Le Crédit Impôt Recherche: what it is and how to get it

In an increasingly competitive economic environment, companies must show innovation and creativity to stand out. However, research and development (R&D) activities are often very costly and many believe that only large companies can afford to conduct such projects.

That’s why, to encourage innovation in all companies, France implemented a very specific measure: the Crédit Impôt Recherche (CIR) or Research Tax Credit (RTC).

What is the Research Tax Credit all about? How does it work and who can benefit from it? How do you apply for it? Let’s take a closer look in this article.

Created in 1983, the Research Tax Credit is a tax incentive designed to promote innovation and competitiveness in companies, through R&D projects. Thanks to this tax credit, companies can partially be reimbursed for their R&D expenses.

The RTC is a tax credit amounting to:

• 30% of all R&D expenses up to €100 million,
• 5% of all R&D expenses exceeding €100 million.

In French overseas departments, the RTC is even more advantageous and amounts to:

• 50% of all R&D costs up to €100 million,
• 5% of all research expenses exceeding €100 million.

It’s important to note that this incentive is a tax measure, i.e. it is not money directly granted. This credit is deducted from the Corporate income tax (Impôt sur les sociétés) or the Income tax (impôt sur le revenu) of the company requesting it.

The Research Tax Credit is available to companies if they meet 4 main eligibility criteria, as defined by the General Tax Code (Code général des impôts) in its article 244 quarter B I.

All companies, regardless of their size or legal status, can claim the Research Tax Credit if they work in the industrial, trade, artisanal or agricultural fields.

Liberal activities are out of the scope of this tax incentive.

To claim the RTC, companies must be subject to income or corporate tax in the Industrial and Commercial Profits (Bénéfices industriels et commerciaux - BIC in French) category.

Tax exempt companies are not eligible for the Research Tax Credit, with a few exceptions:

• Companies in the Young Innovative Companies (jeunes entreprises innovantes - JEI [article in French]) scheme;
• Companies located in specific areas, namely:
  • regional aid areas - ZAFR (Zone d’aide à finalité régionale in French),
  • rural revitalization zones - ZRR (zones de revitalisation rurale),
  • employment areas to revitalize - BER (bassin d'emploi à redynamiser),
  • defense restructuration areas - ZRD (zones de restructuration de la défense)
  • or in urban tax-free zones - ZFU (zones franches urbaines).

Although this criteria may seem obvious, it’s also one of the hardest to comprehend fully. That’s because not all research conducted by companies is eligible for the Research Tax Credit.

According to the French tax administration, to be eligible, research must be carried out using a scientific approach, to solve a problem that has not yet been resolved in the current state of available knowledge.

In other words, the research must meet the five criteria defining a research and development activity - as outlined in the reference text on the subject: the Frascati manual.  Research and/or development activities must involve an element of novelty, creativity, uncertainty, and must be systematic and be reproductible.

The categories of expenses that can give right to the tax credit are:

• tax-deductible depreciation of fixed assets dedicated to R&D projects;
• personnel expenses;
• compensation and fair prices for employees who are the authors of an invention resulting from research operations;
• personnel expenses related to young doctorates;
• operating expenses dedicated to R&D;
• costs of taking out and maintaining patents and Plant Variety Protection Certificates (certificats d’obtention végétale or COV in French) ;
• costs of defending patents and Plant Variety Protection Certificates (PVPC or COV in French);
• depreciation of patents acquired for research and COV purposes;
• standardization expenses;
• premiums and contributions (up to a limit of €60,000) of the legal protection insurance contracts covering patent or PVPC litigation expeneses,
• tech monitoring expenses, up to €60,000;
• subcontracted research activities.

If all this seems rather complex to you and you’re still wondering whether your research expenses give right to the Research Tax Credit, you can request a tax ruling (rescrit fiscal in French) from the French tax administration. Keep reading as we’ll explain later in detail what this is and why it’s useful.

To be able to apply for the RTC, the company must incur research expenses related to operations carried out in a country of the European Economic Area.

If you’re unsure whether your company can claim the Research Tax Credit, there’s a definite way to know: ask the tax authorities for a tax ruling (rescrit fiscal in French).

A tax ruling is a request made to the tax administration to obtain practical and precise answers regarding your situation with respect to fiscal law.

This process is very useful with regards to the RTC: it’ll allow you to know for sure whether you are eligible for this tax credit.

Be sure to use the RTC ruling template (link in French) that’s available online on the French tax website. This template will allow you to give a comprehensive presentation of your project. The more information you provide, the better, as the tax authorities need to know all the necessary information about your project to give you a relevant response.

The tax ruling request must be sent no later than 6 months before the deadline for submitting a Research Tax Credit declaration.

A favorable response from the tax authorities mean you’ll be able to claim this tax credit for your research, so long as you actually carry out the R&D activities mentioned in your request. As is common in France, if you hear nothing back from the tax authorities within 3 months following the submission of your request, this means they have tacitly agreed to it.

Now that you know that you’re eligible for the Research tax credit, how do you go about obtaining it?

Your RTC request must be filed with the Corporate Tax Office (services des impôts des entreprises or SIE in French), alongside a number of supporting documents.

Your company will need to fill out the form n°2069-A-SD as well as the form n°2572-SD - balance sheet statement (forms are in French).

If your fiscal year ends on 31 December, you’ll need to make sure your request is filled by 15 May at the latest.

In that case, you’ll need to fill out form n°2069-A-SD (in French) and provide your income statement.

If your fiscal year closes on 31 December, then you have until the second business day following the 1st of May to submit your file. In 2023, that means you have until 3 May.

Your file will also need to include another form: the form n°2069-A-1-SD (in French). Once you’ve filed your request and submitted all required supporting documents, the tax administration then has three months to provide a favorable or unfavorable response to your request.

In addition to the research tax credit, there’s more specific R&D aid available.

The Innovation Tax Credit is a tax incentive designed for SMEs, i.e. companies employing fewer than 500 employees. Through this measure, you get a 20% tax credit on all expenses needed to design and/or produce prototypes or pilot installations of a new product.

Here too, it’s best to request a tax ruling to ensure beforehand your company expenses are eligible for this innovation tax credit.

Instituted by the 2022 Finance Act, this new Collaborative Research Tax Credit is designed for companies that have entered into a contract with a research and knowledge dissemination organization.

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