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Czech Republic

The Czech Republic has an R&D scheme providing a 19% deduction on eligible R&D costs in addition to allowing 100% of eligible costs to be deducted from the income base. A further deduction of 110% is also available on any incremental increases in annual R&D expenses.

Although no pre-approval is required, internal pre-registration of an R&D project is required at company level before an R&D project starts. Full technical and financial supporting documentation is strongly advised.

Although the application process seems relatively easy, the regulatory authorities look for minor discrepancies in the claim justification, which can result in the refusal of an R&D deduction.

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Layer 1 Czech Gene r osity Ease of Applic a tion L e v el of r e vi e w or enquiry e xpec t ed? A r e other R&D In c enti v es a v ailabl e ? Is f o r eign- o wned R&D eligibl e ? R&D mu s t o c cur in the c ountry Is p r eapp r o v al r equi r ed? Previous financial years claimable 1 19.3%
Czech Republic

Volume-based: 100% Tax Credit

Incremental: 110% tax credit on all QE > previous year

Benefit Overview
The Czech Republic’s R&D tax credit regime is generic in nature, covering a wide scope of eligible activities and offering a common rate to all types of companies. There is a more generous benefit for 110% for any incremental R&D expenditure, when compared to the previous year.
Eligible Claim Period
Only the eligible costs a company incurred during the prior fiscal year are eligible. The tax credit must be claimed within 3-6 months of the end of the accounting period for the year in which the expenditure occurred.
Historical Background
The law came into force in 2005 and in recent years, there have been two legislative changes. The 2014 amendment led to increase of R&D deductible costs up to 110%, when an annual increase occurs (110% of the increase, 100% of the last year’s costs). The 2016 amendment allowed for claims of 100% of costs of R&D product certification, if legislatively needed.
Ease of Application

According to the Act’s requirements, there are two obligatory conditions:

  1. The company must have a written project summary (R&D document) which includes a basic description of the project’s objectives, time schedule, planned budget, research/project team, methodology, approval and an executive’s signature. This document has to be approved before the project starts.
  2. Company must keep the eligible costs for each project in separate records.

Apart from the above, supporting documentation both technical and financial is strongly recommended.

Regulating Body Policies

Fiscal controls are carried out by tax authorities. The Act is managed by the Ministry of Finance.

To apply for the tax deduction, only the sum of the year’s eligible costs has to be declared in the tax declaration. In case of fiscal audit, the taxpayer is obliged to provide the required documents (as above).

Eligible Costs
  • Wages and salaries
  • Costs of materials and supplies
  • Tax depreciation of tangible movable property used in direct relation to the project (or proportional part)
  • Operating expenses (electricity, water, heat, gas, etc.) and low value assets
  • Travel reimbursements in direct relation to the project
  • Costs related to financial leasing
  • Services and intangible results/know-how bought from R&D companies (according to the definition for R&D companies)
  • Certification of the R&D results (e.g. homologation)
Issues to Consider
  • The R&D project registration document must exist internally before the project starts.
  • The formal/administrative parts of the projects are as important for tax authorities as meeting the R&D criteria (element of novelty, technical uncertainty and systematical approach). Therefore, fiscal controls are looking even for minor formal discrepancies, which can result in refusing the R&D benefit.

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