AR-GE İNDİRİMİ HAKKINDA BİLMENİZ GEREKEN 10 ŞEY

10 THINGS YOU NEED TO KNOW ABOUT R&D DISCOUNTS

1. What is the R&D discount?

Sales made from free zones are exempt from corporate tax provided that 85% of sales are exported (sales outside Turkey). You will need to document the 85% export requirement with a Certified Public Accountant report at the end of the year. In-app purchase revenues deducted to Apple and Google are also evaluated within the scope of 85% export.

The R&D Discount included in Article 10 of the Corporate Tax Law ensures that 100% of the expenses taxpayers have made within their own businesses since the 2008 accounting period, especially within the scope of research and development activities aimed at new technology and information search, can be taken into account as R&D discount in determining corporate income.

These expenses must be for R&D activities. Research and development (R&D) activities refer to regular studies conducted to obtain new information that will enable the development of science and technology, or to produce new materials, products and tools with existing information, to create new systems, processes and services including software production, or to improve existing ones.

2. Up to what point in the R&D project can expenses be deducted?

Expenses made at the end of the R&D project are excluded from the scope of R&D expenses.

Since the R&D project is considered to be completed at the point where the trials are completed, the first production is made and the product becomes marketable, it is not possible to benefit from the R&D deduction for expenses made after this stage.

If the product obtained as a result of the completed project is intended to be developed, new studies are considered as a new R&D project, even if the product is completed.

3. Should a separate department be established to benefit from the discount?

In order for R&D expenses to be deducted, whether for producing a new product or developing a manufactured product, it is mandatory to establish a separate R&D department in companies.

R&D activities must be carried out within the enterprise. Provided that common expenses are shared and actual usage is determined, activities in R&D departments belonging to an institution but used jointly with other institutions are considered to be carried out within the enterprise. R&D activities carried out within R&D centers belonging to public institutions and organizations and universities, provided that they are managed by enterprises, are also included in this scope.

4. Which expenses are considered as R&D expenses?

The following expenses are considered as R&D expenses to be used in R&D studies and to carry out the activities:

• Raw Material Expenses: Covers direct raw or auxiliary materials, operating materials, intermediate products, spare parts and similar expenses, as well as expenses related to tangible and intangible value gains that are not subject to depreciation.
• Personnel Expenses: Covers R&D personnel wages and wage-like expenses.
• General Expenses: Covers other expenses spent to ensure the continuity of R&D activities, such as electricity, water, gas, maintenance-repair, communication, transportation, maintenance and repair expenses related to machinery and equipment used in R&D activities, rental expenses, and expenses related to books, magazines and similar scientific publications.
• Benefits and Services Provided from Outside: Covers payments made for professional or technical support received from other domestic or foreign institutions and organizations outside the business or for analyses conducted by them, and other payments of this nature.
• Taxes, Duties, Charges: In-kind taxes, duties, and charges include taxes paid for real estate where R&D activities are directly conducted, customs duties related to goods imported for use in R&D projects, and similar taxes, duties, and charges.
• Depreciation: Consists of depreciation and depletion shares allocated for tangible and intangible fixed assets such as buildings, machinery-facilities and devices, vehicles, furniture, and fixtures used directly in R&D activities.
• Financing Expenses: Expenses related to loans obtained from domestic, foreign, and international institutions on an R&D project basis.

5. What method should be followed in accounting records for R&D expenditures?

Taxpayers must account for R&D project expenses in a way that allows for the correct calculation of the R&D deduction by separating them from expenses related to other activities of the enterprise.

Enterprises must capitalize all of their research and development expenses for intangible rights within the accounting period. However, expenses that are not for intangible rights and do not need to be capitalized within the framework of the Tax Procedure Law can be directly recorded as expenses. If an intangible right arises as a result of the project, for example, a pharmaceutical company that develops a new drug will have an intangible right such as a patent or license, this amount that needs to be capitalized will be amortized through depreciation. If the project is abandoned in later years or if it is no longer possible to complete the project, it is possible to record the amounts that the institution has made within the scope of R&D activities and that were capitalized in previous years directly as expenses.

6. Which accounts should be used in the uniform chart of accounts for R&D expenses?

R&D expenses incurred during the period should be tracked in account 750-Research and Development Expenses. When using this account, appropriate sub-accounts should be opened and if more than one R&D project is to be tracked simultaneously, project-based breakdowns should be created.

The costs collected in account 750 are capitalized by being transferred to account 263-Research and Development Expenses on a monthly or quarterly basis.

At the end of the period, the amount in account 263 should be amortized and transferred to the income statement accounts. For this purpose, account 630-Research and Development Expenses should be used.

7. What will be the tax dimension of R&D expenses?

The entire R&D discount calculated on R&D expenses can be deducted on the return. This discount can be taken into account in both the provisional tax calculation and the corporate tax calculation from the moment the R&D activity starts. For this, the discount amount must be shown in the relevant line on the return. This line is the relevant line in the “Exemptions and Expenses to be Deducted Even if There is a Loss” section for corporate taxpayers, and the relevant line in the “Income Declaration” section for income taxpayers.

However, R&D Expenses should be shown as “Exemptions and discounts to be deducted if there is a profit” and are transferred in the event of no profit. Amounts unfairly deducted by the taxpayer due to projects that are not considered as R&D projects by the Scientific and Technological Research Council of Turkey (TÜBİTAK) and/or universities and specialized institutions in the field of research are collected from the taxpayer together with tax loss penalty and delay interest.

8. What information and documents should taxpayers who want to benefit from the R&D discount prepare for the R&D project?

• Report prepared by the taxpayer in accordance with the format in Annex-1 of the General Communiqué on Corporate Tax No. 1
• Evaluation report prepared by TÜBİTAK or an expert institution in accordance with the format in Annex-2 of the General Communiqué on Corporate Tax No. 1
• Certified Financial Advisor Certification Report (Taxpayers who benefit from the R&D discount must submit the Certified Public Accountant Certification Report to the tax offices they are affiliated with within the period specified in the relevant legislation, indicating that the R&D discount used in the corporate tax return has been correctly calculated and applied.)

9. When the assets capitalized within the scope of the R&D Project are transferred, can the transferee also benefit from the discounts?

If an R&D project that has not yet been completed is sold to another institution, the transferee institution considers the capitalized amounts as costs in determining the profit and makes additional expenses for the project, it benefits from the R&D discount due to these expenses. The transferor institution cannot deduct the R&D expenses incurred. If a completed R&D project is sold to another institution, the purchasing institution cannot benefit from the R&D discount.

10. Is it possible to benefit from the discount for R&D expenses incurred in Technology Development Zones and Free Zones?

If an income is generated from R&D activities carried out in technology development zones or free zones and this income is subject to the exceptions in the relevant articles of Law No. 4691 or Law No. 3218, the expenses incurred will not be considered within the scope of the R&D discount. In other words, it is not possible to benefit from the R&D discount due to the expenses incurred for R&D activities whose income will be exempted.

In order to understand which activities are considered as R&D activities and which are not, you can review articles 10.2.2 and 10.2.3 of the Corporate Tax General Communiqué No. 1.

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To summarize;

•   R&D deduction allows businesses to deduct 100% of their R&D expenses from their corporate income.
•   In order to benefit from the discount, it is mandatory for companies to establish a separate R&D department.
•   The R&D project is considered to be completed at the point where the product becomes marketable and subsequent expenses are excluded from the deduction.

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Mesut SENEL | Ifasturk CEO

Certified Public Accountant