Perspectives

Grants and incentives program updates: April 2016

Global developments benefiting business

​This monthly publication provides a summary and updates on the latest global developments in research and development (R&D) credits, grants, and other inventive arrangements. More than 50 countries offer specific incentives and this newsletter focuses on identifying and outlining what could be the right incentives for your organization.

Brazil

Grants and incentives program update

Provisional Measure 694/2015 (PM), published on September 30, 2015, proposed the suspension of R&D incentives for calendar year 2016. To be converted into law, the PM had to be approved by the senate by March 8, 2016, but the deadline expired without approval. Therefore, the PM has been cancelled and suspended, and the R&D tax incentives remain available for 2016.

Contact your Brazil representative

Flávia Crosara
Partner
+55 19 3707 3124

Germany

E-mobility

Funding scheme e-mobility: Electric vehicles and charging infrastructure

This funding scheme supports the purchase of new electric vehicles, including electric buses and utility vehicles, especially for communities and municipalities. At least three new electric passenger cars must be included in each application.

The charging infrastructure needed to operate these vehicles can be funded as long as it is publicly accessible.

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Health care/material

Material innovations for a healthy lifestyle: proMatLife-polymers

The scheme focuses on conventional and new polymers that provide a significant improvement in, or allow for an expansion of, the scope of an application in pharmaceutical and medical technology. For example, the improvements can relate to:

  • Medically relevant material properties, such as immune tolerance, bio-compatibility, or long-term stability
  • Individualization and personalization of medical products
  • Mechanical stability against abrasion, tension, and pressure
  • Metal ions, metal sulphur, and metal oxygen batteries

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Electronic systems/e-mobility

SME-Innovative: Electronic systems and e-mobility

This funding scheme promotes SME-led R&D projects in the areas of “electronic systems” and “e-mobility:"

  • Electronic systems—Projects must be related to one of the following fields of development: mechanical engineering; automation technology; electrical and ICT industry; medical technology; or automotive industry, including automated driving
  • E-mobility—Projects should aim to increase energy efficiency, functionality, and/or reduce costs in one of the following areas: new electronic vehicle concepts, propulsion systems, electronic vehicle components and systems (including power electronics), or modular/functionally integrated components for e-mobility

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Contact your Germany representative

Isabel Antholz
Senior Manager
+49 (0) 40 32080 4910

Teresa Stahl
Consultant
+49 (0) 15 15800 3303

India

Changes proposed to super deduction on R&D

The 2016 budget announced on February 29, 2016 proposes to reduce the current 200 percent deduction for actual expenditure incurred on R&D to 150 percent as from financial year 2017–18, and to repeal the deduction entirely as from financial year 2020–21 so that only the actual expenditure incurred on R&D would be deductible. The president is expected to give assent to the proposal in May 2016.

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Patent box proposed

The 2016 budget announced on February 29, 2016 includes a proposal to introduce a patent box regime in India. The proposed measures are believed to be in line with the OECD “nexus approach” recommendation in Action 5 of the BEPS initiative. The salient features of the proposed patent box, which will apply as from April 1, 2016, if approved by the president, are as follows:

  • Royalty income of an Indian resident in respect of a patent developed and registered in India would be taxed at a rate of 10 percent (plus the applicable surcharge and cess) on a gross basis
  • Royalty income on patents and corresponding expenses would be excluded when computing the minimum alternate tax

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Contact your India representative

Sujit Parakh
Partner
+91 98 18876 355

 

Amit Nayyar
Senior manager
+91 96 54555 665

Latvia

Telecommunications

Support for investment projects

As of February 29, 2016, data processing, hosting, and related activities are eligible for a tax credit equal to 25 percent of the amount invested in fixed assets, including costs of servers, data center equipment, and buildings. To qualify for the incentive, the investment must exceed EUR 10 million over a five-year period, and the Latvian government must approve the project in advance. A similar incentive applies to manufacturing industries.

The 25 percent credit must be offset against corporate income tax liabilities in the year in which the project is completed. If there is insufficient liability in that year, the excess may be carried forward for offset in the following 16 years.

