation-based investment regime for advanced assets.

The R&D tax credit remains a key element of the Italian incentive system:

• Rate: 10% of eligible R&D expenses
• Annual cap: €5 million
• Duration: Confirmed through 2031

It applies to resident companies and Italian permanent establishments across sectors and company sizes, subject to applicable eligibility, compliance, and documentation requirements, and covers fundamental research, industrial research, and experimental development.

For 2026, Italy provides a targeted incentive for design and aesthetic development:

• Rate: 10%
• Cap: €2 million
• Validity: 2026 only

Key features:

• Applies to eligible design and aesthetic conception activities
• Subject to a national budget cap
• Requires formal communication to MIMIT

This creates a time-sensitive opportunity for companies with design-driven innovation activities.

Italy introduces a new system to support industrial and digital transformation investments.

Enhanced Depreciation (Iper-ammortamento)

• Applies to qualifying Industry 4.0 assets and selected energy investments
• Provides a significant uplift in the tax depreciation base

Incentive levels:

• Up to €2.5M: +180%
• €2.5M–10M: +100%
• €10M–20M: +50%

Availability: 2026 to September 2028

This mechanism enables substantial tax savings on capital investments, especially for digitalization and automation projects. Its application is subject to statutory conditions, including production-origin requirements as set out in the law and implementing communication and certification procedures.

Italy continues to offer a powerful incentive for intellectual property development:

• Benefit: 110% additional tax deduction on qualifying R&D costs
• Duration: 5-year option (renewable)

Eligible assets:

• Software (copyright-protected)
• Industrial patents
• Designs and models

Additional advantage:

• Possibility to include R&D costs from the previous 8 years once IP protection is obtained

This regime is a cost-based super-deduction mechanism and does not apply to income generated by IP.

Companies can still benefit from the Transizione 4.0 investment tax credit regime if:

• Orders were placed and accepted by 31.12.2025
• At least 20% advance payment was made
• Delivery is completed by 30.06.2026

This creates a final opportunity to secure legacy benefits alongside the new framework.

• Italy provides long-term certainty for R&D investments (10% credit until 2031)
• A one-year design incentive (2026) creates additional upside for product-driven sectors
• A new enhanced depreciation regime supports large-scale industrial investments
• The Patent Box significantly improves tax efficiency for IP-heavy businesses

Bottom Line

Italy in 2026 combines:

• Stable R&D funding
• Targeted short-term incentives (Design)
• Strong support for digital and industrial investments
• Attractive IP tax optimization tools

This makes Italy a competitive location for innovation, product development, and advanced manufacturing investments.

Canada’s primary instrument for supporting business innovation is the Scientific Research and Experimental Development (SR&ED) tax incentive program. It provides:

• an income tax deduction for eligible SR&ED expenditures; and
• an investment tax credit (ITC) that may reduce taxes payable and, in some cases, generate a refund.

1. Scientific Research and Experimental Development (SR&ED) Investment Tax Credit (ITC)

The SR&ED ITC rate and refundability depend on the type of claimant (e.g., CCPC, other corporation, individual, trust) and, for corporations, factors such as taxable income and taxable capital.

Enhanced rate (35%)

Current law:

• Eligibility: Generally available to Canadian-controlled private corporations (CCPCs), subject to the program rules.
• Expenditure limit: The enhanced rate applies up to an annual expenditure limit (generally CAD 3 million), which may be reduced based on taxable capital.
• Phase-out: The enhanced expenditure limit is reduced when taxable capital employed in Canada exceeds specified thresholds (generally within the CAD 10M–50M range).
• Refundability: Refundability is conditional and depends on the claimant’s status, taxable income, taxable capital, and applicable rules. It is not automatically “100% refundable.”

Proposed legislative changes (not yet enacted):

The Department of Finance has proposed reforms that would:

• extend enhanced-rate eligibility to certain eligible Canadian public corporations;
• increase the enhanced-rate expenditure limit from CAD 3.0M to CAD 4.5M;
• increase the taxable-capital phase-out thresholds from CAD 10M/50M to CAD 15M/75M; and
• restore capital expenditure eligibility (see below).

These changes are proposed to apply to taxation years beginning on or after December 16, 2024, subject to enactment.

General rate (15%)

• Eligibility: Generally applies to non-CCPC corporations and to CCPC expenditures exceeding the enhanced-rate expenditure limit.
• Refundability: For many corporations, the 15% ITC is generally non-refundable, though refundability may apply in certain cases and differs for individuals and trusts.
• Carry-over: Unused ITCs may be carried back 3 years or forward 20 years.

