Cost reduction, application of innovative business solutions and, therefore, faster business development are just some of the potential benefits that Romanian companies could receive if they applied tax credits in the field of research and development on a larger scale (CD).

R&D tax breaks have existed in legislation for some time, but in practice R&D companies do not apply. In addition, despite the clarifications made by the legislator earlier this year, Romanian companies are still hesitant to access them.

An EY study conducted this year analyzed the reasons why Romanian companies do not have access to the tax benefits provided by law for research and development activities. The study showed that the main reasons were: difficulties in determining acceptable scientific research activities and preparation of necessary documentation, vagueness of legal provisions, the risk that the tax authorities will challenge the applicability of these benefits, difficulties in determining acceptable costs, as well as difficulties in hiring an appointed expert accordingly to the Register of experts in the fields of scientific and research works.

According to the legislation, Romanian companies engaged in research and development are entitled to such incentives as: exemption from paying income tax on wages, additional deduction of research and development expenses in the calculation of income tax, as well as the use of accelerated depreciation in the case of equipment used in R&D.

In particular, the following opportunities are available to Romanian R&D companies:

• Exemption from paying income tax – companies carrying out research activities are entitled to a full exemption from income tax during the first 10 years of activity.
• Additional deduction for research and development expenses – up to 50% for eligible expenses, respectively, for applied research and/or experimental development.
• Application of the accelerated depreciation method for equipment used in research activities.

There are at least two other important issues to consider when a company is considering whether it should take advantage of the R&D tax credit. Thus, in the case of large taxpayers, certification is mandatory, the legislation is supplemented by methodological rules of application, which must be studied in detail both by a person inside the company and with external support. On the other hand, the application of tax benefits for research and development activities is a multidisciplinary issue, as it involves compliance with tax legislation, as well as special legislation regarding the inclusion of activities carried out by companies in the category of research and development costs, including the Frascati Guide, implemented at the level of member countries of the Organization for Economic Cooperation and Development (OECD).

It can also be considered good news that the procedure for the work of the expert body and their attestation has been clarified (order No. 3.265/21.453/2022 and the Methodological norms of October 14, 2022 regarding the examination for the attestation of scientific and research activities), as they can support companies in their efforts correctly define the activity or segments of their activity that will belong to the field of scientific research activity. Thus, companies can optimize their tax position in the current difficult economic conditions.

Our recommendations are, first of all, to carefully analyze all types of eligible research activities and related costs. Second, to analyze the fiscal impact of the application of fiscal incentives on the level of income tax, as well as on income tax. Thirdly, careful preparation of the project is mandatory, possibly with professional support, starting from the premise of interdisciplinary – fiscal and technical.

In the context of the current tax changes, it is important to mention the IT sector, where the activities of specialists often have an R&D component, even if the means used are of a different nature and are more affordable. After the restriction of these facilities, typical of the IT sector, facilities for research and development began to attract a lot of interest as a viable alternative.

Considering the benefits provided to the research and development sector can go a long way in achieving a serious competitive advantage in the market, retaining and motivating employees, as well as optimizing costs and financial flows. In other words, there is enough room to carefully study and adapt these tools according to the specifics of the field of activity.

The article is signed by Andra Casu, Partner, Head of Direct Tax, EY Romania, Crina Onuc, Manager of Income Tax and Social Contributions, EY Romania and Raluca Vasile, Senior Manager of Direct Tax, EY Romania

Article supported by EY Romania