R&D investment is considered to be a key factor to enhance skills, jobs and economic growth. Governments increasingly recognize the attraction of tax benefits to encourage companies to invest in high-value, knowledge intensive industries and technologies.
In today's globalised business world, EMEA businesses face competition from efficient, well capitalised foreign companies as well as from familiar local competitors. It has become increasingly apparent that innovation driven by high quality R&D is vital to the long-lasting success of almost any business in the region. Tax competition is not always acknowledged by governments but it exists. Fro the companies dependent on undertaking R&D incentives, the more cash that can be channeled from savings in other areas, the more they can invest in R&D activities to support growth and profitability. Tax savings are one of those areas, and multinational companies increasingly focus on bringing tax into the equation when considering their R&D strategy.
Many EMEA countries that may once have inadvertently discouraged investments in R&D by requiring expenditure to be capitalised, now permit a current tax deduction for the costs of R&D activities. Many also allow enhanced deductions and/or special tax credits for R&D costs. Tax incentives are also often granted to businesses that contribute to universities and other research organisations to encourage basic research and investment in assets used in R&D activities.
Although the basic definition of R&D is similar in many countries, there are variations in country-specific taxation legislation and incentive regimes. In some countries, incentives are limited and qualification is difficult, while in others, incentives are lucrative and easily attained.