Insight: The Research Tax Credit (CIR)
Whether you’re a startup, an SME, or a large corporation, this article will provide you with all the information you need on how to maximize your R&D investment through tax incentives.
Definition: What is the CIR?
The Research Tax Credit (CIR) is a French tax incentive designed to encourage companies to invest in research and development (R&D). It provides a tax reduction based on the R&D expenses incurred by companies.
What is R&D as defined by the CIR?
Research and Development, as defined for the purposes of the Research Tax Credit, refers to activities in basic research, applied research, and experimental development, in accordance with the criteria set forth in the OECD’s Frascati Manual and the Official Bulletin of Public Finance (BOFIP).
To be eligible for the CIR, these activities must meet certain criteria, such as:
- The novelty: aiming to achieve new results
- creativity: drawing on original and non-obvious concepts and assumptions
- uncertainty: involving uncertainty regarding the final outcome
- Consistency: being part of a planning and budgeting process
- transferability: leading to results that can be replicated by other stakeholders
Who is eligible for funding in France?
The CIR is available to all companies, regardless of the number of employees, that conduct research and development (R&D) activities, irrespective of their size or industry. However, certain conditions must be met to qualify:
- Companies must be subject to corporate income tax (CIT) or individual income tax (IIT) in France.
- R&D expenses must be incurred within the company itself or outsourced to certain approved organizations.
- R&D work must meet the definition of research and experimental development activities as set forth in the Frascati Manual.
What are the benefits of the CIR for businesses?
The CIR offers several benefits to businesses, particularly those engaged in research and development (R&D).
Tax Credit: The CIR provides significant financial support by allowing companies to receive a tax refund or tax credit on their research and development (R&D) expenses.
R&D Funding: The CIR helps fund companies’ R&D activities and enables them to strengthen their capacity for innovation and competitiveness in the market. It therefore acts as a catalyst for these activities and, more broadly, enhances France’s appeal.
Eligibility: The CIR is available to all taxable entities, regardless of their size or legal form. Whether a new or existing entity, whether taxed on actual profits or by default, and whether a business or a taxable association, it is eligible for the CIR if it incurs research expenses.
Collaboration: The CIR promotes collaboration between businesses and research organizations by encouraging R&D partnerships. This helps invigorate the innovation ecosystem and stimulate the creation of new knowledge. In 2022, as part of the Finance Act, the CICo (Research Collaboration Tax Credit) was introduced.
Security: Finally, the CIR allows companies to safeguard their R&D projects by obtaining advance tax rulings and requesting audits from the tax authorities. This provides them with assurance regarding the eligibility of their R&D expenses and bolsters the confidence of investors and partners.
CIR or CII (Innovation Tax Credit)?
What does the CII mean by "innovation"?
The Innovation Tax Credit (CII) is a French tax incentive designed to support businesses, specifically SMEs, in their innovation efforts. Introduced in 2013, it complements the CIR by focusing on expenses related to the design of prototypes or pilot facilities for new products. Innovation, as defined by the CII, therefore refers to significant advances in products that successfully differentiate themselves from the competition in a given market.
What are the differences between the CIR and the CII?
The CIR and the CII differ primarily in the types of transactions carried out and the eligible expenses.
The CIR is available to all businesses, and the rate is 30% for expenses of €100 million or less.
The CII, on the other hand, is specifically designed for small and medium-sized enterprises (SMEs). In 2022, the tax authorities reformed this scheme by eliminating flat-rate operating expenses and excluding companies in difficulty as defined by the European Commission. The rate is 20% of eligible expenses, up to a limit of €400,000 per year.
However, these two programs can be combined if your company’s projects require it.
Research Tax Credit: How Does It Work and How Can You Get It?
Eligible expenses
Expenses eligible for the CIR fall into several categories:
- Personnel expenses include researchers, engineers, and technicians directly assigned to research operations. These individuals are generally required to hold a master’s degree. These expenses consist of salaries as well as employer contributions to social security for employees.
- Depreciation expenses for new assets or buildings created or acquired for R&D purposes are also eligible.
- Research work subcontracted to private or public research organizations accredited by the CIR (accredited design firms, institutions of higher education, etc.)
- Expenses related to transactions taking place in a European Economic Area member state that has concluded an administrative assistance agreement with France are also eligible.
- Finally, operating expenses are set at a flat rate of 40% for personnel expenses and at 75% of depreciation allowances for fixed assets.
