In the period between 2007 and 2014, tax incentives in Croatia for research and development projects were granted based on the Act on Scientific Activity and Higher Education, namely articles 111 a) to 111 f). However, in June 2014 the European Union issued the Commission Regulation (EU) No. 651/2014 concerning certain categories of state aid, which used significantly different terminology, definitions and requirements. As a consequence, the abovementioned articles could no longer apply and became invalid. Croatian entrepreneurs found themselves, thus, in a sort of a vacuum for over 3 years, awaiting a new legal framework for R&D incentives, since the tax incentive for R&D was abolished as of January 1, 2015. Finally, in January 2018, the Croatian Government sent to the Parliament the proposal of the Act on State Aid for Research and Development Projects which was eventually adopted and published in July 2018.
In July 2018, the Croatian Parliament passed the long-awaited Act on State Aid for Research and Development Projects (Official Gazzette “Narodne Novine” no. 64/18), effective as of 26 July 2018. The Act on State Aid for Research and Development Projects (“Act”) aims at the increase of the presence of the private sector in R&D, as well as the increase of overall number of entrepreneurs who invest in R&D. Based on this Act, in order to qualify for this incentive, R&D activities must conform to essential criteria:
• New knowledge (as a purpose of the activity);
• Creativity (new concepts, ideas and methods which improve the existing knowledge);
• Uncertainty in terms of outcomes;
• Systematic (planned with track records); and
• Transferable (outcomes are transferrable as new knowledge) and/or repeatable (it is possible to repeat outcomes).
The state aid for R&D is granted in a form of a tax relief, decreasing the taxable base for income tax for justified expenses of R&D projects as well as expenses of feasibility studies.
Subjects eligible for applying for this state aid are legal and natural persons, corporate or personal income taxpayers and it is available for all sectors of business activity and all scientific and technological areas. The Act also specifically indicates which categories of entrepreneurs do not qualify, in line with the Commission Regulation (EU) No. 651/2014.
The duration of the implementation of the project for which the aid is requested may last up to three years from the beginning of the project.
The maximum state aid for a certain category of an R&D project may amount up to:
• 100% of acceptable project expenses for basic research
• 50% of acceptable project expenses for industrial research
• 25% of acceptable project expenses for experimental development
• 50% of acceptable expenses for feasibility studies
Under certain circumstances, the state aid for industrial research and experimental development may be increased to a maximum of 80% of acceptable expenses. The intensity of the state aid for feasibility studies may be increased by 10 percentage points for medium-sized entrepreneurs and 20-percentage points for small entrepreneurs.
The total amount of state aid that a beneficiary can achieve under this Act is as follows:
• prevailingly basic research: up to € 300,000 per entrepreneur/per project
• prevailingly industrial research: up to € 200,000 per entrepreneur/per project
• prevailingly experimental development: up to € 100,000 per entrepreneur/per project
• feasibility studies in the preparation of research activities: up to € 50,000 per study, all in HRK (Croatian Kuna) counter value.
Within 90 days from the enforcement of the Act, the Croatian Ministry of Economy, Entrepreneurship and Crafts shall issue relevant ordinances and bylaws implementing the Act and prescribing the modalities of the application for the state aid in question, eligibility evaluation criteria, process of granting of the aid, required tracking records, supervision over the project implementation and expenses and similar matters.
Silvia Cancedda, Client Relationship Advisor
David Jakovljevic, Tax and Legal Advisor
Eurofast Croatia
T: +385 1 7980 646
E: zagreb@eurofast.eu
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