Czech Republic: innovation incentives overview

There is a range of direct and indirect R&D support available.

Direct support includes, for example, institutional support, specific support for grant and program projects, support for international cooperation in R&D.

Indirect support includes, for example, tax incentives and relief/allowance, accelerated depreciation, preferential loans.

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

There are two main R&D tax incentives:

• Investment incentives in the form of tax relief for eligible projects conducted in a technology centre, strategic services centre in a form of software development centre or data centre.
• R&D tax allowance for R&D costs which can reduce the tax base of corporate income tax twice: once as tax deductible costs and second time as a deduction for the support of R&D. Moreover, an additional 10% may be applied as an allowance from the difference by which the current year qualifying costs exceed those of the prior period.

There are also other investment incentives available for creating new jobs, training and upskilling staff, etc.

Do you have to apply for incentives prior to conducting the research or claiming the benefit?

An application for investment incentives needs to be filed and a government decision on the investment incentives needs to be provided to be able to benefit from this support.

Intent to claim the R&D tax allowance has to be submitted to the tax authority in a form of a Notice of Intention to Make a Deduction for the Support of R&D separately for each R&D project.

Are there specific documentation or reporting requirements for claiming incentives?

For both forms of incentive, various documentation needs to be prepared and eligibility criteria fulfilled, for example, on the creation of new jobs and the nature of project.

Investment incentives tax relief:

• Application for investment incentives documentation
• Documentation proving the fulfilment of investment incentives conditions
• Documentation necessary for claiming of the tax relief

R&D tax allowance:

• Notice of Intention to Make a Deduction for the Support of R&D
• Written project documentation in a format defined by the tax legislation

Tax relief

• Maximum up to full tax credit for 10 years.

R&D tax allowance

• 21% (second deduction of incurred R&D cost from the tax base (CIT increased to 21% in 2024).

Tax relief conditions must be fulfilled within three years of the claim being approved. The conditions are reviewed by state authorities.

R&D tax allowance: the Notice of Intention to Make a Deduction for the Support of R&D must be submitted to the tax administrator for each R&D project before incurring costs. Project documentation has to be approved in the same term as the term for filling the regular tax return.

Both tax relief and R&D tax allowance must be declared each year in the annual corporate income tax return.

Both individual and corporate entities are eligible.

Tax relief – the maximum state aid intensity and condition for granting the tax relief varies depending on whether the applicant is a large, medium or small enterprise.

R&D tax allowance – no company size and/or investment requirements.

Tax relief

Qualification criteria are defined in the Act on Investment Incentives and the Corporate Income Taxes Act.

• Generally, technology centres are defined as entities focusing on applied research, development, and innovation in technically or otherwise advanced products, technologies, and production processes, including the creation and innovation of software.
• Strategic service centres refer to software development centres focused on creating new software or innovating existing software.
• Data centres specialising in data storage, sorting, and management are also supported, as well as repair centres specialising in the repair of technically advanced equipment.

R&D tax allowance

The definition of R&D for tax purposes is adopted from the Czech Income Taxes Act on the support of R&D from public funds.

This states that, in general, R&D activities must contain an appreciable element of novelty or must lead to a clarification of research or technical uncertainty. For example, experimental or theoretical works, planning or design works, calculations, technology designs and production of a functional sample or prototype of a product or its part, connected with the execution of a research and development projects.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

Both subsidies are only available to Czech tax residents.

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

No.

Does the tax authority have to review the resultant developments to allow a deduction or credit?

The tax authority should, but is not obliged to, review granted subsidies. Generally, the first claim for tax relief is always reviewed.

Tax relief

Income tax relief for 10 years.

R&D tax allowance

All costs incurred must directly relate to the R&D project:

• personnel costs for employees working on R&D projects
• tax depreciation of fixed assets used for the R&D activities
• other operating costs (for example costs of materials and energy consumption related to R&D activities)

Costs that cannot be included in the claim include:

• costs for which public support has been granted
• costs for services and intangible results of research and development acquired from other parties (with the exception of purchases from public universities and research organisations)
• license fees

Are the incentives temporary or permanent?

See above. The R&D tax allowance is applied in the period in which the costs were incurred. In the case of tax loss, it is possible to carry it forward for the three following years.

How is the benefit obtained?

See above.

Are the incentives incremental in nature or volume-based?

If the conditions for claiming the incentives are fulfilled, they are volume based.

Are there general rules for estimating the value of the incentives?

The rules for calculating the level of both forms of incentive are set and calculated according to Czech law.

Investment incentives – tax relief

Example: The investor (large enterprise) plans to invest €10 million in assets in a technology centre. The state-aid intensity is e.g. 40% of eligible costs. Therefore, the maximum state-aid ceiling is €4 million, i.e. the 10-year tax relief would be €4 million maximum.

R&D tax allowance

Example: A company that incurs eligible costs of €10 million for R&D could deduct this amount from the tax base for a second time and even increase the deduction by 10%.

Tax relief

We usually help clients with:

• Preparing and filing an application for investment incentives 
• Reviewing the conditions which need to be fulfilled before and during the claim
• Calculating the maximum amount of tax relief in particular years
• Preparing the corporate income tax return and accompanying claim for tax relief

R&D tax allowance

• Assessing whether the activities meet the required definition of R&D
• Identifying and evaluating the eligibility of selected projects
• Evaluating R&D costs
• Preparing R&D project documentation
• Preparing and submitting the Notice of Intention to Make a Deduction for the Support of R&D

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

Tax relief

The limit is the maximum amount of tax that will be covered by the tax relief each year. See example above.

R&D tax allowance

There is no maximum amount for the R&D tax allowance, but the deduction cannot be higher than the tax base.

Are tax credits refundable?

No, it is not a cash subsidy.

Can surplus incentives be carried back or forward and used in years other than the origination years?

Yes, unused R&D tax allowance can be carried forward for three subsequent years.

Are there any other types of limitations?

Tax relief

The maximum amount of tax relief that can be claimed within 10 taxable periods derives from the amount of the eligible costs and maximum intensity of the state aid. This depends on the size of the enterprise and the region where the investment is carried out.

Are the R&D costs deductible when deriving taxable income? Are costs required to be capitalized for tax purposes?

R&D costs are generally tax deductible, i.e. Czech accounting rules must be followed. Generally, no capitalisation is required.

The amount of the R&D tax allowance is limited by the amount of eligible costs incurred each year. These costs must be tax deductible.