Research and development (R&D) activities are considered to be one of the key drivers of economic growth worldwide. Governments are therefore keen on encouraging R&D activities on their territories. One of the most widespread methods for encouraging R&D activities is granting R&D tax incentives. In general, there are two types of R&D tax incentives: »Input incentives« provide benefits at the beginning of the R&D process when R&D related expenses occur (e.g. allowances, accelerated depreciation etc.). On the other hand, »output incentives« provide benefits for income generated out of the intangible assets that are result of R&D activities (e.g. patent-box regime etc.).

Nevertheless existence of R&D tax incentives is one of the key factors for MNEs when deciding where R&D activities shall be performed. Below, there is an overview of R&D tax incentives in the Czech Republic.

Input tax incentives on R&D

A. Tax allowance for R&D

Scope: Reduction of the tax base for 100% of the amount invested in R&D during the tax year but not exceeding the amount of the tax base. Reduction of the tax base for additional 110% of the amount exceeding the R&D expenditure of the previous tax period.

Territorial scope: No territorial restrictions. Applicable also for a PE of non-residents.

Definition of R&D for tax purposes: The definition of R&D for tax purposes is adopted from the Act No. 130/2002 Coll., on the support of research and development from public funds and on the amendment to some related acts (the Act on the Support of Research and Development). R&D project shall simply contain an appraisable element of newness or it must lead to a clarification of research or technical uncertainty.

R&D expenditures: Investments in internal R&D activities that include e.g. costs of personnel, depreciations of R&D equipment, costs of materials and energy consumption related to R&D activity, travel expenses of employees in direct relation to R&D activity. The deduction especially may not be claimed in relation to royalty payments, expenditures where a public subsidy was granted, services and intangible results of research and development acquired from other parties (with the exception of costs expended on services purchased from public universities and research organizations). It may be applied for a binding ruling as to the deductibility of particular expenses upon prior written (and explanatory) request and fee of CZK 10,000.

Carry-forward: The unused part of the tax allowance may be carried forward to the subsequent three (3) tax years or periods for which the corporate income tax return is filed.

Documentation requirements: R&D investments shall be described in a written R&D project that has to be prepared before the start of R&D activities. This has to be approved by a statutory body of the company. Separate records must be kept about the R&D expenditures divided by the single projects and accounting events. The burden of proof lays upon the payer. There is no strictly prescribed form as to the R&D project and expenditure records.   

Output tax incentives on R&D

Not available