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Czech Republic

The Czech Republic has an R&D scheme providing an additional 100% deduction of eligible R&D costs from the income base, providing a net benefit of 19% on the cost of R&D. A deduction of 110% is available on any incremental increases in annual R&D expenses.

Although the application process seems relatively easy, the regulatory authorities are rather strict in the process of the claim justification. Therefore, detailed internal documentation on eligible projects and eligible costs is strongly advised.

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czech C z e c h Gen e rosit y Ease of Application Are other R&D Incentives available? Is foreign-owned R&D eligible?R&D must occur in the country?Is pre-approval required? Are previous financial years claimable? 19 . 3 %
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Czech Republic All Companies
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 three 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. The 2019 amendment led to a major change in the approval process of project documentation and introduced the obligation to keep detailed record of changes.
Ease of Application

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

  1. After 2019/04/01 companies must notify an intention to apply tax deduction for every single new project to the competent tax authority.
  2. The company must have a written Project documentation 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 before the tax return application is declared for the first fiscal year for which the project costs are applied.
  3. 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 Project documentation must exist and be approved internally before the tax return application is declared.
  • 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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