Crédit d'Impôt Recherche (CIR) - The Research Tax Credit

The CIR is France's flagship innovation incentive and one of the most generous R&D tax credits globally. It can transform your startup's economics, providing crucial cash flow for growth.

How CIR Works

The CIR provides a tax credit equal to: - 30% of R&D expenses up to €100 million - 5% of R&D expenses above €100 million

This credit can be used to offset corporate income tax, and crucially for startups, any excess can be refunded in cash.

Qualifying R&D Activities

The key is understanding what qualifies as R&D under French law:

Fundamental Research: Theoretical or experimental work to acquire new knowledge without specific application in view.

Applied Research: Investigation directed toward a specific practical aim or objective.

Experimental Development: Systematic work drawing on research to produce new or substantially improved materials, devices, products, processes, or services.

Eligible Expenses

Personnel Costs (typically 50-80% of claim): - Salaries and social charges of R&D staff - Only time spent directly on R&D activities - Including engineers, researchers, technicians

Operating Expenses: - Simplified calculation: 43% of eligible personnel costs for general expenses - Or actual tracking of specific R&D operating costs

Outsourced R&D: - Subcontracted to approved research organizations: 100% eligible - Subcontracted to other companies: Generally 100% eligible up to €10M - Must be genuine R&D services, not general development

Patent Costs: - Filing and maintenance costs - Patent defense costs (up to €60,000 per year) - Patent acquisition costs for R&D purposes

Depreciation: - Equipment and facilities used for R&D - Pro-rated based on R&D usage percentage

Practical Example: SaaS Startup CIR Calculation

Let's consider TechCo, a 20-person SaaS startup:

Eligible Personnel: - 5 engineers working 80% on R&D: €300,000 annual cost - 2 engineers working 50% on R&D: €60,000 annual cost - 1 CTO working 60% on R&D: €54,000 annual cost - Total eligible personnel costs: €414,000

Operating Expenses (simplified method): - 43% of €414,000 = €178,020

Outsourced R&D: - AI research to university lab: €50,000

Total Eligible R&D Expenses: €642,020

CIR Calculation: 30% × €642,020 = €192,606 tax credit

For a pre-profit startup, this entire amount can be refunded in cash, providing crucial runway extension.

CIR Application Process

Step 1: Track Eligible Expenses - Implement time tracking for R&D activities - Maintain detailed project documentation - Separate R&D from regular development

Step 2: Prepare Technical Documentation - Project descriptions demonstrating innovation - Technical uncertainties addressed - State of the art analysis - Progress reports and outcomes

Step 3: File Declaration - Annual filing with corporate tax return - Form 2069-A-SD for detailed calculation - Technical dossier kept available for audit

Step 4: Cash Refund (for eligible companies) - SMEs can request immediate refund - JEI status companies get automatic refund - Others wait 3 years then can claim refund

Common CIR Mistakes to Avoid

1. Poor Documentation - Mistake: Generic project descriptions - Solution: Detailed technical documentation showing innovation and uncertainty

2. Including Routine Development - Mistake: Claiming all software development - Solution: Only include work addressing technical uncertainties

3. Incorrect Personnel Allocation - Mistake: 100% allocation for all tech staff - Solution: Realistic time tracking and allocation

4. Missing Deadlines - Mistake: Late filing loses benefits - Solution: Calendar reminders and professional help

5. Audit Unpreparedness - Mistake: Scrambling during tax audit - Solution: Maintain audit-ready documentation throughout

CIR Audit Defense

The tax authorities may audit your CIR claim within 3 years. Be prepared:

Documentation Required: - Time sheets or tracking systems - Technical project documentation - Employment contracts and qualification proof - Invoices for external expenses - State of the art studies

Best Practices: - Consider pre-filing rescrit (advance ruling) - Work with specialized CIR consultants - Maintain contemporaneous documentation - Get external expert opinions for complex projects