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THE RESEARCH AND DEVELOPMENT TAX CREDIT

„In Austria 12% for fiscal years from 1.1.2016 of your research and development costs are covered by public funds. No other European location offers such generous support!“

THE RESEARCH AND DEVELOPMENT TAX CREDIT

The Austrian government provides financial support for businesses to carry out research and development. According to paragraph 108c of the Austrian income tax law (EStG), firms can claim the Research and Development Tax Credit from the tax office in respect of research activities and experimental development work that has already been completed.

The Research and Development Tax Credit is worth 12% for fiscal years from 1.1.2106 of the costs of eligible expenses for research and experimental development and is a legal entitlement for any innovative company that pays tax in Austria. Once approved by the tax office, the funding is paid in the form of a tax credit. A significant feature of the scheme is that firms remain entitled to funding even if they report a loss or if the results of their research are negative.

The Research and Development Tax Credit is a significant argument in favour of Austria as a location for innovative businesses. According to Statistics Austria, the scheme accounted for some EUR 500 million worth of funding paid out to business across a wide range of industries in 2013.

TIP: According to Statistics Austria, Austrian companies typically spend 3,1% of their total turnover for Research and development and are eligible for funding.

What can be funded?

For the purposes of the funding scheme, “research” is defined in paragraph 108c of the EStG and the accompanying legislation. Alongside this, the scheme also draws on the phraseology set out in the Frascati-Manual (2015), the OECD manual of standard practise for research statistics. This includes:
• New development projects such as prototypes or pilots
• New and further development of products
• New and further development of processes
• Experimental development
• Unsuccessful research and development

Research may be carried out internally or contracted out to an external company. The funding criteria vary accordingly:

In-house research refers to research carried out in Austria using a company’s own research staff. The Research and Development Tax Credit is worth 12% for fiscal years from 1.1.2016 of the costs of research and experimental development.
Contract research occurs when a company commissions a third party (for example another company or a university) to carry out research and development on its behalf. The organisation awarded the contract may be located within in Austria, or in another EU or EEA country.
The commissioning company can use the Research and Development Tax Credit to claim 2012% for fiscal years from 1.1.2016 of the value of the contract up to a maximum amount of EUR 1,000,000.
Note that research contracted out to another part of the commissioning company or to a member of the same group of companies as defined in paragraph 9 of the Corporation Tax Act is not eligible for funding.
To find out everything you need to know about funding for contract research, get in touch.

TIP: It is important to calculate and present research and development costs in a format that corresponds to the way they are set out in the relevant legislation. Pargraph 108c of the EStG and Appendix II of the Research and Development Tax Credit regulation provide an extremely comprehensive listing of the costs that can be used as the basis for calculating the amount to be funded.

Who can claim the Research and Development Tax Credit?

The Research and Development Tax Credit can be claimed retrospectively:
• By any company registered to pay tax in Austria and carrying out research and development activities within Austria OR contracting it out to third parties within the EEA
• Irrespective of the industry sector in which the company operates.

TIP: There a lot of companies who would not regard themselves as engaged in research in the traditional sense, and would therefore not consider themselves eligible for the Research and Development Tax Credit. In fact, many of these companies – in particular production and technology firms – do build prototypes and pilots or develop and improve products and processes, and these activities are allowable for the purposes of the Research and Development Tax Credit.

How to apply for the R&D Tax Credit

The procedure of claiming the Research and Development Tax Credit for in-house research and experimental development has been updated for applications made in respect of financial years beginning after 31 December 2011:

1. To claim the Research and Development Tax Credit, a company must first submit an application to the relevant tax office. This is usually made alongside the tax return for the completed financial year.

2. To submit an application for an assessment by the Austrian Research Promotion Agency (FFG) . This application includes outlines of up to 20 projects or key research areas. Each project or research area must be described in no more than 3,000 characters and without graphics or pictures. The FFG report determines whether or not the in-house research activities for which the company is claiming the Research and Development Tax Credit may be considered as qualifying research and experimental development activity as outlined by the income tax law and its accompanying regulation.

The tax office decides whether the amounts declared as research and development (upon which figure the tax credit is calculated) have been calculated correctly as set out by the relevant legislation. The FFG decides whether the nature of the actual research fulfils the requirements of activity that is funded by the Research and Development Tax Credit.

• The FFG does not assess the correctness of the amount that is to be used to calculate the value of the Research and Development Tax Credit.
• The FFG does not decide whether funding is granted, which decision is instead made by the relevant tax office.
• The FFG provides its report to the company without charge.

Companies apply for a report via the official electronic platform FinanzOnline, and there are strict regulations that need to be followed. The FFG’s report is then passed to both the tax office and the applicant company automatically via FinanzOnline.

Statutory reports – choosing between an annual report or a project-based report

Annual report

In most cases, companies applying for the Research and Development Tax Credit will need to be able to present an annual report by the Austrian Research Promotion Agency (FFG) (note, however, that no report is required in the case of contract research). The FFG determines whether the technical details of the proposed research satisfy the formal requirements set out in the Frascati Manual. The correctness of the figure used to calculate the level of funding is checked by the tax office.

The tax office is not bound by the FFG’s report (which is based on a description of the research that is limited to 3,000 characters per key research area). Subject to the satisfactory submission of additional, more detailed documentation, the tax office may still approve the Research and Development Tax Credit even if the result of the FFG report was negative.

Project report

As an alternative to an annual report, it is also possible to apply to the FFG for a report on an individual project.

Project reports serve as the basis of the tax office’s formal confirmation that the requirements of in-house research have been fulfilled, and therefore provide an enhanced legal foundation. There is an administrative fee of EUR 1,000 for each project report. Each report can be applied for to cover the current year and up to three years in the future.

Optional auditor’s confirmation

In order to secure legal verification of the amount used to calculate the level of funding and the way it has been calculated, it is also necessary to provide the tax office with a report to this effect by a financial auditor. The tax office then uses this alongside the annual or project report to issue its ruling on the value of the tax credit.