The SR&ED Tax Credit program was definitely created for Canadians doing innovative work in Canada, but what about foreign companies doing research and development on Canadian soil? Can they apply?The answer is yes.
In fact, there are a couple of ways a foreign company may take advantage of the Scientific Research and Experimental Development Tax Credit. These include if they are filing through a Canadian subsidiary or through non-controlling interest of a CCPC (Canadian Controlled Private Corporation).
If filing through a Canadian subsidiary, the company must be performing all SR&ED activities in Canada and paying Canadian taxable employees/suppliers. Under the program companies may be able to claim a 20% non-refundable tax credit to be used against their Federal Canadian taxes and may be eligible for additional Provincial incentives.
One of the best ways to be eligible for SR&ED credits is as a CCPC. Non-controlling interest in a CCPC by a foreign investor can allow the CCPC to claim up to 35% on the first $3 million of eligible expenditures plus Provincial incentives.
Canadian companies that perform R&D activities out of country can still submit a claim for SR&ED, however only up to 10% of salaries and wages of the SR&ED claim can be from eligible activities abroad. The employees performing the SR&ED tasks must be Canadian residents.
Read more about foreign companies and SR&ED at the Invest in Canada site.
Canada promotes the prospect of foreign companies performing their manufacturing and research here. SR&ED is one of the world’s best tax credit programs in regards to innovation, and companies abroad are definitely taking notice. Research Info Source has released Canada’s Corporate Innovation Leaders for 2019 and in the top 20, 5 were foreign-owned subsidiaries (only includes R&D spend and revenue in Canada).
With big changes to SR&ED approaching, it will be noteworthy to see if the interest of foreign companies performing R&D in Canada grows, stays steady or drops.