2. Eligible expenditures (overview)

SR&ED incentives are calculated based on allowable SR&ED expenditures, which may include current and capital expenditures, depending on the taxation year and applicable legislation.

Proposed change (not yet enacted):

The government has proposed restoring the eligibility of certain capital expenditures for both the deduction and ITC components for taxation years beginning on or after December 16, 2024, subject to conditions and enactment.

Common expenditure categories

Salary or wages For employees directly engaged in SR&ED. Wages for SR&ED work performed outside Canada may be claimable only under specific conditions, must directly support SR&ED carried out in Canada, and are subject to a 10% limitation mechanism.

Materials Materials consumed or transformed in the performance of SR&ED.

Contract expenditures / third-party payments SR&ED contract expenditures and third-party payments are generally described as 80% eligible for ITC, primarily for arm’s-length arrangements, and subject to detailed rules and limitations, including different treatment for non–arm’s-length relationships.

Overhead

Claimants may use either:

• the traditional method (actual overhead allocation), or
• the proxy method, where the prescribed proxy amount (PPA) is 55% of the salary base.

3. Administration and compliance

Filing deadline Corporations must file prescribed SR&ED information by the SR&ED reporting deadline, which is effectively 18 months after tax year-end. Claims filed after this deadline are not accepted for those expenditures.

Support services The CRA offers the First-Time Claimant Advisory Service (FTCAS) for eligible first-time or infrequent claimants. This service provides guidance on preparing a claim but does not constitute approval or funding.

Pre-claim consultations are no longer available as of January 1, 2026.

Forms

Corporate claimants generally file:

• Form T661 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim; and
• Schedule T2SCH31 – Investment Tax Credit – Corporations

with their corporate income tax return.

For standard research and development activities:

• Large companies: up to 2% of eligible R&D expenses, or up to 35% of the increase in R&D spending compared with the previous year
• Mid-sized companies: 8%–15% of eligible R&D expenses, or up to 50% of the increase in R&D spending
• Small and medium-sized enterprises (SMEs): 25% of eligible R&D expenses, or up to 60% of the increase in R&D spending

Higher credit rates apply to technologies defined in government regulations as advanced or future-oriented. These rates are higher than those for general R&D.

• Large companies: 20%–30%
• Mid-sized companies: 20%–30%
• SMEs: 30%–40%

The highest R&D tax credit rates apply to technologies designated as strategically important to Korea’s industrial competitiveness. These include sectors such as semiconductors, batteries, displays, hydrogen, future mobility, vaccines, and biopharmaceuticals.

• Large and mid-sized companies: 30%–40%
• SMEs: 40%–50%

Enhanced incentives for national strategic technologies are currently scheduled to apply through December 31, 2027.

South Korea also provides tax credits for investments in machinery, equipment, and facilities used for R&D or for activities related to designated technology categories.

Typical base credit ranges include:

• Large companies: approximately 15%
• Mid-sized companies: approximately 15%
• SMEs: approximately 25%

In addition, an incremental investment tax credit of up to 10% may apply to the portion of qualifying investment that exceeds the company’s average investment level over the previous three years, subject to the applicable statutory rules.

The refundable tax offset equals:

Company tax rate + 18.5%

The final offset percentage therefore depends on the applicable corporate tax rate. (For example, at a 25% corporate tax rate, the offset would equal 43.5%.)

The offset is refundable. If the offset exceeds the entity’s income tax liability, the excess may be refunded in cash.

Refundability is subject to integrity rules under tax law, including limits on cash refunds (e.g. a general cap on refundable tax offsets, excluding certain activities such as clinical trials).

R&D intensity is calculated as:

Eligible R&D expenditure ÷ Total expenditure (for tax purposes)

• Intensity Tier 1 (0–2%): Company tax rate + 8.5%
• Intensity Tier 2 (>2%): Company tax rate + 16.5% (applies only to the portion above the 2% threshold)

Unused non-refundable offsets may generally be carried forward to future income years, subject to applicable tax continuity rules.

Experimental activities:

• Whose outcome cannot be known or determined in advance based on current knowledge, information or experience;
• Conducted for the purpose of generating new knowledge;
• Conducted through a systematic progression of work.

Activities that are directly related to or directly supporting core R&D activities.

Where such activities produce goods or services, they must satisfy a dominant purpose test.

Activities must be registered with the administering authority to be eligible.

