R&D tax incentives in Europe vary widely, with implied subsidy rates for large, profitable firms ranging from a low of 1 percent in Denmark to a high of 39 percent in Portugal. The average rate across the 33 major European economies with available data is 16 percent for 2025, compared with 7 percent in the United States and 32 percent in China.
European subsidy rates for large profitable firms
- Highest rates: Portugal (39 %), France and Poland (both 36 %).
- Lowest rates: Denmark (1 %), Cyprus (2 %), Estonia (4 %).
- No significant relief: Bulgaria, Georgia, Latvia, Luxembourg, Malta, Switzerland.
SME and loss‑making firm relief
- Most countries apply the same expenditure‑based R&D relief to both large firms and SMEs.
- Exceptions where SMEs receive relatively more generous treatment:
- France (for loss‑making firms)
- Germany, Iceland, the Netherlands
- Croatia provides slightly higher relief to large firms than to SMEs.
- Refunds and carry‑over provisions in some jurisdictions lower the implied subsidy rates for loss‑making firms relative to profitable firms.
Recent changes (2024‑2025)
- Lithuania: Corporate‑rate increase in 2025 lifted the implied subsidy rate for large profitable firms from 31 % to 34 %.
- Slovak Republic: Similar corporate‑rate rise raised the rate from 28 % to 33 %.
- Netherlands: Tax‑credit rates for in‑scope R&D were raised, moving the implied subsidy rate from 31 % in 2024 to 35 % in 2025.
- United States: Elimination of temporary R&D amortization and restoration of pre‑2022 expensing increased the implied subsidy rate for large profitable firms from 3 % to 7 %.
Policy considerations
- While R&D tax incentives can stimulate additional research spending, they often entail higher administrative and compliance costs and may be difficult to target toward genuine innovation with broader economic spillovers.
- An alternative approach is to improve the general tax treatment of risky investment—allowing firms to fully recover capital costs and offset operating losses—potentially supporting innovation at a lower revenue cost than R&D‑specific preferences.
Source article: taxfoundation.org
