If you’re a US company looking to expand internationally and take advantage of what the world has best to offer to stimulate innovation, look no further! Aside from being the world’s 6th largest economy and the perfect point of entry into the EU’s 500 million consumer market, France offers a vibrant entrepreneurial environment and aims to attract an ever increasing number of foreign entrepreneurs on its territory. To that effect, the French government has put in place some of the most generous innovation tax incentives in the EU. This article explores the very symbolic French Research Tax Credit.
France’s Research Tax Credit (in French “crédit impôt recherche,” hereinafter “RTC”) will celebrate its fortieth anniversary next year. Established in 1983, the RTC is a tax measure supporting a business’s research and development (R&D) activities, without sector or size restrictions. It is designed to encourage research and companies’ development efforts through deductions from their taxes. Although a French program, the RTC is not restricted to French or European enterprises or start-ups. Consequently, if you are a U.S. or a Canadian enterprise considering taking your business internationally, the RTC may be of particular interest to you.
What is the RTC?
The RTC is a considerable tax advantage allowing companies performing R&D in France and in the EU to be reimbursed by the French government more than a third of their R&D expenses. Indeed, an enterprise that is eligible to the RTC can benefit from a reimbursement of 30% for its R&D expenses up to 100 million € (~ 100 million USD), and 5% beyond that. Hence, the RTC is not capped and covers, inter alia, R&D payroll expenses, subcontracting expenses in France and in Europe (under certain conditions), patents, standardization, depreciation of fixed assets. It is by far the most generous program in Europe in terms of the ratio of expenditures covered by the State.
In addition, it is quite simple for enterprises to take advantage of the RTC when they are eligible, as the RTC is based on a declarative system. This means that there is no need to submit a request beforehand: it will be submitted simultaneously with the income tax return.
Is my enterprise eligible to the RTC?
The eligibility criterion for expenses giving rise to the RTC is essentially a question of the character of the activities qualifying as scientific or technical research operations. The fundamental criterion for differentiating research and development (R&D) activities from related activities is that the R&D project combines a significant element of novelty with the resolution of a scientific and/or technical uncertainty 1 . Thus, you must be able to demonstrate that the projects used to calculate the tax credit correspond to eligible research and development work. You must analyze your company’s work and determine whether its activities are carried through a scientific approach and aim to overcome scientific obstacles, i.e., problems that cannot be solved with the state of available knowledge.
In addition, in order for a foreign company to be eligible to the RTC, it must establish itself as a French taxpayer This means it must have a permanent establishment in France, be it through a French entity or a French subsidiary of a foreign parent. For instance, a foreign-based company that solely pays employees seconded to France cannot obtain the RTC. Of course, the best business strategy for your internationalization to France and to the EU will depend on the specifics of your business, which we would be happy to help you assess.
Conclusion
France’s strong economy and the many advantages it offers SMEs and startups makes it a prime destination for U.S. start-ups and more mature innovative companies seeking to break into the five-hundred-million-consumer-sized European market. Its government support allows plenty of companies the resources needed to thrive. If you are considering breaking into France and the EU, the Law Office of S. Grynwajc, PLLC is here to help on your journey! For all transatlantic assistance, contact the Law Office of S. Grynwajc, PLLC today.
1 “BIC – Réductions et crédits d’impôt – Crédits d’impôt – Crédit d’impôt recherche – Champ d’application – Activités concernées”, Bulletin Officiel des Finances Publiques – Impôts, Finances publiques, date de fin de publication du BOI : 13/07/2021, online: < https://bofip.impots.gouv.fr/bofip/6486-PGP.html/identifiant%3DBOI-BIC-RICI-10-10-10-20-20161102 >, paragraphe 250 (consulté le 11 mai 2022).
