Sovereign Ordinance No 7.922 of 14 February 2020 amends the expenses that are eligible for the R&D tax credit.
Companies subject to corporation tax in Monaco can claim a tax credit for R&D expenditure they have incurred during the year. This tax credit is known as CIR – Crédit d’Impôt Recherche and is thus intended for innovative firms carrying out eligible R&D activities.
Which R&D activities are concerned by this tax credit?
Eligible R&D activities are defined as scientific and technical research operations, including the production of prototypes or pilot installations, carried out in the Principality of Monaco (Ordinance No 10.325 of 17 October 1991).
Which expenses are eligible for this tax credit?
Once the research operations involved have been determined, the R&D expenditure eligible for the tax credit should be examined. They are listed in Ordinance No 10.325 which refers in particular to:
- depreciation charges on fixed assets, other than relating to real estate property, created or acquired new and allocated directly to the carrying out in the Principality of scientific and technical research operations including the production of prototypes or pilot facilities;
- staff expenditure relating to researchers and research technicians directly and solely assigned to such operations;
- other operational expenditure incurred in the same operations;
- the costs of registering and maintaining patents;
- the costs of defending patents […].
What are the methods for calculating such eligible expenditure for this tax credit?
Ordinance No 10.325 also sets out the methods for calculating such eligible expenditure and it is in this regard that Ordinance No 7.922 constitutes an amendment to the calculation of "other operational expenditure".
Under Ordinance No 10.325, the method for calculating "other operational expenditure" eligible for the tax credit is established on a fixed basis:
- by applying a fixed rate of 75% to depreciation charges on fixed assets; and
- by applying a fixed rate of 50% to staff expenditure.
It is solely regarding this last point that Ordinance No 7.922 constitutes an amendment by reducing to 43% the fixed rate applying to staff expenditure as from 1 January 2020.
What impact for innovative companies?
This is of course a minor amendment but the impact may be significant for companies concerned.
The tax credit rate is 30% for the portion of research expenditure up to EUR 100 million inclusive and 5% for the portion of research expenditure over that amount, with a maximum of EUR 10 million per company (Article 1 of Ordinance No 10.325).
The calculation of the applicable tax credit and the determination of underlying eligible activities and expenditure requires a detailed and often subtle analysis, involving a detailed review of legal and technical documentation. A detailed statement calculating the tax credit must be attached to the corporation tax return, subject, if not provided, to being refused to benefit from the tax credit by the Monegasque tax authorities and being required to pay additional tax relating thereto, plus applicable late payment interest and penalties.