Patent box

Patent box is a special tax regime designed for legal entities effective from 1 January 2018. Its benefit consists in the tax exemption of part of the income derived from intangible assets which are the result of the taxpayer’s own development activities.

Under the patent box regime, the taxpayer can exempt up to 50% of income (revenue) derived from:

1. remuneration for granting the right to use registered patents, utility models and software which are the result of the taxpayer’s own development activities in Slovakia.
2. the sale of products in the manufacture of which a patent or utility model has been used and which have been created by the taxpayer in the course of an activity carried out in Slovakia.

The patent box can be used by legal entities and permanent establishments taxed in the Slovak Republic.

Conditions for the application of the patent box regime:

• keeping obligatory records of the costs incurred (including activation costs) in the development of the invention, technical solution or software and of the costs of intangible results of research and development procured from another person which have been incurred in connection with the development of the invention, technical solution or software;
• intangible assets from which the income is derived are part of the taxpayer’s property;
• activation of costs on the development of patents, utility models or software;
• reduction of the exemption where the intangible assets were acquired in cooperation with another person.

Application of the exemption under the patent box regime

The tax benefit offered by the patent box regime is claimed by the taxpayer in his tax return for the tax periods in which he claims depreciation on the intangible asset.

Deduction of R&D expenses, the super-deduction

The R&D super-deduction is another type of tax benefit designed to encourage private investment in R&D. The support does not consist in tax relief or an exemption of certain income, but in the reimbursement of costs invested in research and development.

Taxpayers can claim a deduction for R&D expenditure from 2015.

The amount of the deduction has been gradually increased since 2015 from 25% to up to 200% of R&D costs in 2021. From 2022, the deduction rate has been reduced to 100%, which will apply to the deduction of R&D costs incurred in the tax year beginning on 1 January 2022 at the earliest.

The super-deduction is designed for R&D costs incurred by taxpayers for research and development activities. The deduction cannot be claimed for expenditure on services, licences and intangible results of research and development procured from others, except for expenditure on:

• services from the Slovak Academy of Sciences, public and state universities or legal persons established by central authorities of the public administration which carry out research and development;
• intangible results of research and development from persons holding a certificate of competence to carry out research and development;
• to certify own results of innovative projects.

Conditions for applying super-deduction to innovative projects:

• a proper assessment of whether costs are actually incurred in R&D activities;
• the existence of a R&D project that meets the conditions laid down by law;
• research and development costs must be recorded separately from other expenses;
• R&D costs are not funded from public funds, except for wage costs for which contributions have been granted under the ‘First Aid’ 3B measure;
• the taxpayer does not hold a certificate of competence to carry out R&D and carries out the project for his own needs or for the purpose of selling the intangible results of the innovative project or carries out the project as an intra-group service;
• the holder of a certificate of competence to carry out research and development carries out research and development only for his own needs;
• the taxpayer does not claim income tax relief for recipients of incentives.

Experience in identifying and selecting appropriate projects and preparing supporting documentation is important for the application of the R&D deduction. The method of recording and subsequent calculation of the applicable costs is also essential, which often requires expert advice on compliance with all statutory provisions.

Application of super-deduction of R&D costs

The super-deduction is claimed by the taxpayer in the tax return in a maximum of 5 tax periods immediately following the tax period in which the right to the deduction arose.

How can we help?

We provide expert advice on the analysis, preparation and review of documents required for application to the patent box or super-deduction regime.

These tax benefits can be attractive to companies that carry out research and development.