Article
Research and development
Research and development deduction as a key to overcome a crisis and gain a competitive advantage
The present situation is forcing companies to reassess their investment plans. However, history has shown several times that many companies that “invested their way” through the crisis have subsequently gained a significant competitive advantage. If you are entering the market with new ideas for products and processes, you can deduct a part of your expenses from the tax base in the form of a tax-deductible item for research and development. It is an effective way to gain savings that you can again invest in the development of your business.
How does the research and development deduction work?
Initially, you will reduce your tax base by the tax-deductible expenses incurred on research and development activities (“R&D“) in your tax return and, subsequently, you will deduct the expenses again as an item deductible from the tax base. At the current corporate income tax rate of 21%, you will reduce the expenses that would have been incurred anyway by one fifth!
Simply put, R&D represents activities of your employees aimed at developing new solutions and products, technologies, processes, software, etc. that can be found almost in all business sectors.
What do you need?
R&D deduction administration is less demanding compared to e.g. subsidies. Unlike some forms of public support, deduction for R&D is not subject to any approval by the authorities before utilisation. Before you start R&D activities, you will need to send a non-binding notification to the tax authority about your intention to utilise deduction. The notification must include the company ID and the title of the R&D project. After that, you will monitor the expenses incurred on R&D separately from the current expenses. Before claiming the deduction in a tax return, you will need to prepare project documentation that will describe the subject matter of R&D, the evaluation process of achieved results, the R&D expenses and specify expert employees responsible for the project.
Operating at a loss? No problem!
Even if the current complicated economic situation has affected you so significantly that you are reporting a tax loss, the above deduction is worthwhile. Expenses incurred on R&D that cannot be deducted due to a too low tax base or a tax loss can be carried up to three years forward and can be offset against future profits. The deduction in loss-years can help you create financial reserves for future years of economic recovery.
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