France is an innovation-friendly country offering many beneficial opportunities for European groups

Several R&D incentives are available under French tax law in addition to the well known R&D tax credit. In the recently published 2021 OECD study (Measuring Tax Support for R&D and Innovation – OECD (oecd.org) France was ranked amongst the most favourable jurisdictions in Europe. Specific programmes involving financing and assistance to start-ups and SMEs have been implemented recently, such as the ‘Greentech innovation’ initiative.

An appealing R&D tax credit that allows the development of research activities not only in France but also in Europe

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

The tax credit, amounting to 30% of the eligible expenses does not target specific sectors but applies to all kinds of activities. Eligible expenses are notably depreciation of fixed assets, wages, and salaries, fees paid to sub-contractors, and some other specific costs. In addition, contrary to other R&D tax incentives worldwide, R&D costs are included in the credit basis regardless of their accounting treatment, deducted or capitalised. 

Regarding sub-contractors, France permits research activities to be undertaken in other European countries, subject to the condition that sub-contracting companies have obtained approval from the Ministry of higher education and research. The approval procedure is mainly based on a research activities presentation and its analysis by an expert of the Ministry. Approval is given for a 3-year period and can be renewed.

It is then possible within a group to have multiple research centres and still benefit from the R&D tax credit in France for expenses incurred in another European country but paid for in France. This presents many structuring opportunities open for international groups.

There are other tax incentives that may also apply

The main other tax incentive regimes for R&D activities are as follow, some of which were introduced in 2022:

• Innovation tax credit: the innovation tax credit applies to innovative expenses defined as prototypes and pilot installations (not eligible for R&D tax credit) and this is for SMEs. It amounts to 30% of the expenses (as of 2023, an increase on the 20% applicable prior to 2023).
• Collaborative research tax credit: this is a new tax credit in France introduced in 2022 and applicable to collaborative research. Sub-contracted expenses can give entitlement to a 40% tax credit if not included in the R&D Tax credit claim, whether subcontracted to a public body or not (provided the conditions for the credit are met). This measure was introduced to compensate for the end doubling of the expense related to research outsourced to public bodies.
• Junior university enterprise and junior innovative enterprise regimes allow tax benefits exemptions, subject to certain conditions. The duration of this benefit has been extended in the finance act for 2022 from seven to eleven years from the first application to an enterprise.
• 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.
• A special tax regime known as the “IP Box” applies to profits deriving from IP as patents and software (OECD nexus approach). Under this regime, intellectual property income benefits from a lower tax rate (15% in place of 25%).

In the context of tax competition between countries, Europe and France remain very attractive.

The structuring of research activities is key for companies. When considering the research activities’ organisation, it is important to assess tax effects and opportunities. Companies will want to make sure the organisation is as efficient as possible.  The full research lifecycle is key to understanding and organising these functions at both a national and international level.

With numerous incentives, investment projects and a high number of R&D personnel, France is one of the most attractive R&D ecosystems in Europe. European projects such as ‘Horizon Europe’ are additional reasons to consider France as a location for R&D activities.