CIR Ruling
The Research Tax Credit is a self-reported tax benefit that may be subject to a tax audit within three years of filing. To ensure the accuracy of their filing and confirm the eligibility of their research and development project, companies may seek a tax ruling.
The CIR ruling provides tax certainty to businesses by allowing them to consult the tax authorities, prior to filing a return, to obtain an opinion on the eligibility of their R&D expenses for the CIR.
The request must be filed no later than 6 months before the deadline for filing the CIR return. For a company with a fiscal year-end of December 31, the deadline for filing a ruling is therefore generally set for the first half of November of the relevant year. The tax authorities then have three months to respond. If no response is received within this period, the tax authority’s decision is deemed favorable.
The application for a CIR ruling must provide an accurate, complete, and truthful description of the research project. A favorable ruling guarantees the company that, provided the work described is actually carried out, it will be eligible for the tax credit for the related expenses.
The information to be provided in the advance ruling request includes, in particular:
- a detailed presentation of the research project,
- a description of the proposed work,
- the estimated amount of expenses.
CIR Certification
CIR accreditation is an optional procedure required for certain companies that outsource their research work to a service provider. The accreditation is issued by the Ministry of Research and entitles the company to claim the CIR tax credit for outsourced research expenses.
To obtain certification, there are several steps to follow:
- Preparation and submission of an application for accreditation to the Ministry of Research. This application must be submitted between January 1 and March 31 of the current year.
- Approval is then granted by decision of the Minister of Research, following a review of the application.
Please note that the approval is valid for 5 years. If a company wishes to renew its approval, the application must be submitted before the end of the year in which the current approval expires.
CIR Rate
The rate of the Research Tax Credit (CIR) varies depending on the amount of research expenses incurred by the company. For expenses of €100 million or less, the rate is 30%. For the portion of expenses exceeding this threshold, the rate is reduced to 5%.
In some cases, certain geographic areas may be eligible for a more favorable rate. For example, for companies located in the overseas departments, the rate is 50% for research expenses of up to 100 million euros.
Under the Innovation Tax Credit (CII), the rate is set at 20%.
How do you calculate the research tax credit?
To perform this calculation, the company must identify and quantify all research expenses eligible for the CIR. This includes salaries for research staff (researchers, recent PhD graduates, etc.), depreciation allowances, subcontracting expenses, and other R&D-related costs.
A simulation tool is available on the IRS website to estimate the amount of the CIR based on the expenses entered. This estimate provides an initial idea of the potential tax credit before filing the official return.
How to report the CIR: Form Cerfa 2069-A-SD
Form Cerfa 2069-SD is the document used to claim the Research Tax Credit (CIR). This form must be completed by the company seeking to claim the CIR and is used to report R&D expenses incurred during the relevant tax year.
Since January 1, 2020, the reporting process has been fully digitized.
For companies with a fiscal year-end of December 31, Form Cerfa 2069-A-SD must be filed electronically no later than May 15 of the year following the year in which the expenses were incurred. Form Cerfa 2069-A-SD must be filed at the same time as the company’s income statement.
It is therefore important to prepare this return carefully in order to maximize the benefits of the CIR.
Some companies may request an immediate refund of their CIR: in such cases, they must contact the corporate tax office (SIE) with jurisdiction over them and submit Form Cerfa 2573-SD, which is required for the CIR refund.
It is recommended that you seek the assistance of an expert when completing this form, particularly to identify eligible expenses and correctly calculate the amount of the CIR.
Dynergie, a consulting firm that helps you determine how to best take advantage of the CIR
Dynergie is a CIR/CII consulting firm listed with the Business Mediation Service. If you would like assistance with your tax matters, particularly regarding your CII, you can view our services here.
Useful links:
> Spotlight on the 2024 Budget Act: C3IV, JEI, and Other Measures
> CIR Reform: An Analysis of Upcoming Changes
> The reform of the JEI status in the 2024 Finance Act: what remains of the Midy report?
> CIR Report: How to Properly Formulate Scientific Criteria
> Analysis: Innovative Young Company (IYC) Status
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Damien Villiers-Moriamé
I assist innovative companies of all sizes in securing public funding (CIR-CII, JEI, bpifrance, CIN, etc.). My technical expertise spans a variety of fields, including IoT, AI, e-learning, embedded systems, and service robotics. My daily work involves supporting entrepreneurs through key and critical stages of their projects (developing a financing plan, creating a business plan, and validating the business model).