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Contact your Latvia representative

Kaspars Rumba
Senior manager
+371 2947 3733 or +371 6707 4174

Poland

Industrial R&D or development works

Projects that include research and/or development
(Sub-measure 1.1.1 of the Smart Growth Operational Program)

Administered by the National Center for Research and Development, this program supports development activities carried out by enterprises as part of projects that include industrial R&D works or development works (projects that do not provide development work cannot obtain financing). To benefit, a project must fall within the scope of one of the R&D&I funding priorities in the “National Smart Specialization.”

Eligible costs include remuneration and outsourcing costs (up to 50 percent in the latter case), depreciation and leasing costs for R&D infrastructure and equipment, costs incurred on intangible assets, land and buildings (depreciation), other operating costs, and up to 17 percent of indirect costs. The enterprise must incur at least EUR 3 million in qualifying costs (large enterprises) and EUR 0.5 million (SMEs).

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Textile industry

INNOTEXTILE (Measure 1.2 of the Smart Growth Operational Program)

Administered by the National Center for Research and Development, the program supports industrial research and experimental development or experimental development carried out by enterprises or a consortium of enterprises consisting of at least two entrepreneurs aimed at the textile industry.

To benefit, a project must fall within the scope of one of the R&D&I funding priorities in the “National Smart Specialization” (and must include R&D activities related to one of the following: development of new solutions for raw materials for the textile industry; development of new technologies limiting water, energy consumption, and environmental pollution for the textile industry; development of composite product technology (based on polymer, fibres, and textiles).

Development of multifunctional textiles and identification of new applications for these products; development and improvement of technologies and textronic materials; development and refining of solutions for the modern personalization and customization of products in the textile industry; and the development of tools to support production and sale processes in the textile industry.

Eligible costs include remuneration and outsourcing costs up to 60 percent (where the project is implemented independently) or 50 percent (where the project is implemented by a consortium), depreciation and leasing costs for R&D infrastructure and equipment, intangible assets, land and buildings, other operating costs, and up to 17 percent of indirect costs. The value of eligible costs of the project must be between EUR 116,000 and EUR 4.66 million.

The project implementation period may not exceed three years.

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Steel sector

INNOSTAL (Measure 1.2 of the Smart Growth Operational Program)

Administered by the National Center for Research and Development, the program supports industrial research and experimental development or experimental development carried out by enterprises or a consortium of enterprises consisting of at least two entrepreneurs aimed at the steel industry.

To benefit, a project must fall within the scope of one of the R&D&I funding priorities in the “National Smart Specialization.” Eligible costs include remuneration and outsourcing costs up to 60 percent (where the project is implemented independently) or 50 percent (where the project is implemented by a consortium), depreciation and leasing costs for R&D infrastructure and equipment, costs incurred on intangible assets, land and buildings, other operating costs, and up to 17 percent of indirect costs. There is no information about a minimum or maximum value of eligible costs or project value.*

*Description based on general information about Measure 1.2 OP SG. Specific criteria (INNOSTAL) will be known after the announcement of the call for proposals.

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Contact your Poland representative

Dominika Orzolek
Manager
+48 881 950 969 or + 48 22 348 35 72

Portugal

Incentives for qualification and internationalization of SMEs-projects for internationalization

SMEs undertaking projects to increase their productivity, flexibility, and response capacity in the global market can claim a cash grant of up to 45 percent on expenses incurred on information and communication technologies, the digital economy, brands, and designs, the development of new products and services, quality, knowledge transfers, eco-innovation, distribution, and logistics.

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Incentives for qualification and internationalization of SMEs

SMEs undertaking projects to increase their productivity, flexibility, and response capacity in the global market can claim a cash grant of up to 45 percent on expenses incurred on information and communication technologies, the digital economy, brands, and designs, the development of new products and services, quality, knowledge transfers, eco-innovation, distribution, and logistics.

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Contact your Portugal representative

Sérgio Paulo Oliveira
Partner
+35 12 1042 7527

South Africa

Black Industrialists Scheme (BIS)

The objective of the BIS is to accelerate the quantitative and qualitative increase and participation of black industrialists within South Africa and provide multiple access links to market. The BIS is a cost sharing grant ranging from 30 percent to 50 percent of qualifying costs, up to a maximum of ZAR 50 million per project. The amount of the grant depends on the level of black ownership and management, and the project’s economic benefit and value.

