R&D Expenditure

A tax credit for research and development (R&D) expenditure ("crédit d’impôt recherche") is available to enterprises undertaking research and development (R&D). The credit is based on the annual volume of expenditure subject to caps and may be set off against the corporate tax due for the year. The credit is equal to 30% of the first EUR 100 million R&D expenditure plus 5% of the excess expenditure over EUR 100 million. Excess credit in one year may be carried forward for 3 years and may be claimed for refund at the end-of the carry-forward period or earlier for SMEs, new innovative companies, and in other specified exceptional circumstances. A separate “innovation credit” equal to 20% of eligible expenditure and capped at EUR 400,000 is available to SMEs only with respect to innovation activities.

Eligible expenses include R&D staff and payroll expenses, general and administrative expenses, and depreciation allowances for assets used for R&D activities in France. With respect to R&D staff payroll, the salaries of newly recruited PhD holders are taken into account for 200% of their amount during the initial 24 months of employment. General and administrative expenses related to R&D are determined by reference to a formulaic approach: they are deemed to be equal to 43% of R&D staff expenses (reduced from 50% effective 1 January 2020) and 75% of R&D related depreciation allowances. As a general rule, R&D expenditure is eligible for inclusion in the credit base if meeting the general tests for deductibility of business expenses under French tax law.

Qualifying R&D activities also include those contracted out to either (a) French public research institutions, or (b) French private entities or individual experts, on condition in this latter case that they are approved by the Minister in charge of Research. In both cases, contracted out R&D expenditure must relate to individually identifiable projects. Where the research is contracted out to a public research institution, the expenditure is taken into account for double its amount for the purposes of the R&D credit. The same eligibility rules are extended under the same conditions to R&D contracted out to EU/EEA institutions and entities (provided with respect to EEA entities that there is a tax treaty with France including a mutual assistance clause). In contrast, expenditure incurred in relation to the legal protection of patents and similar rights is generally eligible regardless of where incurred.

R&D expenditure that is contracted out can be included in the R&D credit base only once, primarily at the level of the payor. However, where the payor is not entitled to the credit because it does not meet all required conditions, the contracted party may include the contracted amounts in its own R&D credit base provided it meets all conditions. Hence, private non-approved contracted parties may include payments on R&D contracted to them in their own credit base since the payor is by definition not permitted to include the same expenditure in its credit base. Whilst not expressly clarified by the administrative guidance on R&D credits, it would appear that a French private entity to which R&D is contracted by a foreign principal would be able to claim an R&D credit in France with respect to the expenditure even though that expenditure is recharged to the foreign principal. The guidance does not address the reverse situation (a French entity contracting-out R&D to a non-approved EU/EEA entity or to a non-EU/EEA entity generally), but seems to suggest that the expenditure would then be disallowed for the purposes of the credit because the guiding element is the location where the research is conducted and not the location where the results are used.

Innovative New Companies

A special regime applies to companies qualifying as innovative new companies (jeune entreprise innovante, JEI) formed by 31 December 2022. In order to qualify as a JEI, the entity must at the end of the relevant fiscal year:

Have existed for less than 8 years;
Qualify as a small or medium enterprise (SME);
Be held for at least 50% by individuals (or, subject to conditions, specified venture capital funds, and research institutions); and
Dedicate at least 15% of its total tax-deductible expenditure to research activities.

Qualifying JEIs benefit from a full corporate tax exemption for their first profitable fiscal year followed by a 50% exemption for the next fiscal year. Exemptions from various other taxes (e.g., local business tax and social security contributions) are available under the regime.

Competitiveness and Employment Tax Credit

The competitiveness and employment tax credit has been repealed effective from 1 January 2019 and replaced by a reduction by up to 9.9% in employer social security contributions (see Sec. 8.1.1.). Previously, the credit was computed based on the amount of salaries paid to employees. The credit was provided at 6%, with a limit of 2.5 times of the minimum salary per month.

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, the tax authorities have announced the following measures:

Effective 1 March 2020, a tax credit is introduced for audiovisual media companies operating as TV services, radio, and/or on-demand audiovisual media editors. The tax credit is equal to 15% of the total amount of expenses incurred between 1 March 2020 and 31 December 2020 in France or another EU/EEA state that has an administrative agreement with France, provided the company is able to demonstrate that there is at least 10% reduction in turnover in the said period as compared to the previous year. The prescribed expenses include expenses pertaining to broadcasting rights, funding of writing and development work, promotion of works, remuneration paid to authors, and others; and
Introduction of a tax credit for lessors equivalent to 50% of rents waived for November 2020 (the credit is 33 1/3% for companies with more than 250 employees). The total rent waived is capped at EUR 800,000.

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