Routine commercial production, market research, cosmetic modifications, and other excluded activities do not qualify.

Eligible R&D expenditure may include:

• Salary and wages for employees engaged in R&D activities;
• Contractor expenditure (subject to eligibility conditions);
• Decline in value (depreciation) of R&D assets;
• Supplies and certain overheads to the extent they are directly related to R&D activities;
• Other eligible notional deductions under the legislation.

Expenditure must be directly related to eligible R&D activities and may need to be apportioned where only partly used for R&D.

Certain expenditure types (e.g., interest expenses and building costs) are excluded.

For income years commencing on or after 1 July 2021, the enhanced R&D offset rates apply to eligible R&D expenditure up to AUD 150 million per income year.

Expenditure above this threshold receives an offset at the prevailing corporate tax rate (without the additional R&D uplift).

An entity must generally incur more than AUD 20,000 in eligible R&D expenditure in an income year to access the incentive.

This threshold does not apply where R&D is conducted by a registered Research Service Provider or Cooperative Research Centre on behalf of the entity. All other eligibility requirements must still be met.

R&D activities conducted overseas are only eligible where covered by an Advance Finding issued by the administering authority.

Approval must generally be obtained before or during the relevant income year.

The program operates under a dual-agency model:

• The Department responsible for industry (through Innovation and Science Australia functions) administers activity registration and findings;
• The Australian Taxation Office (ATO) administers the tax offset and reviews expenditure claims.

Entities must register their eligible R&D activities for each income year within 10 months after the end of the income year before claiming the tax offset.

Registration is a prerequisite to claiming but does not constitute automatic approval.

Entities must maintain contemporaneous documentation sufficient to substantiate:

• The experimental nature of core R&D activities;
• The systematic progression of work;
• The relationship between claimed expenditure and registered R&D activities.

Records must be created at the time the activities are conducted, not retrospectively.

Both administering bodies may conduct compliance reviews and audits.

The EFIDT incentive rewards companies that increase their investment in research and development. The credit is calculated based on the incremental increase in eligible R&D expenditure and investment compared with the taxpayer’s historical R&D spending.

• Credit rate: A tax credit equal to 30% of the incremental eligible R&D expenditure and investment.
• Incremental calculation: The incremental amount corresponds to the excess of the current year’s eligible R&D expenditure and investment over the average eligible R&D expenditure and investment incurred during the previous three fiscal years. For taxpayers without sufficient historical data, the baseline may be determined in accordance with the program rules.
• Eligible taxpayers: Taxpayers subject to ISR in the general tax regime that carry out research and technological development activities. Applicants must be current with their tax obligations and must not appear on the lists referenced in Articles 32-D and 69-B of the Federal Fiscal Code.
• Maximum credit per taxpayer: Up to MXN 50 million per fiscal year may be authorized for each taxpayer.
• Annual program ceiling: The federal government establishes an annual maximum allocation of MXN 1.5 billion for the program. Applications are evaluated competitively and authorized by an Interinstitutional Committee until the annual budget is exhausted.
• Technical evaluation requirement: Projects must obtain a minimum score of 85 points in the technical evaluation carried out as part of the Committee’s approval process.

The incentive applies to expenses and investments directly related to research and technological development projects that generate scientific or technological advancement.

Eligible expenditures must comply with the categories defined in the EFIDT rules, operating guidelines, and annexes, and must generate direct benefits in Mexico. Expenses may be incurred in Mexico or, in limited cases, abroad, provided that the main benefit and execution of the project remain in Mexico and all program conditions are met.

Eligible expenditure and investment categories are those defined in the EFIDT regulatory framework and may include, among others:

• R&D personnel: Salaries and wages of researchers and technical personnel directly involved in the project.
• External technical services: Payments to external researchers or specialized service providers participating in the project.
• Equipment and technology: Machinery, laboratory equipment, instruments, and specialized software required for the R&D activities (subject to the rules on eligible cost recognition, including proportional use or depreciation where applicable).
• Experimental development: Costs related to the development and testing of experimental prototypes or pilot systems.
• Collaboration with research institutions: Payments made to Mexican higher education institutions or Public Research Centers participating in the project.

Non-eligible costs include, among others, administrative or overhead expenses not directly linked to the project, marketing or commercialization costs, and routine production or quality control activities.

All expenditures must fall within the eligible categories established in the EFIDT regulatory framework and must be directly attributable and properly allocated to the authorized R&D project.