The BIS offers support for capital investment costs, feasibility studies for a bankable business plan, post-investment support costs, and business development services costs. An application must be submitted to the Department of Trade and Industry for pre-assessment and approval prior to the commencement of the project. This grant is payable against measurable milestones.

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Contact your South Africa representative

Tumelo Marivate
Associate director
+2711 209 6496

United Kingdom

Automotive/aerospace sector

Advanced Manufacturing Supply Chain Initiative (AMSCI)—West Midlands and Liverpool City Region

Funding opportunity

The West Midlands and Liverpool City Region (WMLCR) Advanced Manufacturing Supply Chain Initiative (AMSCI) is an GBP 8.3 million fund (grant or loan) that aims to support the development of capacity in the UK’s automotive and aerospace supply chains.

Key features

  • GBP 8.3 million fund is available for businesses located within the four Local Enterprise Partnerships (LEPS) of Greater Birmingham and Solihull, Black Country, Coventry and Warwickshire, and Liverpool City Region
  • Project support of between GBP 100,000 and GBP 2.1 million (grant or loan)
  • Open to automotive and aerospace supply chains
  • Sole or consortium bids
  • SMEs* or large companies
  • Projects must create and/or safeguard sustainable jobs

*The European Commission definition of an SME is an enterprise with less than 250 employees and either turnover not exceeding EUR 50 million or a balance sheet not exceeding EUR 43 million.

Expenditure supported

Funding is available to support projects in the following areas, subject to the EU state aid rules:

  • Purchase of capital equipment, including the provision of working capital
  • R&D activities that improve manufacturing equipment, systems, or processes
  • Training and skills development to support the project

Assessment criteria

Grants, rather than loans, may be available to support projects that can demonstrate one of the following criteria:

  • R&D projects where there is a high degree of technical uncertainty as to the outcome
  • Where supply chain capacity is being repatriated to the United Kingdom
  • Where the project is considered to be mobile and would be located outside the United Kingdom without grant support

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R&D tax relief

The UK budget announced on March 16, 2016, includes the following items that affect the R&D regimes: As previously announced, the main UK corporation tax rate will be reduced from 20 percent to 19 percent as from April 1, 2017, but the intention is now to further reduce the rate to 17 percent as from April 1, 2020.

Assuming the rate of credit remains at 11 percent, this will result in an increase in the net benefit for companies claiming the R&D expenditure credit (RDEC) from 8.8 percent to 8.9 percent of the qualifying R&D spend from April 1, 2017, and 9.1 percent from April 1, 2020.

For SME claimants, the reduction in tax rate will decrease the benefit available from the 230 percent super deduction. Profitable SMEs will see the benefit fall from 26 percent of the qualifying R&D spend to 24.7 percent from April 1, 2017, and 22.1 percent from April 1, 2020. For loss-making SMEs, the cash credit is calculated as 14.5 percent of the enhanced deduction and so, unless the rate of credit also is changed, will continue to represent 33.35 percent of the qualifying R&D spend.

The chancellor announced plans to collect more extensive data on companies receiving state aid and, as the SME R&D tax relief is state aid, this falls within the reporting requirements. Therefore, details of companies receiving tax credits and enhanced deductions exceeding EUR 500,000 will be published in due course.

Vaccine research relief will be scrapped from March 1, 2017. In addition to the above budget changes, readers are reminded that the RDEC is mandatory for large companies for expenditure incurred from April 1, 2016, when the historic 130 percent super deduction is abolished. RDEC is a different regime, providing a taxable, above-the-line credit, so companies will need to consider the accounting implications and any impact on the timing of tax payments.

The government also continues to encourage small businesses to make R&D claims, with the UK tax authorities (HMRC) launching a fully online process for applying for advance assurance. Applying for advance assurance is voluntary and a company can do this at any time before the first claim for R&D tax relief. If assurance is given, HMRC will allow the first three accounting periods of claiming the R&D relief without further enquiry.

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Energy

The Energy Catalyst—Round 4

The aim of the Energy Catalyst competition is to accelerate the commercialization of UK energy innovation. It will help deliver clean, affordable, and resilient energy. The competition will help businesses progress their innovations to commercial readiness. Innovative businesses and researchers from any sector can apply.

