Rebates offered to foreign entities undertaking R&D in Australia
Rebates offered to foreign entities undertaking R&D in Australia - Griffith Hack
|23 April 2012|
What you need to know
|When the Australian Federal Government revamped the nearly 30-year-old R&D Tax Concession program last year, there was little doubt that SMEs would be the big beneficiaries of the new program. Under the new R&D Tax Incentive program, loss-making SMEs conducting R&D activities can now cash out their R&D expenditure, at a rate of 45 cents in the dollar.|
Eligibility for foreign companies
|While this generous incentive was most likely introduced in order to influence the R&D behaviour of many Australian SMEs engaged in R&D activities, another little known change to the program was introduced to entice businesses based offshore to conduct their R&D activities in Australia.|
Under the new regime of R&D tax incentives, foreign owned companies that conduct R&D activities in Australia through either an Australian company or a permanent establishment are now able to access the same R&D tax benefits as Australian companies. In practical terms, this means that foreign companies can now access a cash refund of 45 cents in the dollar for R&D activities conducted in Australia.
To access these generous benefits, foreign companies must comply with the same eligibility rules as Australian domestic companies. In addition, where a foreign company conducts its R&D activities in Australia through a permanent
establishment, the benefits are only available to foreign companies residing in a country with which Australia has a current double tax agreement. This aside, this generous cash refund benefit is clearly directed to incentivising foreign companies to invest their R&D resources in Australia.
Which industries will lead the charge?
|Companies most likely to be attracted to Australia as a result of this new R&D cash back are those operating in the biotechnology industry and the information and communications technology industry. These industries are most likely to be drawn to Australia to conduct R&D activities by virtue of the fact that, in the early stages of product or technology development, R&D activities have a heavy ‘human capital’ focus. With no need to invest in capital equipment in order to conduct R&D activities, for industries that focus on the use of human capital in their R&D activities, it is a relatively easy and inexpensive exercise to establish a program of R&D activities within Australia.|
What the Government is hoping is that the ease and cost effectiveness of establishing an R&D program in Australia, together with access to the Federal Government’s new 45 cents in the dollar cash rebate for eligible R&D activities, will be enough to persuade foreign companies to set up and conduct their R&D activities in Australia. Increased R&D activities in key industries will, as a result, develop Australia’s capabilities in this area and enhance Australia’s reputation as an innovator in the development of cutting edge products and services.
|For more information regarding access by foreign companies to this generous benefit, please contact:|