Tax incentives for R&D activities - legislative changes to be taken into account in 2023

Recently important changes have been made to the legislation governing R&D tax incentives. Consequently, taxpayers who apply or wish to apply the tax incentives for R&D activities should know that the rules for applying the supplementary deduction have been updated, but also that additional conditions have been introduced for obtaining a reduction in the corporate income tax paid , as well as the requirement for large taxpayers to apply for a certification of their activity. The main changes are set out below.

R&D has been defined as a strategic field for Romania’s development and for the achievement of economic growth, and at the end of last year and the beginning of this year a process of revision of the related tax legislation took place, as the authorities sought to stimulate investments in these activities. Consequently, the updated Register of Experts was set up and put into operation. Moreover, changes were made to the rules for applying deductions for R&D expenses when calculating the fiscal result, and also to the methodological rules concerning the required level of expertise for certification of R&D activity.

Starting from 1 January, a new condition was introduced for granting the additional deduction for the calculation of the fiscal result in addition to the conditions already existing in previous legislation - the elements of the R&D project will have to contain the purpose and budget of the project. Furthermore, in the category of technological development activities, the new norms clarify that experimental development activities is indeed to be taken into account.

Moreover, the new provisions state that, in order to classify projects and activities as R&D, a new body of experts registered in a National Register would be constituted, and the selection methodology, as well as the structure of the Register, would be approved by order of the head of the state authority for research and development.

At the same time, a new requirement is introduced for large taxpayers, if they want their projects and activities to be classified as R&D - they must request certification of the activity by an expert registered in the National Register of Experts. On the other hand, for other types of taxpayers, certification of the activity by an expert is optional, as it was for all types of taxpayers until these changes were implemented.

An exception is made for projects financed from national and international public funds, for which certification by an expert registered in the National Register of Experts for R&D activity is not required.

Thus, by including the requirement for certification of R&D activities for certain taxpayers, the authorities may have made it difficult to obtain the supplementary deduction for R&D expenses, i.e. a reduction of the corporate income tax. On the other hand, however, certification of these activities may provide a significant degree of comfort in the event of a tax audit, which could encourage taxpayers to apply this tax facility in greater numbers.

Considering the need to create a subsequent normative framework which is required for the effective application of the existing rules, the application norms concerning the expertise needed to certify the R&D activity have been published, through which the main stages of carrying out the expert assessement are set out: stage I – the request for the expert assessment, stage II – designation of an expert from the Register of Experts, stage III – concluding the contract, for the expert assessment and stage IV – carrying out the expert assessment. Moreover, in order to improve the manner of carrying out the certification process, the legislative authority has made available framework models for each document required for the expert assessment, both for taxpayers and for experts, i.e.: request for expert assessment, declaration of confidentiality, incompatibility and impartiality, order of expert assessment, contract of expert assessment, the expert’s report, certificate of expert assessment, registry of records of certificates of expert assessment, verification report.

Consequently, the tax authorities have provided taxpayers with a much more organized framework in terms of the application of R&D tax incentives, which also provides insurance in the event of a tax inspection, since the certificate of expert assessment serves as a document which certifies the classification of activities as R&D, and can be used in relations with the tax authorities.

At the same time, however, considering the volume of documentation that must be completed/submitted to obtain project certification, although this process could become a difficult one from the perspective of the taxpayer, the safety granted by this expert assessment could translate into a very high degree of comfort in terms of applying tax incentives for these types of activity. 

In order to operationalize the tax incentives granted by the Romanian state to boost R&D, the Ministry of Research, Development and Innovation established the National Register of Experts for the Certification of Research and Development Activity (also known as REXCD) at the beginning of February this year.

The register is made up of R&D fields, corresponding to the fields and subfields of the National Strategy for Research, Innovation and Smart Specialization - SNCISI 2022-2027 and includes up to 299 members with different scientific degrees or teaching positions: bioeconomy - 55 members; digital economy and space technologies – 48 members; energy and mobility – 32 members; advanced manufacturing – 23 members; advanced functional materials – 68 members; environment and eco-technologies – 40 members; health – prevention, diagnosis and advanced treatment – 33 members.

Consequently, the significantly larger number of experts that can be accessed for the certification of R&D activities, compared to the previous version of the register, which had only 26 members, and their division by fields/subfields, could streamline the whole process of obtaining an expert assessment.

Thus, according to the latest legislative updates, it is possible to observe the steps taken by the legislator to clarify/complete the legislation on the tax facilities for R&D activities, which we believe have, as a basic principle, the purpose of encouraging taxpayers to gain the benefit of these incentives, and generating investment in the field.

In conclusion, we would recommend that taxpayers should not neglect the benefits of applying tax incentives for R&D activities. Thus, by applying the additional deduction of 50% to R&D expenses and the income tax exemption for employees who carry out such activities, taxpayers can benefit from a reduction or elimination of corporate income tax expense, and gain a competitive advantage in the market by increasing profit margins or by maintaining price competitiveness, generating savings, which can in turn lead to new investments. We should also not forget the increase in the net salary of eligible employees, the increase in employee satisfaction and motivation, and also the increase in the company's competitiveness as an employer on the labor market.