France: innovation incentives guidance

Now, there are several other incentive regimes, including grants and patent-related incentives.

Several R&D incentives are available under French tax law:

• R&D tax credit: the R&D Tax credit is available to reduce the corporate income tax. It amounts 30% of the eligible annual R&D expenses. It can be refunded or be offset against the tax due.
• Innovation tax credit: the innovation tax credit applies to innovative expenses defined as prototypes and pilot installations (not eligible to R&D tax credit) and this for SMEs. It amounts to 20% of the expenses (30% in 2023 and 2024,). Basis as been reduced to exclude operating expenses.
• Collaborative research tax credit: this is a new tax credit in France applicable to collaborative research. Sub-contracted expenses can give right to a 40% tax credit if not included in the R&D Tax credit basis.
• Junior university enterprise and junior innovative enterprise regimes allow tax benefits exemptions, subject to certain conditions
• Incentives with respect to certain investments in or financing of specialized research and development bodies, allowing a tax deduction equal to 60% of the gifted amount
• Special tax regime “IP Box” on profits deriving from IP as patent and software (OECD nexus approach)

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

Companies may qualify for R&D tax credits whatever their type, sector, size, number of employees, revenues, provided they perform R&D activities.

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

No, but the requirements consist in fulfilling the conditions regarding eligibility of the projects and expenses. It is possible to file a prior ruling to confirm with the French tax Authorities that given research operations are qualifying.

Are there specific documentation or reporting requirements for claiming incentives?

To benefit from the R&D tax credit, company must file a specific tax return (Form 2069-A) at the latest along with the filing of the corporate income tax return.

There is no legal requirement to provide any scientific documentation to benefit from the R&D tax credit. However, in the case of a tax audit, companies must justify the eligibility of the projects for the R&D tax credit (documentation can support this).

Companies must be able to provide accurate records of the time spent by the employees on R&D activities (hours spent per person and per project) since the part of their remuneration that relates to R&D activities is considered in calculating the amount of R&D tax credit.

The R&D tax credit rate is 30% of a basis including wages and amortisation plus other expenses, fixed at a rate of 40% of wages and 75% of amortisation. €1 in wages therefore equates to €1.40 of tax basis, or a tax credit of almost €0.50.

To benefit from R&D tax credit, the company must file a specific form (Form 2069-A) with its annual corporate income tax return. The annual return must be filed within three months of the end of its financial year, or within six months if its financial year ends on December 31^st. Note that R&D tax credit is calculated on a calendar year basis.

The eligibility for R&D tax credit is based on innovation. In accordance with the French tax provisions, innovation consists in the resolution of scientific or technological uncertainty, or the creation of a novelty compared to the well-established state of the art.

Qualifying activities as defined by the French tax code are divided into three main categories:

• Fundamental research
• Applied research
• Experimental development.

The expenses that relate to R&D activities incurred by French companies in member States of the European Union or the European Economic Area qualify if there is a mutual assistance clause in the tax treaty in force with that country and that expenses are tax deductible in France.

Subcontractors located in the EU/EEA must have an agreement of the French tax authorities.

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?

The expenses that relate to R&D activities incurred by French companies in member States of the European Union or the European Economic Area qualify if there is a mutual assistance clause in the tax treaty in force with that country and that expenses are tax deductible in France. Subcontractors located in the EU/EEA must have an agreement of the French tax authorities.

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

Before 2025, expenses for patent protection and technology watch used to qualify, even if located outside the EU or the EEA (European Economic Area).

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

The tax authorities do not have to review the resultant developments to allow a tax credit, but they may audit the company and verify the eligibility of the project from a research point of view and review the computation of the R&D tax credit.

Types of expenditure that qualify for the R&D tax credit are as follows:

• depreciation of fixed assets used in the course of the R&D project
• wages and salaries, benefits in kind, bonuses, and compulsory social security contributions relating to engineers and research workers
• operating expenses composed of (i) 40% of wages and salaries of employees mentioned above, (ii) 75% of the depreciation of fixed assets used in the course of the R&D project mentioned above
• expenditure on contractors if they have an agreement from the French tax authorities

Are the incentives temporary or permanent?

R&D tax credit is permanent (conversely, the innovation tax credit is temporary).

The R&D expenditure is determined per fiscal year. The incentive is available as long as the company meets the conditions set.

How is the benefit obtained?

See above.

Are the incentives incremental in nature or volume-based?

R&D tax credit is volume based.

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

The valuation of the various incentives generally follows accounting principles (French GAAP). That said, in this framework, it is not possible to estimate the general rate of relief regarding personnel expenses and depreciation allowances in particular as companies may account differently for them.

• Determining qualifying projects
• Obtaining associated expenditure
• Preparing a detailed R&D report
• Completing any other regulatory requirements
• Submitting the final R&D form to the tax authority 

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?

The amount of research tax credit is not capped (note that companies that belong to the textile, clothing, and leather sectors are subject to the “de minimis” legislation. Under Regulation (EC) 1998 / 2006, the R&D tax credit is capped at € 300,000 per period of three fiscal years.).

However, the amount of expenses considered in calculating the R&D tax credit is capped. The tax credit amounts to 30% of the R&D expenses up to € 100 M and 5% above this threshold.

The rule is the same for taxpayers subject to corporate income tax and those subject to under income tax.

Are tax credits refundable?

Yes, under conditions. SMEs, new companies, and companies in difficulty, can receive immediate payment of their R&D tax credit for the expenses incurred.

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

The R&D tax credit may be offset against the company’s income tax liability (Income Tax and Corporate tax) of the year during which the research expenses are incurred.

If the company is not liable to tax in FY N, it will receive the R&D tax credit in the form of a cash refund after three years. A company wishing to receive its amount of R&D tax credit before the end of this three-year period can obtain advance financing of the tax credit with a bank.

Are there any other types of limitations?

No.

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

R&D costs are deductible.