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Spain’s R&D Tax credit is generally set at a 25% of qualified R&D expenses. Additionally, when the
expenditure exceeds the average of the 2 previous years, that QE receives a 42% benefit, percentage that can reach 59% for those workers dedicated exclusively to R&D. A monetised tax credit is also available, at a slightly lower benefit, which also requires pre-approval and usually has a 2 year wait to receive the benefit.

The definition of R&D applied for the evaluation of projects is rather tight, requiring a high degree
of novelty at sectoral level.

There is another possible qualification for projects as ‘Technological Innovation’. This type of project
is eligible for a 12% tax credit being a much more accessible qualification since the novelty is at a subjective level, which allows many more projects to qualify.

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Spain all Companies

  • 25% tax relief for all QE that are less than or equal to the average of previous 2 years
  • Additional 42% Tax Relief for all QE greater than the average of 2 previous years’ QE
  • Additional 17% benefit for all staff spending 100% of their time on R&D projects
  • 12% tax deduction for all eligible expenditures on technological innovation activities
Benefit Overview

R&D project requirements can be hard to meet due to the level of novelty required, which is generally understood to be at an international rather than company or domestic level. There is another category “Technological Innovation
(TI)” which does not require the same level of novelty and it is more accessible to most companies.Although not mandatory, pre-approval is generally advisable especially for larger projects and for monetization of the tax credit (cashback) is a must. There are two options, public cashback, where claimed 80% of the total tax credit with two years wait to receive the credits with some requirements about employment maintenance and reinvestment. Second option is private cashback or private monetisation, where the rights are transferred to a private third party through a commercial operation using a specific purpose vehicle. This mechanism is known as Tax Lease.
Eligible Claim Period

Whenever prior approval or certification by the authority (Ministry of Science and Innovation) is sought, claims must be submitted before 6 months and 25 days after the end of the company’s financial year; companies can only look back one financial year. The Ministry of Science and Innovation takes about one year to issue its decision.

Tax relief without pre-approval is declared in the company’s tax statement, and requires additional documentation only in the case of tax audit. The scheme allows the tax deductions recovery from previous tax years.

Following the law closely, up to 18 previous tax years can be considered to claim the credit. However, it is quite common for companies with greater aversion to risk to limit to the last 4 years.

Historical Background

The first definition of R&D based tax relief dates back to 1978, but different revisions have evolved the scheme. The Law 27/2014, including all modifications up to this date, regulates the current benefit.
Application Process

Spanish R&D claims are looked over by the Government Tax Agency, pre-approval is voluntary, and generally indicated for large projects. However, all applicants can be asked to present a full technical justification or report in case of tax audit.
Regulating Body Policies

If no pre-approval is claimed, tax relief is evaluated by the Tax Agency only in case of a general tax audit. Pre-approval is given by the Ministry of Science
and Innovation, and even in the cases when it is mandatory, this report is not binding for the Tax Agency that might apply different criteria.
Consultations for binding rulings can be placed at the Tax Agency, and while restrictive, their result is absolutely binding in case of audit. Previous binding rulings for similar projects are public and can be used to argue in favour of a project in case of audit.
Eligible Costs

The following are counted as eligible costs:

  • Salaries
  • Consumables
  • Costs of investments in fixed assets dedicated to R&D
  • Equipment depreciation, which is proportional to the intensity of usage for the R&D
  • Research providers, including advanced software use, post 2001.
  • Other contracted services related to R&D projects
Issues to Consider

  • Pre-approval is only compulsory for those projects claiming cashback, monetization of tax credit both through the administration and through a private investor. For the rest of cases, i.e. for the application of the deduction on the full tax liability, pre-approval is not required. Where a company is not claiming cashback, they can decide whether to apply for pre-approval for their projects, or prepare a technical inside the parenthesis (each project) and economic report, justifying the correct application of the incentive, and retain it in case of an eventual tax audit.
  • When pre-approval is claimed, a fee is charged for each project by the external auditor.
  • In many cases the process is complex, making it very difficult for companies to process and access deductions.
  • Results vary due to different interpretations of the stringent regulations applied by the different experts involved in the emission of official reports on projects.