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Chile offers aggressive R&D incentives

Chile offers aggressive R&D incentives
by Conrad Von Igel, Executive Director, InnovaChile (Corfo)

Conrad Von Igel, Executive
Director, InnovaChile (Corfo).
Chilean Congress approves an important modification to the R&D law that radically expands and adds much more flexibility to the incentive, which will be available for foreign and domestic companies as of July 2012.

EVIDENCE has shown that a direct relationship exists between countries' levels of investment in research & development (R&D) and their competitive edge & development rate. In Chile, R&D investment levels are far below the average in OECD countries, which invest on average 2.3% of their GDP in R&D, whereas Chile invests only 0.4%.

Last week, in an effort to stimulate R&D investment, the Chilean Congress approved an important modification to its R&D law that radically expands and adds much more flexibility to the incentive. The tax credit will be available for foreign and domestic companies under the new terms beginning in July 2012.

Chile's current R&D law, enacted in 2008, encourages private investment in R&D by providing a tax credit of 35% for expenditures on R&D contracts with pre-certified third party R&D centers. However, since its creation, this incentive has been used sparingly due to its many restrictions.

Under the new law, the maximum amount of tax credit available to each company has been tripled to US$1.2 million per annum, and a previously existing gross sales percentage ceiling has been eliminated, since this had discouraged R&D-based startups and SMEs from using the credit. Additionally, businesses will now be able to claim the tax incentive for "in-house" R&D projects in addition to those developed externally. The law has also been extended to include a wider variety of expenditures, including those related to movable property and real estate, as well as expenditures on intellectual property protection.

In an important step for international companies, up to 50% of R&D activity developed outside of Chile can be claimed, allowing companies to develop more complex and sophisticated cross-border R&D activities.

Procedures determined by the new law are also more flexible, allowing companies to obtain the tax credit certificate up to 180 days after the R&D project has started, and not only for pre-certified activities as before. This adjusted the law to the OECD's best practices.

With these modifications, Chile hopes to attract foreign companies interested in executing R&D projects, as well as to support domestic companies with planning, approval or acceleration of R&D investment decisions. In particular, the goal is to provide more companies with the support they need to establish both R&D departments and stable innovation routines that will inherently promote Chile's competitiveness and productivity.