Research and development (R&D) allowance
Up to 100% of specific R&D expenses (or costs) incurred in a given tax year may be deducted from the tax base as a special tax allowance. These costs are therefore deducted twice for tax purposes: once as a normal tax-deductible cost and then again as a special tax allowance. 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.
The following costs can be included in the R&D tax allowance:
- Direct costs (e.g. personnel costs of R&D engineers, consumed materials).
- Tax depreciation of fixed assets used for R&D activities.
- Other operational expenses directly related to the realisation of R&D activities (e.g. telecommunications fees, electricity, water, gas).
Only qualifying expenses are deductible for tax purposes and must be separately identified from other expenses (or costs). This allowance does not apply to costs of purchased services or intangible results of R&D acquired from other entities, except for expenses (or costs) incurred from an R&D organisation. In addition, expenses that were supported from public sources are also excluded.
The tax payer needs to inform the tax authorities about the intention to claim the R&D allowance, and by the date for filing of the CIT return for the year in which the allowance started to be claimed for a specific project the tax payer must prepare a written project documentation in a format defined by the tax legislation.
Any non-utilised R&D allowance may be carried forward for three subsequent years.
A taxpayer may request a binding ruling with respect to R&D costs from the respective tax office in the event that the taxpayer is unsure of whether certain R&D costs are eligible for the allowance.
Investment incentives are available only to Czech entities (including Czech subsidiaries of foreign companies). Incentives include income and real estate tax relief, financial support for the creation of new jobs, financial support for training or retraining of employees, cash grant on capital expenditures, and a transfer of land at a specially reduced price.
Investment incentives are available in the manufacturing industry and also for support of technology centres, strategic services, data centres, and customer support centres.