R&D incentives in Portugal and Spain: what to keep an eye on
For companies prioritizing Research and Development (R&D), expanding into markets with strong support for innovation can be a game changer. Both Portugal and Spain have built up quite a reputation for being startup-friendly – and part of that appeal lies in the R&D incentives they offer.
From tax credits to grants or co-funded European programs, these incentives can make a real difference in your business, and they're designed to attract innovative companies besides helping existing businesses thrive. Let's break down the critical incentives in each country to see if you’re all set to expand to Iberia.
What You’ll Learn:
R&D incentives in Portugal: why everyone’s picking the sunny country
The top R&D incentives in Portugal
SIFIDE II
Patent Box regime
Portugal 2030Why Portugal? Reasons to consider it over other European countries
R&D incentives in Spain: the other side of the coin
The top R&D incentives in Spain
Tax deductions on R&D expenditure
Patent box regime
Grants and subsidiesWhy Spain? Reasons to consider it over other European countries
R&D incentives in Portugal: why everyone’s picking the sunny country
It’s no joke: many are calling Lisbon the new San Francisco.
American and European businesses are picking Portugal to expand into, but there’s more than one reason backing that decision. In recent years, Portugal has positioned itself as a tech hub, attracting startups and major tech companies.
And it’s all due to its laid-back lifestyle and affordable cost of living.
Sure, you end up paying very competitive salaries, but we mustn’t ignore the phase that comes first: the R&D incentives. There’s a complete package of benefits attracting foreign businesses to the country that deserves your attention.
And that’s what you’re about to find out.
The top R&D incentives in Portugal
In between credits and tax incentives, you must identify the R&D perk (or perks) that best suits your business. And these are the most popular.
SIFIDE II
The SIFIDE II program (Sistema de Incentivos Fiscais à Investigação & Desenvolvimento Empresarial) is the crown jewel of Portugal’s R&D incentives. Though this incentive is set to end in 2025, it supports Research and Development activities related to creating or improving a product, process, program, or piece of equipment. This SIFIDE II includes:
Research expenses incurred by the IRC taxpayer (i.e., the benefiting company) to acquire new scientific or technical knowledge;
Development expenses incurred by the IRC taxpayer for research work or other scientific or technical knowledge – to discover or improve raw materials, products, services, or manufacturing processes.
Here’s how SIFIDE II works:
Base tax credit: companies can claim a base tax credit of 32.5% on eligible R&D expenses.
Incremental tax credit: if R&D spending increases year after year, companies can ask for an additional 50% credit (up to €1.5 million).
Eligible expenses: these include costs with personnel, equipment, materials, and outsourced R&D, amongst others.
If your business wants to use SIFIDE II, it must file a claim every year to the Portuguese tax authorities. But here’s the catch: you must submit a thorough report on your business R&D activities – which is very time-consuming (believe us). However, that annual effort can lead to substantial savings, so you might as well think about it carefully.
Patent Box regime
This patent box regime applies to specific copyright and industrial property rights. It predicts an 85% tax exemption on income derived from using or exploiting copyright from computer programs.
This regime also foresees a 30% mark-up of the eligible expenses for developing IP (Intellectual Property) assets protection.
But it isn’t simple to guarantee this regime in Portugal, as it only applies if there’s a clear distinction in the accounting records – regarding profits and the IP-associated profits (so there’s a clear distinction between source profits and expenses).
This patent box regime applies to patents and other industrial models (or drawings) registered on or after July 1, 2016.
Portugal 2030
While SIFIDE II covers a lot, Portugal also offers grants aimed at innovation. Programs like Portugal 2030 (co-funded by the European Union) provide different subsidies and loans, particularly for high-tech projects or sustainable innovation projects.
Portugal 2030 gives name to the partnership between Portugal and the European Commission. It aims to apply €23 billion of European funds to projects stimulating and developing the Portuguese economy between 2021 and 2027.
Portugal 2030 runs through 12 programs:
4 with a theme-based scope: demography, qualifications, and inclusion; innovation and digital transition; climate action and sustainability, and sea;
5 regional programs corresponding to the NUTS II of mainland Portugal, 2 of the Autonomous Regions, and one for Technical Assistance;
Other European territorial cooperation programs in which Portugal participates.
Why Portugal? Reasons to consider it over other European countries
Portugal’s R&D incentives are particularly powerful for SMEs and startups looking for constant innovation. On top of that, every year, there are new and renewed fiscal incentives in the country’s state budget. In other words, this means Portugal is always looking to attract foreign, long-lasting investment.
On top of that, the ecosystem in Portugal is super supportive of growing companies – and you can witness that through its thriving network of incubators, accelerators, and government programs.
