R&D tax deductions They constitute one of the main instruments of incentive to research and development (R&D) already the technological innovation (IT) in Spain. However, many companies find it difficult to determine whether their projects should be classified as R+D or as technological innovation.
The classification as R&D or IT is not merely a technical distinction, but rather has a direct impact on the percentage of deduction applicable in Corporation TaxTherefore, correctly classifying a project is essential to maximizing available tax incentives.
In this article we explain What is the difference between research and development and technological innovation?what role does the state of the art in this evaluation and how this classification affects the R&D tax deductions.
What is considered research and development (R&D)?
Projects research and development Their objective is to generate new knowledge or technological developments that represent a significant break or advance with respect to the existing state of the art at a global level.
This type of project is characterized by two key features:
- High degree of technical uncertainty
- Relevant technical risk
In other words, these are initiatives in which There is no known or obvious solution at the time the project beginsTherefore, the company must develop new technical solutions not available on the market, representing a objective novelty.
This disruptive nature is what justifies the tax regulations establishing higher deduction percentages for R&D projects within the tax incentives for innovation.
What is technological innovation (IT)?
La technological innovation (IT), for its part, does not necessarily imply the creation of completely new technology.
In these cases, the projects seek to introduce substantial improvements to existing products or processes within the companygenerating a significant technical advance for the company, even though the technologies used may already exist in the market or sector, hence they represent a subjective novelty.
Therefore, technological innovation is characterized by:
- Apply existing technologies in a novel way within the company
- Introduce relevant improvements in processes or products
- To generate technical advances for the organization, even if they are not entirely new in the sector
From a tax perspective, these projects can also benefit from R&D tax deductions, although with deduction percentages different from those for research and development.
The role of the state of the art in project evaluation
One of the fundamental elements for determining whether a project corresponds to R+D and IT is the analysis of the state of the art.
The state of the art involves studying the existing technical knowledge in a given field before starting a project. Its objective is to identify:
- What technological solutions already exist
- What level of development has the sector reached?
- If the project proposes a truly innovative advance
Thanks to this analysis it is possible to determine if the project:
- Introduce a completely new development (R&D)
- Or it represents a significant improvement over existing technologies (IT)
Consequently, the state of the art becomes a A key tool for technically justifying the nature of the project and its fit within the R&D&I tax deductions.
What happens if the project does not achieve the expected results?
A common question among companies is whether The failure of a project prevents the application of tax deductions for R&D&I.
The answer is clear: not necessarily.
What is relevant for the classification of a project as research and development o technological innovation It's not the final result, but the process of searching for a real technological advance.
Therefore, to defend the project's rating regardless of the final outcome, it is imperative that the company be able to demonstrate:
- The activities carried out during the project
- The applied methodology
- The technical documentation generated
- The justification for the technological challenge addressed
Therefore, even when the project does not achieve the expected result, It can still be considered R&D or technological innovation if the development effort undertaken is adequately demonstrated.
Why it is essential to differentiate between R&D and technological innovation
To correctly determine if a project is R+D o technological innovation (IT) It is key because this classification directly affects the applicable tax deduction percentage.
Within the framework of R&D tax deductionsSpanish regulations establish different incentives depending on the nature of the project.
Percentage of deduction for technological innovation (IT)
Projects technological innovation They may benefit from a deduction of: 12% on the expenses incurred during the tax period in common territory, 15% in the chartered areas and 45% in the Canary Islands.
Percentage of deduction in research and development (R&D)
Projects research and development They have higher tax incentives:
In common territory:
- 25% deduction on expenses for the year
- 42% deduction on excess spending that exceeds the average of the previous two years
Brianda chartered areasThe deduction percentages range between 30 and 50% of eligible spending, and in the Canary Islands. between 45 and 75,6%.
This difference reflects the greater technological risk and the greater degree of uncertainty associated with the research and development.
Keys to making the most of R&D tax credits
To apply the correctly R&D tax deductionsCompanies should pay special attention to several aspects:
- Analyze correctly the state of the art before starting the project
- Identify if the development corresponds to R&D or technological innovation
- Properly document all technical activities performed
- Justify the technical progress achieved during the project
Proper classification and documentation allows reduce tax risks and optimize the use of innovation incentives available in the Spanish tax system.
Frequently asked questions about R&D tax credits
What is the difference between research and development and technological innovation?
La research and development seeks to generate entirely new technologies or knowledge, while the technological innovation (IT) It introduces substantial improvements over existing technologies or processes.
Can a tax deduction be applied if the project is unsuccessful?
Yes. The success of the project does not determine its rating as R&D or technological innovationThe important thing is to demonstrate the real effort of technical development and the existence of a technological challenge.
What percentage deduction applies in each case?
- Technological innovation (IT): 12% deduction on project expenses.
- Research and development (R&D): 25% general deduction and up to 42% on excess spending compared to the average of the previous two years.
Promoting innovation with legal certainty
R&D tax deductions They represent a significant opportunity for companies to finance their activities research and development e technological innovationHowever, to fully take advantage of these incentives, it is essential correctly classify projects and adequately document their technical content.
En ELZABURU We assist companies and organizations in identifying, structuring, and justifying projects. R&D&Ihelping them maximize available tax incentives and integrate innovation into their growth strategy.
José Miguel SanabriaLegal Consultant Innovation Funding , in ELZABURU
