What is the R&D tax credit?
The research and development tax credit is a facilitated finance tool aimed at incentivizing innovation investments for companies.This incentive, established by decree law 145 of 2013, and conceived within the national industry 4.0 plan, is addressed to any type of company (joint-stock companies, partnerships, sole proprietorships, non-commercial entities, agricultural enterprises, consortia; however, companies subject to bankruptcy proceedings are excluded) that invests in these areas, regardless of size, operating sector, accounting regime, or legal form.
The research and development bonus will be accessible in 2022 under the same conditions provided for the year that is about to end; conditions that will undergo a slight decrease (from 20% to 10%) due to the extension of the bonus duration, namely until December 31, 2031.
The tax credit can be used exclusively through offsetting, in three equal annual installments, starting from the tax period following the one in which it was accrued.
What is meant by research and development?
First of all, it is necessary to define the concept of research and development. Research refers to both fundamental research: the set of studies, investigations, and experiments aimed at acquiring new knowledge, which have a generic purpose - simply cognitive - "without direct commercial uses"; and industrial research, with specific purposes related to a single process or product.Development refers to the application of existing knowledge in the production of materials, devices, processes, systems, or services, whether new or substantially improved.
In any case, ordinary or periodic modifications to existing production processes or services do not fall within these definitions.
It is important to emphasize that research and development activities can also be carried out in fields other than scientific and technological, such as in the historical, educational, and training fields.
To ensure that a specific project has the characteristics to be considered research and development, the following questions must be asked:
1. Is it a novelty?
2. Is it creative?
3. Is the result uncertain?
4. Can I transfer or reproduce the knowledge I am developing?
5. Was my research planned and is it the result of a systematic activity?
6. Is there financial risk and risk of technical failure?
Seasonal or design modifications made to products and manufacturing processes, as well as qualitative and quantitative improvements resulting from the use of production systems similar to those already used, are not considered R&D activities.
Characteristics of the incentive
The amount of the incentive varies depending on the type of investment and, unlike previous years, the tax credit depends on personnel expenditure or employment contracts for the same research and development/innovation activity:- For research and development, a tax credit equal to 20% is granted up to a ceiling of 4 million. The incentive concerns fundamental research, industrial research, and experimental development in the scientific or technological field.
- Technological innovation: a tax credit equal to 10% up to 2 million euros. Eligible innovative activities include design and aesthetic ideation carried out by companies in the textile and fashion, footwear, eyewear, goldsmith, furniture and furnishing, and ceramics sectors, for the conception and realization of new products and samples.
- Ecological transition: tax credit of 15% on a maximum of 2 million euros. These are technological innovation activities, as defined above, but aimed at the realization of new or substantially improved products or production processes to achieve an ecological transition or digital innovation 4.0 objective.
- Design and aesthetic ideation and software-related activities: tax credit of 10% up to 2 million euros
Compared to technological innovation, therefore, the ecological transition activity must focus on the innovation of production systems that have a positive impact on the environment.
Obviously, the following are not considered innovation eligible for the tax credit:
- routine activity for the improvement of product quality;
- activities to adapt an existing product to the specific requests of a customer;
- activities for quality control and product standardization.
Eligible expenses
Within the scope of these activities, the following expenses are eligible, particularly for research and development activities.A) Personnel: meaning researchers and technicians, whether hired directly or through other types of contracts, directly employed in research and development operations carried out internally by the company, within the limits of their actual employment in activities related to research and development. Expenses for young people up to 35 years old hired on a permanent basis for their first employment, holding a PhD or with a PhD in progress, or holding a master's degree in technical or scientific disciplines, and employed exclusively in research and development work, contribute to forming the calculation base for an amount equal to 150% of their value.
B) Depreciation quotas, financial or operating lease payments, other expenses for movable tangible assets and software used in research and development projects, including for the realization of prototypes or pilot plants. These expenses are relevant for the amount ordinarily deductible for the purpose of determining the company's income relating to the tax period of use and within the overall maximum limit equal to 30% of personnel expenses. Depreciation quotas relating to the purchase from third parties, including under a license of use, of industrial property rights (trademarks, patents, copyrights...) relating to an industrial or biotechnological invention, ..., within the overall maximum limit of 1 million euros and provided that they are used directly and exclusively for the performance of activities inherent to the research and development projects eligible for the tax credit.
C) Extra-muros research contracts (research commissioned to third parties) involving the direct performance by the commissioned party of the research and development activities eligible for the tax credit. In the case of research contracts signed with universities and research institutes resident in the State territory, the expenses contribute to forming the calculation base of the tax credit for an amount equal to 150% of their value.
It is important to emphasize that it is possible to expense contracts signed with companies or entities belonging to the same group as the client; for innovation and ecological transition activities, the same rules applicable in the case of technological innovation activities carried out internally by the company apply.
The following expenses are applicable to all types of activities:
D) Consulting services and equivalent services inherent to the research and development activities eligible for the tax credit, within the overall maximum limit equal to 20% of the eligible personnel expenses or those for extra-muros activities.
E) Expenses for materials, supplies, and other similar products used in research and development projects eligible for the tax credit carried out internally by the company, including for the realization of prototypes or pilot plants, within the maximum limit of 30% of personnel expenses or extra-muros research contracts.