Proposed projects should address the three major challenges facing the energy industry. These are:

  • Low carbon
  • Security of supply
  • Affordability

Three awards are available:

  • Early-stage award: Technical feasibility
  • Mid-stage awards: Technology development
  • Late-stage awards: Pre-commercial technology validation

Innovations may include, for example:

  • New technologies
  • Enhancement or alternative applications of existing technologies
  • Development of components, sub-systems or systems
  • Integrated whole-system approaches
  • Enabling technologies for the energy system

Proposals that bring innovative new solutions into the energy sector and its supply chain are encouraged. Projects that include cross-cutting and enabling technologies and that can apply across a range of sectors also are encouraged to apply. For example, high-value manufacturing, advanced materials, sensors, and information and communication technologies (ICT).

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Contact your United Kingdom respresentative

Alistair Davies
Director
+44 (0) 2920 264272

United States

Virginia

R&D expenses credit

Virginia recently enacted legislation amending the R&D expenses credit, effective for tax years beginning on or after January 1, 2016. The amendment increases the credit amount under the basic computation of the credit, increases the aggregate cap on credit available to all taxpayers in each tax year, provides for an alternative computation methodology using the alternate simplified credit method, and extends the sunset date of the credit.

The amount of the R&D credit is increased to up to 15 percent of the first US$300,000 (previously, US$234,000) of the businesses’ Virginia qualified R&D expenses that exceed a base amount and 20 percent of the first US$300,000 (previously, US$234,000) of such expenses if the R&D was conducted in conjunction with a Virginia college or university. 

The annual aggregate credit available to all taxpayers is increased to US$7 million (previously US$6 million). The legislation also allows a taxpayer to elect to compute the credit using a simplified method in lieu of the current statutory method. Finally, the amendments extend the sunset date to tax years beginning before January 1, 2022 (previously January 1, 2019).

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Virginia

Major R&D expenses credit created

Virginia recently enacted legislation that creates a new nonrefundable credit available against corporate and personal income tax for taxpayers with Virginia qualified R&D expenses in excess of US$5 million for a tax year, effective for tax years beginning on or after January 1, 2016.

The major R&D expenses tax credit is available in an amount equal to 10 percent of the difference between the Virginia qualified R&D expenses paid or incurred by the taxpayer during the taxable year, and 50 percent of the average Virginia qualified R&D expenses paid or incurred by the taxpayer for the three taxable years immediately preceding the tax year for which the credit is being determined.

If the taxpayer did not pay or incur Virginia qualified R&D expenses in any one of the three tax years immediately preceding the taxable year for which the credit is being determined, the credit is available in an amount equal to 5 percent of the Virginia qualified R&D expenses paid or incurred by the taxpayer during the tax year.

The amount of the credit that may be claimed by the taxpayer for each year is limited to 75 percent of the taxpayer’s Virginia income tax liability for the year and any unused credit for the year may be carried forward and applied against the taxpayer’s income taxes in the next 10 taxable years.

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Federal Work Opportunity Credit: Retroactive extension

On March 7, 2016, the Internal Revenue Service (IRS) issued Notice 2016-22, providing guidance to employers claiming the Work Opportunity Tax Credit (WOTC). For certain employers seeking to qualify for the WOTC, the Notice provides additional time beyond the typical 28-day deadline to submit Form 8850 (Pre-screening Notice and Certification Request for the Work Opportunity Credit) to Designated Local Agencies (DLA).

The Protecting Americans from Tax Hikes Act of 2015 (PATH) retroactively extended the WOTC expiration date from December 13, 2014, to December 31, 2019, as applied to businesses that hire employees who fall within certain targeted groups.

In Notice 2016-22, the IRS acknowledges that the PATH’s retroactive extension of the WOTC may cause employers to need additional time for filing of Form 8850 with a DLA. To address this concern, Notice 2016-22 provides employers that hire a member of a targeted group on or after January 1, 2015, and on or before May 31, 2016, an extension until June 29, 2016, to submit a completed Form 8850.

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Contact your United States representative

Doug Tyler
Director
+1 212 436 3703

For more information

For more information on any of the programs listed above, please contact the in-country representative or your usual contact.

 

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Grants and incentives program updates: Global developments affecting research and development

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