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R&D tax offset for foreign companies

 The Australian 43.5% R&D tax offset is available to some foreign companies who undertake R&D in Australia.

Who is eligible?

Foreign entities may be eligible where they have setup:

• an Australian resident company;
• a corporation that is an Australian resident for taxation purposes; or
• a permanent establishment in Australia.

What’s it worth?

The amount that a foreign entity can claim through the R&D Tax Incentive depends on the turnover of the company and whether it has recorded a profit or loss in the financial year in which it claims. The benefits range from a tax reduction of 10 cents for every dollar spent on R&D for profitable companies who turn over more than $20 million, to a cash refund of 43.5 cents in every dollar spent on R&D for companies in loss who turnover less than $20 million. The following table provides a more specific overview:

Example 1:

• An Australian subsidiary company, (Company K) may be eligible for the R&D tax incentive, where:
• Company K, is an Australian company wholly owned by Company J and qualifies as an R&D entity;
• its parent company (Company J) is a foreign resident incorporated under foreign law and is an incorporated in a country that has a double tax agreement with Australia;
• Company J controls Company K;
• Company K and J and any other companies that two companies are associated with, have a collective aggregated turnover of less that AU$20 million;
• Under an agreement, Company K agrees to undertake R&D activities in its Australian office solely for the benefit of Company J;
• In the agreement, Company J does not own any Intellectual Property (IP) generated out of Company K but is legally entitled to all IP arising from the R&D activities;
• Company K incurs $100,000 in R&D expenditure for the 2017 Financial Year;
• The R&D activities are being conducted solely for Company J;
• The consideration between the two companies is at arm’s length and will be paid even if the R&D is not successful.

Requirements for setting up an Australian Company

Foreign companies will need to set up an Australian company, and expect the following:

• Costs to setup the company to not exceed AU$2,000 to incorporate an eligible Australian entity in order to claim the R&D Tax incentive.
• Company incorporation within Australia can take between  2-3 weeks.
• Foreign entities will require the availability of an Australian resident director
• The Australian Financial year runs from 1 July to the 30 June, however foreign entities can submit an application to the ATO for a substitute financial year to align with their parent company’s timeframes.

How do I claim my expenditure?

• Eligible Australian subsidiaries will need to register their activities with AusIndustry no later than 10 months after the Australian companies year end.
• R&D expenditure is claimed through the lodgement of an R&D Tax Incentive claim as part of their annual income tax return.

If you are a foreign entity interested in claiming the R&D Tax Incentive in Australia and applying for Research and Development grants, contact us to determine your eligibility and discuss your options.