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

  • Australian Government encourages foreign entities to undertake R&D in Australia through generous rebates.
  • Small to medium enterprises (SMEs) are the big beneficiaries under new R&D tax incentive program.
  • Loss-making SMEs can get back 45 cents for every R&D dollar spent.

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:

Tracey Murray, Director, Griffith Hack Consulting
Email Tracey

David Mason, Director, Griffith Hack Consulting
Email David