Why do many large companies pay less corporate tax than my company?
This question, which we frequently encounter in the media, often has a simple and clear answer: in many cases, companies deduct expenses incurred in R&D&I activities from their annual corporate tax return.
Your company’s R&D&I activities are tax-deductible—identify them! Did you know that your company’s daily technical activity could be classified as R&D or technological innovation?
We can all likely agree that companies that grow and become more competitive in a given sector base their strategy on innovation. Investing in innovation represents a cost to the company and entails significant risk, which can impact business performance. Projects that do not succeed, technological bets that cannot be applied—all these factors increase costs and reduce revenue, thereby decreasing company profits and potentially discouraging entrepreneurs from promoting innovative initiatives.
However, this innovative activity (R&D&I), which often constitutes a routine and operational part of daily business, holds a valuable opportunity for economic return—one that many business owners are unaware of.
Did you know that if this is the case, the expenses your company incurs to carry out these activities (primarily fixed personnel costs) are tax-deductible?
Indeed, Spanish companies engaged in activities qualifying as Research, Development, and Technological Innovation (R&D&I) can access tax deductions on Corporate Tax. This is one of the instruments used by the General State Administration to promote business innovation (R&D&I) through tax reductions. The beneficiaries of this incentive are corporate taxpayers.
Amount of Tax Deduction under the Spanish Regulatory Framework
Did you know that Spanish law allows you to obtain a binding report from the Tax Authorities confirming this classification?
The current regulatory framework in Spain that seeks to promote business innovation through R&D&I tax returns is Law 27/2014, of November 27, on Corporate Tax. Chapter IV, Article 35 of this law outlines measures regulating tax deductions for R&D&I, with the following definitions:
- Research Original and planned investigation to discover new knowledge and improve scientific and technological understanding with a significant impact on the sector.
- Development Application of research to create new materials, products, or processes or substantially improve existing ones, with a relevant advancement for the sector.
- Technological Innovation (TI) Technological improvement that generates new products or processes or enhances existing ones, with a significant impact on the entity.
This legal framework establishes that the potential tax deduction generated by business innovation activities can reach up to 42% of R&D project expenses (starting from a guaranteed 25%) and 12% for those classified as Technological Innovation (TI). Additionally, there are increased rates for research personnel and R&D investments, along with enhanced deduction types in specific regional tax regimes. This reality presents a unique opportunity for Spanish companies, regardless of their size, sector, or revenue, enabling them to optimize profits and enhance competitiveness through a strategy that prioritizes innovation.
Advantages of Tax Incentives for Innovative Activities
Did you know that these tax incentives offer tangible advantages compared to other more sought-after public funding options (such as direct Innovation grants)?
Some of these advantages include:
- These incentives have an economic effect comparable to subsidies but are not subject to taxation.
- Their application is voluntary and unrestricted for all knowledge areas and expenditure levels and is available to all companies, regardless of their CNAE or size.
- They are direct deductions not subject to competitive funding with a predefined budget; each company generates them when engaging in R&D and/or TI activities, as per the definitions established in the Corporate Tax Law.
- The tax deduction generated is proportional to the R&D&I activities carried out and applies to the annual corporate tax return, up to a certain tax liability limit.
Thus, the Spanish tax framework allows your company to generate a significant tax return linked to its innovative activities—without risk—while creating a tax credit that can be applied for up to 18 years.
Additionally, for innovative SMEs, R&D&I tax deductions are compatible with Social Security rebates for research personnel (Royal Decree 475/2014). For other entities, both advantages can be combined as long as they are not applied to the same researcher.
At artica+i, We Help You Obtain Tax Deductions for Your R&D&I Activities
If you want your company to benefit from these tax advantages, learn about our R&D&I tax service and use it to boost your company’s growth and competitiveness.
Are you unsure whether your company engages in R&D&I activities? At artica+i, we combine our technical expertise in engineering, technology consulting, and innovation tax law to help you identify and apply tax incentives safely and effectively through our specialized service, which allows you to:
- Reduce tax uncertainty with an accurate classification of your R&D&I activities.
- Maximize economic return by identifying all deduction opportunities.
- Avoid risks and penalties with a solid tax strategy aligned with current regulations.
To achieve this, we offer our expertise in designing optimal tax strategies, coordinating tax benefits with your financial advisors through prior tax assessment and risk analysis. This process enables the prequalification of technical project activities and the calculation of taxable bases for each fiscal year.
Furthermore, our service includes comprehensive management of the supporting documentation for the applied tax incentive and the request and processing of Binding Motivated Reports issued by the Ministry of Science, Innovation, and Universities, among others.
Since most companies close their fiscal years in December, the first half of the year is the ideal time to review the expenses incurred in the previous year and identify activities that may qualify as R&D&I. This allows for an assessment of the fiscal return available for the 2024 Corporate Tax filing.