The EFIDT program operates under the authority of an Interinstitutional Committee composed of representatives from the Ministry of Finance (SHCP), the Ministry of Economy, the Tax Administration Service (SAT), and the Secretaría de Ciencia, Humanidades, Tecnología e Innovación (SECIHTI). The SHCP representative presides over the Committee and has the casting vote. The regulatory framework also establishes a Technical Secretariat and a formal technical evaluation process for the review of project applications.

Applications must be submitted through the official EFIDT online system.

• Application period: The submission window is defined annually in the official call (convocatoria) and typically runs from late February to the end of April.
• Application requirements: Applicants must submit a technical description of the project, a detailed budget of eligible expenditure and investment, and supporting documentation through the system using their electronic tax signature (e.firma).
• Project duration: Authorized projects must be completed within the period determined in the approval, according to the nature of the project, with a maximum duration of four years.
• Intellectual property: Patentable advances resulting from authorized projects must be registered in Mexico and in the taxpayer’s name, in accordance with the program rules.
• Use of the credit: Authorized credits may be applied against ISR for up to 10 years, until fully used. The right to apply the credit is personal and non-transferable, including in cases of merger or spin-off.
• Reporting obligations: Beneficiaries must submit the required reports through the EFIDT system, including an Impact and Benefits Report in January of the year following authorization, a report issued by an independent certified public accountant in February, as well as the corresponding financial report, in accordance with the EFIDT rules and annual guidelines.

Indonesia has a national R&D super deduction and a separate enhanced regime for IKN (Nusantara). In both cases, the incentive is available only for qualifying activities that meet specific legal and technical requirements.

A. National R&D incentive (PMK 153/2020) – up to 300%

Companies carrying out qualifying R&D in Indonesia may benefit from:

• 100% deduction of qualifying R&D costs
• Up to 200% additional deduction, depending on the result of the R&D activity

The additional deduction may include:

• +50% if the R&D results in IP in the form of a patent or plant variety protection right registered in Indonesia
• +25% if that IP is also registered abroad
• +100% if the R&D reaches commercialization
• +25% if the relevant R&D is carried out in cooperation with Indonesian government R&D institutions and/or higher education institutions

Important conditions:

• Only eligible R&D activities qualify
• The activity must meet statutory criteria, including being aimed at a new finding, based on an original concept or hypothesis, involving uncertainty of outcome, being planned and budgeted, and being intended to create something transferable or marketable
• Certain activities are expressly excluded from the additional deduction, including:
  • routine engineering in commercial production
  • routine quality control and testing
  • routine repairs during commercial production
  • routine product improvement
  • market research

Practical limitations:

• The additional deduction is based on qualifying cost categories defined by law
• It is linked to statutory outcomes such as IP registration and/or commercialization
• It is calculated using relevant qualifying R&D costs from up to five prior tax years
• The amount usable in a given year is capped at 40% of taxable income before the additional deduction, with unused excess carried forward

B. IKN (Nusantara) incentive (PMK 28/2024) – up to 350%

A separate, enhanced regime applies to qualifying taxpayers with activities in Indonesia’s new capital, IKN.

Structure:

• 100% base deduction
• Up to 250% additional deduction

The enhanced benefits may include:

• +50% for domestic IP registration
• +25% for additional international IP registration
• +125% for commercialization
• +50% for cooperation with Indonesian public institutions

Additional incentive:

• Up to 250% deduction for certain vocational training, internships, and competency-based workforce development activities in IKN

This is a separate regime with its own eligibility rules, not simply an extension of the national R&D incentive.

Since 1 January 2025, Indonesia has applied global minimum tax rules under PMK 136/2024. These rules affect only multinational groups within Pillar Two scope, generally those with annual consolidated revenue of at least EUR 750 million under the GloBE threshold test.

Key implication:

• If the effective tax rate in Indonesia falls below 15%, a top-up tax may apply under the GloBE framework

What this means in practice:

• Tax incentives such as tax holidays or R&D benefits may still reduce tax, but for in-scope groups the effective benefit can be partially offset under the Pillar Two rules
• The final impact depends on the group’s jurisdictional effective tax rate calculation, available exclusions, and overall structure under the GloBE framework

Application

For the additional R&D deduction under PMK 153/2020, the application is generally initiated through the OSS system. Typical requirements include:

• a detailed R&D proposal
• a tax clearance certificate / tax compliance document (Surat Keterangan Fiskal)

Technical review

Projects are reviewed by the competent government authority responsible for science and technology, with coordination possible with other relevant ministries or agencies depending on the sector. The review assesses:

