Tax deduction for research and development
What are the objectives?
The aim is to strengthen research and development work and improve the competitive conditions of innovative companies by giving them the right to a tax deduction for the cost of innovative projects.
What is funded?
A condition for a project to be approved (and thereby be able to take advantage of a tax deduction) is that it meets the legal definition of a research or development project and:
- The idea of a value-added product / service and business plan is well defined.
- At least 1 million ISK is dedicated to research and development over a period of 12 months.
- The employees have training, education or experience in the field on which the idea of a value-added product or service is based.
Further information on confirmation conditions and regulations:
Research and development ( legal definition): A specific and purposeful project that is intended to acquire new knowledge or new skills considered to be beneficial to the company due to the development of a new or better product, service or production method (Short version, see also more detailed definition).
References to related EU/EEA regulations in English:
How to apply?
Applications are submitted for projects in Rannís' application system. In the case of co-operation project (shared ownership) application must include Co-operation agreement between the partners.
New applications must be submitted by 1st October each year, and if a project is ongoing between years the company must apply for continuation of approved status 1st April following initial approval.
The role of Rannís - Processing of applications
Rannís shall, within two months of receipt of a valid application, decide on its processing and notify the applicant of the result. For an application to be considered valid, all necessary and requested information must be available. Each project must be applied for separately.
If the project is confirmed, Rannís notifies the applicant of the result, in addition to notifying the office of the Iceland Revenue and Customs (RSK.is) of the companies that are involved in the projects that have received Rannís confirmation. Collaborative projects shall be accounted for separately and all participants will be informed.
Rannís keeps a record of the approved projects and send a list of these projects to the RSK (Tax authorities). Special form (RSK 4.21) will then be open at the time the company delivers the tax statement of the year. The company's auditor signs this statement.
Expert Panels and Evaluation
A special professional committee is involved in the procedure according to the law. The professional committee is advisory and consists of three representatives; The Minister of Finance, the Minister of Industry and the Confederation of Icelandic Employers nominate members to the professional committee. The professional committee provides advice on issues, procedures and definitions of projects, but generally does not deal with individual applications or applicants. Processing of applications is entirely in the hands of Rannís.
References to related EU/EEA regulations in English:
- COMMISSION REGULATION (EU) No 651/2014 with references to amendments 2017 &2020.
- Handbook for Tax Deduction for RD
- Tax deduction for R&D projects in Iceland (pdf)