So, if your business is looking for a budget-friendly European base, keep Portugal under the radar. And reach out if you need a hand opening an office there.
R&D incentives in Spain: the other side of the coin
Just next door, Spain also offers a mix of tax incentives and grants, making it a solid choice for companies looking to ramp up their R&D efforts. The Spanish government keeps working to attract innovative businesses, and its R&D incentives reflect this commitment.
The truth is: setting up a branch in Spain can be challenging, but it pays off.
The top R&D incentives in Spain
Spain keeps working to attract foreign investment. And these are the country’s top incentives. See if any catch your eye.
Tax deductions on R&D expenditure
Spain designs its tax deductions for R&D activities considering long-term investment in innovation:
Deduction rates: companies can receive up to 25% of their R&D expenses as a tax deduction. If the R&D expenses increase compared to the previous 2 years, an additional 17% deduction is available.
Eligible activities: this deduction covers activities from basic research and experimental development to innovation in production processes.
Let’s say your company’s R&D credits exceed its tax liability. In that case, Spain offers the option to receive cash refunds on unused deductions, with some conditions. This unique feature is especially helpful for smaller companies that may not yet be profitable.
Patent Box regime
Spain also offers a Patent Box (also known as IP Box) tax incentive to promote innovation. That is one of the most advantageous "patent box regimes” in the EU – with up to 60% exemption of the net income (resulting from using some intangible assets transferred or licensed to another entity, like patents and other intellectual property).
On top of that, you should know that this “patent box” incentive can pair with other R&D tax credits. In short, this package creates a strong financial incentive for companies with intellectual property.
According to LaWants, a Spanish law and accounting firm, this tax benefit applies “when the company that generated the asset transfers or licenses it to another entity, so that the latter uses it to develop an economic activity.”
Grants and subsidies
Spain has many regional and national grants aimed at boosting innovation. For example, CDTI (Centro para el Desarrollo Tecnológico Industrial) offers grants, loans, and subsidies to companies involved in high-tech R&D projects. Regional governments, like those in Catalonia or Madrid, often have additional R&D grants to attract tech and life sciences companies.
But there’s more.
As LaWants states, Spanish law allows any company that conducts R&D in Spain – or in any other country of the European Union – the right to practice certain deductions from corporate tax. Amongst others, companies can guarantee these tax benefits:
On technological innovation: companies can deduct 12% of the expenses related to software implementation (as long as it contributes to improving the efficiency and productivity of company processes);
On the grounds of R&D: companies may deduct between 25% and 42% of the average R&D expenses of the previous 2 years, plus an additional deduction of 17% of staff costs for qualified researchers (exclusively assigned to R&D).
Why Spain? Reasons to consider it over other European countries
Spain’s R&D incentives are versatile, and its ecosystem is one of the most developed in Europe. With programs like the Patent Box and cash refunds for tax credits, Spain is particularly appealing to tech-heavy companies and those with intellectual property.
The average tech salary in Spain is also super competitive, making it (even more) attractive to businesses looking to expand to Europe. And that’s not all, as the Spanish government also keeps workers in mind when it comes to tax benefits – and the Beckham Law is a perfect example of that.
Its vibrant cities, relatively low living costs (compared to other Western European hubs), and competitive business costs make it an attractive location for expanding businesses.
R&D incentives in Portugal and Spain: what’s the best for your business?
As you know, Portugal and Spain offer competitive R&D incentives, so choosing between them depends on your company’s specific needs, goals, and growth strategy. Let’s help you ease that decision by comparing determining factors.
Ease of application: Portugal’s SIFIDE II is known for being somewhat accessible, especially for startups. The application process for R&D deductions can be more complex in Spain, though it comes with appealing perks like cash refunds.
Scope of activities covered: while both countries offer broad eligibility, Spain’s patent box regime can be more attractive for companies focused on intellectual property. So, remember to keep that in mind if that’s the case for your business.
Business ecosystem: both countries rank high regarding their tech ecosystem and the capacity to attract foreign investment. Both have tech-friendly cities, but we can’t deny the countries’ sizes and, therefore, their markets. Spain’s larger regional diversity and market can grant a broader range of networking and growth opportunities.
So, yes, it all comes down to your business specificity.
For companies looking to expand to Europe, Portugal and Spain are 2 of the most competitive destinations for R&D incentives. Whether you apply to Portugal’s SIFIDE II or Spain’s patent box, each country has incentives tailored to different types of innovation.
With BRIDGE IN’s support, tapping into these resources and navigating the application processes can be much easier. If you’re curious about how these incentives can apply to your business or need help employing – or even setting up an office in Portugal or Spain – reach out to us. We’d love to help you make the most of your R&D investments.