• whether the activity qualifies as R&D under the regulation
• whether the proposal meets the applicable regulatory criteria

Reporting

Companies using the R&D incentive must report:

• R&D costs
• use of the incentive

Non-compliance may lead to:

• adjustments to the claimed tax benefit
• potential denial or correction of the additional deduction claimed

Key takeaway

Indonesia offers attractive R&D and investment tax incentives, but the benefit depends on eligibility, technical qualification, outcomes, and compliance. For large multinational groups within Pillar Two scope, global minimum tax rules may reduce the effective benefit of those incentives. With proper structuring, documentation, and reporting, companies may significantly improve their after-tax position while remaining compliant with Indonesian and international tax rules.

Saudi Arabia is introducing four major SEZs (KAEC, Ras Al-Khair, Jazan, and Cloud Computing) designed to offer highly competitive tax and operational conditions for targeted industries.

What this means:

• Reduced corporate income tax (as low as 5% in certain cases)
• Potential exemptions on withholding tax, customs duties, and VAT
• Sector-specific incentives depending on the zone and activity

Current status: The regulatory frameworks have been approved and are expected to become effective in early April 2026.

Implication for companies:

• You can already prepare market entry and apply for licenses
• Tax benefits are not yet applicable to current filings (Feb/March 2026)
• Planning should start now, but execution depends on final legal activation

The RHQ regime is currently the most powerful tax structuring tool for multinational companies operating in Saudi Arabia.

Key benefits:

• 0% corporate income tax on qualifying RHQ income
• 0% withholding tax on certain payments to foreign affiliates
• Valid for 30 years (renewable)

What this means for R&D: While not limited to R&D, the RHQ structure can be used to centralize strategic, management, and innovation-related functions in Saudi Arabia under a highly favorable tax regime.

Core requirements:

• Minimum 15 full-time employees within 1 year
• At least 3 senior-level executives
• Demonstrable economic substance (real operations, not just a legal shell)

Implication for companies:

• Immediate opportunity to build a tax-efficient regional structure
• Particularly relevant for groups managing innovation, IP strategy, or regional R&D coordination

Saudi Arabia’s tax authority (ZATCA) does not provide R&D tax credits, but current compliance measures can reduce financial risk.

Key points:

• 15% withholding tax typically applies to royalties and IP-related payments
• Other service payments may fall under different WHT treatments depending on classification

Penalty relief (until 30 June 2026):

• Companies can correct past tax filings without penalties
• Requires full disclosure and payment (or installment plan) of the underlying tax

Implication for companies:

• Opportunity to clean up historical structures (e.g. R&D service flows, IP payments)
• Reduces risk before scaling operations in the Kingdom

The Research, Development and Innovation Authority (RDIA) provides direct, non-dilutive funding for R&D projects.

Focus areas (national priorities):

• Health & Wellness
• Sustainability & Essential Needs
• Energy & Industrials
• Economies of the Future (AI, robotics, semiconductors, etc.)

How funding works:

• Multiple grant programs (basic research, applied R&D, pilot/flagship projects)
• Different funding rates and caps depending on company size and project type
• Often requires a Saudi-based entity or partnership

Implication for companies:

• Strong co-funding opportunities for R&D activities
• Particularly attractive for companies willing to localize innovation activities

Bottom line for companies

Saudi Arabia’s R&D support model is not tax-credit driven, but still highly competitive:

• Short term: Use RHQ to establish a tax-efficient regional structure
• Mid term: Prepare for SEZ entry once incentives are fully active
• Ongoing: Leverage RDIA grants to co-finance R&D projects
• Risk management: Use ZATCA’s relief initiative to regularize past tax positions

This combination allows companies to achieve both tax efficiency and direct funding support, even without a classic R&D tax credit.

Law No. 5746 provides incentives for companies that establish certified R&D Centers or Design Centers, as well as for certain approved R&D or design projects and other activities covered by the law.

100% R&D / Design Deduction

Companies may deduct 100% of eligible R&D, innovation, and qualifying design expenditures from their corporate tax base. If the deduction cannot be fully used in the relevant year, the unused portion may be carried forward and increased by the applicable annual revaluation rate.

Additional Deduction for Increased R&D Spending

Companies meeting the applicable performance conditions may benefit from an additional deduction of up to 50% of the year-on-year increase in R&D or design expenditures, in line with the criteria and decisions applicable under the law.

