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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 incremental QE receives a 42% benefit. 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, with a higher degree of novelty required.

There is another possible qualification for projects as ‘Technological Innovation’. This type of project is eligible for a 12% tax credit and the evaluation criteria are lighter, and allows many more projects to qualify.

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spain Are other R&D Incentives available? Sp ain R&D Sp ain T e c h. In n o . Is foreign-owned R&D eligible?R&D must occur in the countryIs pre-approval required? Are previous financial years claimable? Sp ain R&D T e c h. In n o . Gen e r osi t y 29. 6 % 12 % Ease of Application
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 incremental 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 “ground-breaking achievements” and has easier evaluation criteria.

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 technological patronage, where the rights are transferred to a private third party through a commercial operation. This mechanism is known as Tax Lease.

Eligible Claim Period

Whenever pre-approval 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 external certification process typically takes 2 months and this process should be completed before placing the claim. The Ministry of Economy can take up to 2-3 years to respond.

Tax relief without pre-approval is declared in the company’s tax statement, and requires additional documentation only in the case of tax audit. Claims without pre-approval may include many previous financial years.

Following the law closely, up to 18 previous fiscal 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 numerous revisions have improved the mechanism. 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 Government Tax Agency, where the claim is examined by a technical expert almost immediately. 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 Economy, 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 thus jeopardise any sensitive IP) 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. reduction of tax owed, pre-approval is not required, as dictated as optional in the law. Where a company is not claiming cashback, they can decide whether to apply for pre-approval for their projects, or take on the risk and simply create a technical and economic report without this pre-approval, and retain it in case of an eventual tax audit.
  • When pre-approval is claimed, a fee is charged for each project
  • The definition of R&D applied for the evaluation of projects is rather tight, with a higher degree of novelty required
  • In many cases the process is complex, making it quite difficult to navigate
  • Results vary due to different interpretations of the stringent regulations applied by the different experts involved in the emission of official reports on projects.

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