R&D: Exemption from corporate income tax and other tax incentives

Companies who only carry out innovation and research& development activities (specific definitions of such activities have to be taken into consideration) are exempt from paying corporate income tax in the first ten years of their activity. State aid rules have to be observed to apply this facility.

Additional deductions for corporate income tax assessment

A supplementary deduction of 50% of the expenses eligible for research & development activities (in addition to the value of these expenses) can be made for corporate income tax purposes.

Accelerated depreciation for specific equipment used in research & development activities (e.g. technological equipment, control devices) may also be claimed. Thus 50% of the value of the asset can be deducted in the first year.

Eligible activities for this incentive may include applied research and / or technological development. Research & development can be performed in Romania / EU and has to be relevant for the company’s activity. Research & development activities have to be included in a project fulfilling specific conditions.

Research & development should generate results usable by the company (e.g. for its own benefit, or sale / use of results). If the objectives of the research & development project are not accomplished, the facility can still be applied.

Eligible expenses have to be allocated to a research & development activity, and they are as follows:

  • depreciation expenses for assets used in research & development,
  • salary expenses of research & development employees,
  • maintenance & operational expenses for used assets,
  • operational expenses allocated to this activity, such as raw materials, third-party services,inventory, etc.,
  • direct costs allocated to research & development activity.

State aid rules must be observed to apply this facility.

The Ministry of Education should have set up a register of experts, who can certify that the activities performed are indeed research & development activities. Unfortunately, this register has not been set up yet, and companies are reluctant to claim the above-mentioned incentive in the absence of expert verification.

Exemption from salary tax for research & development employees

No salary tax is to be withheld by employers for the salary remunerations of employees involved in research & development activities, provided that specific requirements are fulfilled (mainly a well-defined research & development project).

The article is written by Florin Gherghel, Tax Manager Ensight Finance