Minimum Personnel Requirements

To qualify as an official center under the statutory baseline:

• R&D Centers must employ at least 50 full-time equivalent R&D personnel.
• Design Centers must employ at least 10 full-time equivalent design personnel.

These thresholds may be reduced by presidential decision for certain sectors or policy purposes.

Venture-Capital Investment Requirement

If the amount of R&D or design deduction claimed in the annual corporate tax return reaches TRY 1,000,000 or more, the taxpayer must transfer 2% of that amount to a temporary passive account, subject to the statutory annual cap. That amount must then be invested through the mechanism defined by the legislation, including eligible venture capital investment funds, venture capital investment trusts, or qualifying entrepreneurial companies within the legally recognized framework. If the obligation is not fulfilled, the law provides for a tax consequence affecting part of the deduction.

Türkiye also provides significant personnel-related incentives for qualifying R&D and design activities.

Income Tax Withholding Incentive

A substantial portion of the income tax calculated on the wages of eligible R&D and design personnel is supported through the withholding incentive mechanism:

• 95% for personnel holding a PhD or a master’s degree in basic sciences
• 90% for personnel holding a master’s degree or a bachelor’s degree in basic sciences
• 80% for other qualifying R&D or design personnel

This benefit is subject to the statutory ceiling linked to 40 times the gross minimum wage.

Social Security Premium Support

The legislation provides support equal to 50% of the employer’s share of social security premiums for qualifying personnel.

Support Personnel

Certain support personnel directly related to qualifying R&D or design activities may also benefit from the incentives, but their number may not exceed 10% of the total full-time R&D or design personnel.

Work Outside the Center or Zone

Some qualifying activities may be carried out outside the physical R&D center or technology development zone without losing eligibility for incentives, but only within the limits and conditions defined by the legislation and applicable executive decisions.

Stamp Tax Exemption

Documents relating to qualifying R&D and design activities, including eligible wage papers, may benefit from stamp tax exemption within the statutory framework.

Companies operating in Technology Development Zones (Technoparks) may benefit from a separate regime for qualifying software development, R&D, and design activities carried out within the zone framework.

Corporate Tax Exemption

Profits derived from qualifying software development, R&D, and design activities carried out within the scope of the law in technology development zones are exempt from corporate tax until 31 December 2028.

VAT Exemption for Software

Software developed in a technology development zone may benefit from VAT exemption, subject to the qualifying software categories and legal conditions.

Venture-Capital Investment Requirement

If the annual profit benefiting from the relevant corporate tax exemption reaches TRY 1,000,000 or more, the taxpayer must transfer 2% of the relevant exempt amount to a temporary passive account and use it through the statutory venture-capital investment mechanism.

Customs Duty Exemption

Imported equipment and materials used for qualifying R&D or design activities may benefit from customs duty exemption, subject to the documentation and conditions required under the relevant rules.

To maintain eligibility for these incentives, companies must comply with the applicable documentation, monitoring, and reporting requirements. Depending on the regime, this may include:

• maintaining detailed records of projects, personnel, and eligible expenditures
• submitting required reports and supporting documentation to the competent authorities
• complying with project approval, zone-management monitoring, and documentation procedures, particularly in technoparks

In addition, taxpayers generally may not benefit twice from overlapping incentives for the same qualifying R&D, design, or software activity where the legislation prohibits cumulation.

In practice, Türkiye’s incentive framework can substantially reduce the cost of carrying out qualifying R&D, design, and software activities, particularly for companies that establish certified centers or operate within technology development zones.

Spain provides an R&D incentive framework under the Corporate Income Tax Law (Ley 27/2014, “LIS”), consisting of:

• Corporate Income Tax deductions for R&D and Technological Innovation (Articles 35 and 39 LIS), and
• Tax depreciation incentives for assets used in R&D.

R&D Tax Credit (Scientific Research & Development)

• Base rate: 25% of eligible R&D expenses.
• Qualified researchers: Additional 17% deduction for costs of qualified researchers exclusively assigned to R&D activities.
• Investments: 8% deduction for investments in tangible and intangible fixed assets (excluding land and buildings) exclusively used for R&D, subject to statutory permanence/holding requirements.

Technological Innovation (TI) Tax Credit

• Standard rate: 12% of eligible technological innovation expenses.
• Cap for advanced technology acquisition: Where the TI base includes acquisition of advanced technology (e.g., patents, licenses, know-how, designs), that component of the base is capped at €1 million per year.

