French Research and Development Incentives: Enjoy tax exemptions while you focus on getting your business off the ground.
In order to encourage new companies to invest in France, the French government has created different incentives to encourage the startup of innovative companies. These are accorded a JEI status (Jeune Entreprise Innovante) and a CIR tax credit (Credit Impôt Recherche). These allow the firms to enjoy tax exemptions during the initial few years, such as a reduction of the French social security contributions.
France’s Research Tax Credit covers 30% of all R&D expenses, up to 100 million euros, and 5% above this threshold. Salaries for research staff are included, as are 50% of R&D operating costs, and 75% of investments in R&D operations.
The Research Tax Credit base not only covers all R&D expenditures (salaries, social security contributions, amortization and depreciation allowances, operating costs, subcontracting, patents and monitoring, etc.) but also innovation expenses incurred by SMEs, at a rate of 20% (up to €400,000 a year).
The conditions of the Research Tax Credit and the “Innovative New companies” schemes have been fixed until 2017. Companies can also request a Research Tax Credit advance ruling (rescrit) from Bpifrance or the French tax authorities, to secure the future of their investments, for example (a tacit agreement can be assumed if no reply is received within three months).
How do you know if you are eligible for one of these incentives?
To qualify for the Research Tax Credit or the JEI status, companies must be subject to income or corporate tax in France and incur research or development expenditures.
Here is a chart which explains if you are eligible for these incentives:
Once a project is referred to as R&D, all operations necessary for its implementation are considered as R&D. This includes cases in which certain transactions would not normally constitute R&D, by themselves.
If you think that you are eligible to either of these incentives, please follow one of the links to find out more:
The JEI status allows you to benefit from a number of fiscal and social reductions, such as:
- Tax exemption on companies for the first 2 years of benefits (100% the first year and 50% the following year).
- Exemption from the Business Property Contributions, Value-added Contribution and Property Tax, for 7 years (by decision of local authorities).
- Exemption of the URSSAF social security contributions for 7 years, if the company’s working time can be allocated to at least 50% for the R&D project, involving the following factors:
- Research engineers, technicians, project managers of R&D, legal experts in charge of the industrial protection and technology agreements related to the project, staff in charge of pre-competitive tests,
- Corporate officers under the general social security scheme should be primarily involved the R&D project of the company.
With a gross compensation limit of 4.5 times the minimum wage (currently 6,558.82 €). The amount of exempt contributions cannot exceed 5 times the annual Social Security limit (currently 190,200 €).
Companies have to be:
- an SME, in other words a company employing fewer than 250 employees, with an annual income lower than 50 million euros (or with a total balance less than 43 million euros),
- younger than 8 years old,
- completely new, meaning not derived from a reorganization or extension of activity,
- independent, at least 50% has to be owned by natural persons, or
- other JEI (of which least 50% is detained by natural persons),
- Associations and foundations recognized for providing scientific public service or R&D facilities,
- Venture capital companies, high-risk mutual fund investment, regional development companies, venture capital companies or one-man venture capitalist companies with no dependency link (these companies cannot exercise decision-making power over the JEI or be under common control of a third company).
Also, a minimum of 15% of the tax deductible expenses must be incurred for R&D spending.
The CIR is a financial leverage for R&D that allows companies to recover some of their R&D expenses, thus financing the technological risk associated with the uncertainty present in any new project.
The CIR rate is 30 % for the portion of the expenses lower than or equal to € 100 million and 5% for the portion of research expenses higher than this amount.
It is determined by calendar year and the public subsidies received for the research projects must be deducted from the calculation bases.
If the company is in deficit, this tax credit is reimbursed to the company.
For companies under the JEI status, this reimbursement takes place during the first 3 months, instead of 3 years, after the request.
Companies that were created within the last two years are required to provide supporting documents of research costs, along with their reimbursement request: contracts, invoices, DADS declarations, payslips, etc.
A certain number of expenses are included in the calculation of the CIR base:
- Personnel expenses dedicated to research,
- Operating costs: 50% of the personnel expenses,
- Depreciation of property and buildings used for research,
- Depreciation and amortization of property and buildings assigned to research,
- Investment costs: 75% of amortization,
- The expenses for R&D operations entrusted to external providers,
- Patent costs, technology monitoring (maximum € 60,000 per year), 50% of standardization expenses of the company’s products.
To qualify for the research tax credit, companies must meet both of the following criteria
1) Be subject to income or corporate tax in France
All companies liable for either income tax (impôt sur le revenu – IR) or corporate tax (impôt sur les sociétés – IS) qualify for the research tax credit.
Companies whose status means they are temporarily exempt from corporate tax (in particular those with “innovative new company” status) are also eligible for the research tax credit. In other words, a company may, for example, be exempt from corporate tax by
2) Incur research or development expenditure:
There are three categories of R&D:
- Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view.
- Applied research is original investigation undertaken in order to acquire new knowledge, but directed primarily towards a specific practical aim or objective.
- Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed.
“Le Crédit d’Impôt Innovation”
Since 01/01/2013, the CIR has been extended to prototype design costs and pilot installations of new products. This tax credit is called CII and it is reserved for SMEs.
It is for new tangible or intangible products that meet the following conditions:
- Not yet on the market;
- Differs from existing or previous products with superior technical performance, eco-design, usability or functionality.
Thus, for there to be innovation, a product must not have already been introduced by other economic agents operating in the same competitive environment: it is necessary that the product is new for the market.
The tax credit rate is 20%, the spending limit is € 400 000 per year.
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