An International Comparison of Government Funding for R&D and IP Costs

Governments around the world are increasingly encouraging R&D, and particularly innovation, by supporting local companies as well as attracting foreign companies to invest locally in R&D. Equally there is a push for the IP generated from the R&D to be properly legislated for and protected. This article examines and compares ways that governments have been providing encouragement, for example the types and levels of direct support and tax relief offered by a number of key economies.

Direct support

Direct support in the form of grants or subsidies for R&D is very common in the jurisdictions listed. Direct support for resulting IP is less common in Europe and the US but is more widely available in a number of Asia Pacific countries as set out below. 

Direct support for R&D is often in the form of either research funding, (which may be done via collaboration with academia) or project type grants for a specified export product or market strategy. It will often partially cover such things as employing R&D technical staff, prototyping costs, market surveys and sometimes associated professional advice. For example In Singapore the direct funding support has been increased to 90% of IP costs for Covid-19 affected businesses.

As foreshadowed above, direct support for IP filings is less common than the direct support for R&D.  Sometimes funding may be available for capability development e.g. IP strategy work or FTO searching, but not IP filing per se. However, when it is available, it will usually be focused on the initial stage of filing a provisional followed by a PCT application. Usually by the end of the 30 Month PCT deadline, commercial arrangements should be in place and the project should be self-funding. China has long provided a comprehensive central policy for IP filing subsidies, which is then implemented by the provincial governments.

Tax relief

Tax relief is another tool used by governments to incentivise local innovation or investment. This support may be in the form of tax breaks (that may be refunded in cash for R&D or IP spending) or IP box regimes. 

Enhanced tax breaks on R&D and cash pay-outs for tax losses are often of most interest for start-ups who have a high burn rate and need to hoard every dollar they can. Increasingly for multinationals who are forum shopping for the most favourable regime to locate a R&D hub, the tax regime may be a deciding factor.

Tax relief on IP expenses, and more so on IP derived income, is also becoming a tool for encouraging innovation in some economies. 

Patent Boxes or IP Boxes are a developing tool used around the world and essentially prescribe a lower tax rate on income derived from patents (and in some cases from other forms of intellectual property).  The UK has a good example of a patent box, where the tax on patent derived income is prescribed at to 10% but it can go as low as 2.5% such as Cyprus.

Tax is obviously a more complex issue to describe and compare between different jurisdictions. The table below (and accompanying footnotes) is a snapshot of the different types of support available in several patent jurisdictions at the time of writing, but is subject to significant change in the current environment. 

Country IP direct support R&D direct support Tax Break IP box
NZ Yes1 Yes2 Yes3 No
Australia Yes4 Yes5 Yes6 No
Singapore Yes7 Yes8 Yes9 Yes10
China Yes11 Yes12 Yes13 No14
US No15 Yes16 Yes17 No
EU Yes18 Yes19 Yes20 Yes21

Conclusion

A wide range of subsidies and tax relief provisions are currently available, and in the predicted recession, countries are likely to offer even more generous schemes (for those that haven’t already). This is an important factor for corporate counsel or leadership teams considering where to base their R&D efforts. As always, expert advice will be necessary to assess this for individual circumstances.


1 Callaghan Innovation IP development programme up to $22,000 (40% subsidised). Co-investment of up to $900,000 available for international growth. https://www.callaghaninnovation.govt.nz/innovation-skills/innovation-ip and https://www.nzte.govt.nz/our-services/international-growth-fund.

2 Grants of 40% of eligible R&D costs. See https://www.callaghaninnovation.govt.nz/grants.

3 15% R&D tax credit, 28% cash-out of R&D losses. https://www.classic.ird.govt.nz/research-development/rdti/rdti-about/ and https://www.classic.ird.govt.nz/research-development/rdltc/overview/what-is-rdltc/what-is-rdltc.html.

4 15% R&D tax credit, 28% cash-out of R&D losses. https://www.classic.ird.govt.nz/research-development/rdti/rdti-about/ and https://www.classic.ird.govt.nz/research-development/rdltc/overview/what-is-rdltc/what-is-rdltc.html.

5 Up to $100,000 for research costs. https://www.business.gov.au/grants-and-programs/csiro-kickstart and https://www.business.gov.au/grants-and-programs/innovation-connections.

6 Up to 43.5% R&D tax offset. https://www.ato.gov.au/Business/Research-and-development-tax-incentive/.

7 Grant of up to 80% of product development costs. https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/enterprise-development-grant/innovation-and-productivity/product-development.

8 Grant of up to 80% of product development costs and 70% of costs up to $100,000 SGD for entering new markets. https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/enterprise-development-grant/innovation-and-productivity/product-development and https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/market-readiness-assistance-grant.

9 Grant of up to 80% of product development costs and 70% of costs up to $100,000 SGD for entering new markets. https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/enterprise-development-grant/innovation-and-productivity/product-development and https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/market-readiness-assistance-grant.

10 IP income taxed at 5% or 10%. https://www.edb.gov.sg/en/how-we-help/incentives-and-schemes.html.

11 Up to $7100 USD per application. https://www.mondaq.com/china/patent/779124/patent-subsidy-in-china-a-reformation-from-quantity-to-quality.

12 Up to $7100 USD per application. https://www.mondaq.com/china/patent/779124/patent-subsidy-in-china-a-reformation-from-quantity-to-quality.

13 Tax credit up to 75% of R&D costs. Corporate tax rate reduction to 15% under High and New Technology Enterprise (HNTE) programme. https://www.oecd.org/sti/rd-tax-stats-china.pdf and https://www.pwccn.com/en/services/tax/china-rd-incentive-service/high-and-new-technology-enterprise.html.

14 Although see the HNTE programme above..

15 Although companies can benefit from IP developed using federal R&D funding. https://www.innovation.pitt.edu/resources/intellectual-property-overview/federal-funding-and-ip/.

16 Although companies can benefit from IP developed using federal R&D funding. https://www.innovation.pitt.edu/resources/intellectual-property-overview/federal-funding-and-ip/.

17 Tax credit up to 20% of R&D costs. https://squarmilner.com/rd-tax-credit/.

18 Tax credit up to 20% of R&D costs. https://squarmilner.com/rd-tax-credit/.

19 Funding awards of several million Euros at the EU level, grants or awards available in UK, France, Germany and others. https://ec.europa.eu/programmes/horizon2020/en/, https://www.gov.uk/guidance/innovation-apply-for-a-funding-award, https://www.callsforproposals.com/en/french-national-research-agency-anr.html, https://www.research-in-germany.org/en/research-funding/research-funding-system.html.

20 Funding awards of several million Euros at the EU level, grants or awards available in UK, France, Germany and others. https://ec.europa.eu/programmes/horizon2020/en/, https://www.gov.uk/guidance/innovation-apply-for-a-funding-award, https://www.callsforproposals.com/en/french-national-research-agency-anr.html, https://www.research-in-germany.org/en/research-funding/research-funding-system.html.

21 Patent box systems in UK, France, Italy and others. https://taxfoundation.org/patent-box-regimes-europe-2019/.