Taxpayers may elect to apply R&D/TI deductions under a regime that:

• Applies the deduction with a 20% reduction (i.e., 80% of its nominal value), and
• Allows requesting payment (“abono”) via the tax return where there is insufficient tax liability, subject to statutory conditions and caps.

Key Conditions

• At least one year must have elapsed since the end of the tax period in which the deduction was generated.
• Compliance with the statutory workforce maintenance requirement.
• Reinvestment of an equivalent amount into qualifying R&D/TI expenses or assets within 24 months.
• Supporting documentation as required by law (including an informe motivado or a valuation agreement, as applicable).

Annual Caps

• €3 million per year for the combined amount of R&D and TI deductions.
• €1 million per year for the TI component.

The Netherlands supports business R&D through the WBSO (Wet vermindering afdracht loonbelasting en premie voor de volksverzekeringen), a volume-based fiscal incentive that reduces payroll tax and national insurance contributions for employers performing qualifying R&D (S&O) and provides a fixed income tax deduction for eligible self-employed entrepreneurs.

1. WBSO (Payroll Tax Reduction for R&D)

The WBSO allows employers to reduce the wage tax and national insurance contributions due on salaries of employees performing approved S&O activities. The benefit is calculated on the total approved S&O base (S&O wage costs plus, if chosen, additional S&O costs and expenditures).

2026 Rates & Thresholds (companies with employees)

• 36% of the first €380,000 of eligible S&O base
• 16% of the S&O base exceeding €380,000
• Start-up rate: 50% on the first €380,000 for companies officially designated as start-ups by RVO (meeting statutory criteria)

There is no absolute cap on total S&O volume. The reduction is limited to the amount of payroll tax due; payroll tax cannot be reduced below zero.

2. Eligible Expenditures

The S&O base consists of:

• S&O wage costs (approved S&O hours × S&O hourly wage as determined by RVO), and
• Either a fixed lump sum (forfait) for other costs and expenditures, or
• Actual S&O costs and expenditures.

The method must be chosen in the first application of the calendar year and applies to all applications in that year.

Option A – Fixed Sum (Forfait)

• Simplified calculation based on approved S&O hours
• €10 per S&O hour for the first 1,800 hours per calendar year
• €4 per S&O hour for all additional hours
• If no historical wage data is available, a statutory forfaitaire hourly wage may apply in accordance with RVO rules

Option B – Actual Costs & Expenditures

• Directly attributable S&O costs and investments in new business assets may be claimed
• Costs and expenditures must be directly attributable and exclusively serviceable to S&O
• Detailed administrative documentation is required (invoices, proof of payment, allocation to project)

3. Self-Employed Entrepreneurs (ZZP)

Self-employed individuals who perform at least 500 S&O hours in a calendar year may qualify for a fixed S&O deduction in their income tax return.

S&O Deduction

• The annual S&O deduction amount is determined by the Ministry of Economic Affairs and published for each calendar year
• An additional starter deduction applies for qualifying start-ups
• Only S&O hours performed within the approved application period count toward the 500-hour requirement
• The entrepreneur must also meet the general 1,225-hour income tax entrepreneur criterion to apply the deduction

4. Application & Administration

Application

• Must be filed in advance via the RVO online portal
• WBSO cannot be applied retroactively
• The application period must be at least 3 consecutive calendar months and runs automatically until 31 December

Deadlines (Companies with Employees – S&O Withholding Agents)

• Applications may be submitted until the last day of the month preceding the start month
• For a start date of January 1, the deadline is December 20 of the preceding year
• Maximum 4 applications per calendar year

Deadlines (Self-Employed – S&O Taxpayers)

• The application period starts on the date of submission and runs until 31 December
• Application must be submitted before S&O hours are performed
• Only S&O hours performed after submission are eligible

Reporting & Compliance

• Realised S&O hours (and, if applicable, realised costs and expenditures) must be reported to RVO within 3 months after the end of the calendar year (no later than 31 March of the following year)
• Companies must maintain a mandatory S&O administration including:
  • Project documentation
  • Daily time tracking per employee per project
  • Cost and expenditure documentation if actual costs are claimed
• Failure to comply may result in correction decisions, repayment of benefits, and administrative penalties.

