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How can innovative companies finance their R&D projects through the tax system?

Innovation and R&D activities are on Romania’s Government priority list and considered to be decisive for a sustainable economic development strategy.

Therefore, tax regulations have been introduced, in line with OECD rules:

  • Additional 50% tax deduction for R&D expenses for corporate income tax purposes;
  • Accelerated depreciation method applied to the equipment used in R&D activities;
  • Income tax exemption for employees involved in R&D activities; 
  • Full corporate tax exemption for companies engaged exclusively in R&D activities within the first 10 years of activity.

For companies, the additional 50% deduction of expenditure on R&D and Innovation generates an 8% savings of the Corporate Income Tax. For a better understanding of how you can benefit, please find the following simulation:

COMPANY Z

Profit

2 000 000 EUR

Research and development expenditure

1 000 000 EUR

 

DOES NOT apply

Applies

Tax base amount

Profit

Profit – 50% x research and development expenses

Tax paid (16% x tax base amount)

320 000 EUR

240 000 EUR

ECONOMY

0 EUR

80 000 EUR

 

Research and development deductions granted in Romania fall into the same category of incentives as CIR (Crédit d’Impôt Recherche) and CII (Crédit d’Impôt Innovation) in France.

The legal framework that allows companies to use this specific instrument is outlined in Romania by Art. 20 of the Tax Code, no. 57/2002 Ordinance on scientific research and technological development, and the Order Nr. 1056/4435/2016 of the Ministry of Public Finance and the Ministry of National Education and Scientific Research.  

 

Therefore, according to the law, an activity or a project can be considered eligible, if it simultaneously meets 5 criteria mentioned in the Frascati Manual, an integral part of the Common Order no. 1056/4435/2016:

1. "novelty" - refers to a new or modernized product, technology or service, either for the company or for the given industry;

2. "creativity" - takes into account the development of original concepts, methods, stages for achieving the objective;

3.  "uncertainty" - an R&D project generally involves uncertainties about costs, the amount of time it takes to achieve the desired result and at the same time the purpose of the project.

4. "systematic character" concerns the planning as well as the allocation of resources (time, specialized staff and budget);

5. "transferability and/or reproducibility character" identifies a potential for the transfer of new knowledge, including that of negative results, if the initial hypothesis is proven to be false.

 

The Romanian R&D incentive is similar to CIR in France, but unlike the French incentive the scope is much broader, allowing companies that develop new functionalities or improve their products, technologies or services to meet the necessary eligible criteria.

 

GAC Innovation East Europe is a subsidiary of the international G.A.C. consulting group, based in France, specialized in innovation and performance. We have developed a unique service for the Romanian market that support companies in identifying, appraising expenses and justifying the eligibility of their R&D projects. With over 20 years of technical experience in the field of tax deductions for Innovation and R&D, capitalized in France, we have established a methodology based on scientific and technical knowledge. This allows us to translate the technical language of engineers and researchers involved in Innovation and R&D activities into an administrative and financial language for a safer and easier application of R&D incentives.

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