With the Swiss Supplementary Tax (QDMTT) now ensuring a $15%$ effective tax rate for large MNEs, several cantons have implemented "Pillar Two-friendly" incentives that are recognized as income rather than a tax reduction:

• Canton of Zug (Location Development Act): Effective January 1, 2026, Zug has fully implemented the Location Development Act (LDA). It provides financial contributions and Qualified Refundable Tax Credits (QRTCs) for innovation and sustainability. The canton has allocated a budget of CHF 150 million annually for these measures through 2028.
• Canton of Basel-Stadt (Innovation Fund): The region's "Standortpaket" is operational, featuring a fund of up to CHF 500 million annually. This supports innovation and high-density R&D activities, specifically targeting the life sciences, biotech, and pharma sectors.
• Qualified Refundable Tax Credits (QRTCs): Following the lead of Basel and Zug, multiple cantons now offer credits that can be paid out in cash if they exceed the tax liability. Under OECD rules, these are treated as "income," preventing them from being "clawed back" by the global minimum tax.

While there are no direct R&D tax credits at the federal level, the Innosuisse agency remains the primary vehicle for federal support. It provides significant non-dilutive grants for science-based innovation projects, particularly those involving collaboration between private companies and Swiss research institutions.

Note on Loss Carryforwards: As of early 2026, the statutory period for carrying forward tax losses remains 7 years (Art. 67 DBG). While a parliamentary extension to 10 years has been approved, it is currently in a referendum phase and is not yet in force.

Taiwan R&D and Investment Tax Incentives Statute for Industrial Innovation (SII)

Taiwan offers corporate income tax credits to companies investing in R&D and specified investment categories under the Statute for Industrial Innovation (SII). These incentives aim to promote industrial innovation, enhance competitiveness, and support technological advancement.

The framework provides three core incentive regimes:

1. Standard R&D Tax Credit (Article 10)

Companies and limited partnerships conducting qualifying R&D in Taiwan may reduce their corporate income tax through one of two options:

Option A – 15% immediate credit

15% of qualifying R&D expenditure credited against the current year’s tax liability.

Option B – 10% multi-year credit

10% of qualifying R&D expenditure may be utilized over three years (the current year plus the two following years).

Annual cap: The credit may not exceed 30% of the company’s corporate income tax payable for that year.

Election rule: Once a company selects Option A or Option B, the choice cannot be changed.

Compliance condition: The applicant must not have committed major violations of environmental protection, labor, or food safety laws within the previous three years.

This is the standard R&D incentive available to qualifying enterprises.

2. Enhanced R&D & Advanced Process Equipment Incentive (Article 10-2)

Article 10-2 provides enhanced tax credits for companies that meet stringent eligibility requirements and engage in forward-looking R&D and advanced manufacturing investments.

25% tax credit For qualifying forward-looking innovative R&D expenditures.

5% tax credit For newly purchased machinery or equipment used in advanced manufacturing processes.

Annual cap: Each credit is limited to 30% of the corporate income tax payable.

Aggregate cap: When combined with other investment credits, total tax reduction is generally limited to 50% of the year’s corporate income tax payable.

Key requirements include:

• Meeting defined R&D scale and intensity thresholds (as specified in implementing regulations)
• Satisfying a statutory effective tax rate requirement
• Maintaining compliance with environmental protection, labor, and food safety laws (no major violations within three years)

If approved under Article 10-2, overlapping tax incentives for the same expenditures are not permitted.

This provision is particularly relevant for large-scale and strategic industries due to its high eligibility thresholds.

3. Digital, AI, and Energy Efficiency Investment Incentive (Article 10-1)

Applicable from 1 January 2025 to 31 December 2029, Article 10-1 supports investment in specified technology and sustainability categories.

Eligible investment categories include:

• Smart machinery
• 5G systems
• Cybersecurity solutions
• Artificial intelligence applications
• Energy saving and carbon reduction

Credit options:

• 5% credited in the current year, or
• 3% credited over three years

Investment range: NT$1 million to NT$2 billion per tax year.

Annual cap: 30% of corporate income tax payable.

Aggregate cap: Generally limited to 50% of corporate income tax payable when combined with other incentives.

Approval requires submission of an investment plan and review by the competent authority.

SME Considerations

The SII itself does not establish a separate SME-only R&D tax credit regime. However, SMEs may access additional incentives under the SME Development Act, subject to separate qualification criteria.

Strategic Implication for Companies

Taiwan’s SII framework allows companies to reduce corporate income tax when:

• Conducting structured R&D activities
• Investing in qualifying advanced manufacturing and technology upgrades
• Implementing AI, digitalization, and cybersecurity solutions
• Improving energy efficiency and reducing carbon intensity

For companies meeting the relevant eligibility criteria, Article 10-2 can further increase the effective post-tax return on strategic R&D and capital investment.