Income-based tax incentives for R&D and innovation (IBTIs) feature in the innovation policy toolbox of most OECD countries and other major economies. IBTIs reduce taxes due on the income that firms generate from their innovation activities and can take many forms: intellectual property (IP) regimes such as innovation or patent boxes that target solely income from certain IP assets; or reduced rates for innovative businesses (dual regimes), that extend tax benefits beyond IP income. In 2024, IBTIs are available in 21 out of the 38 OECD countries, 15 out of 27 EU countries, and 29 out of the 51 countries covered in this release.
New OECD estimates indicate that, on average, IBTIs reduce the overall tax liability that a firm faces on an internally generated R&D asset by 35% (from 19.4%) in the OECD area and by 67% (from 19.6%) in OECD countries with such policies in place in 2024. In the 15 EU countries offering IBTIs in 2024, this reduction amounts on average to 47% (from 17.3% in the absence of support), and to 77.7% (from 19% in the absence of support). Among countries that offer IBTIs at central government level, effective average tax rates (EATRs) are lowest in Malta, Israel and India; and highest in the People’s Republic of China (China), Greece and Korea. Malta, India and Portugal display the largest tax benefits attributable to IBTIs, measured as the difference between the EATR with and without IBTIs. Some regional governments in Canada, Spain and Switzerland (all cantons) provide IBTIs. In Korea, IBTIs are only accessible by SMEs.
Across the OECD and EU areas, the effective rate of taxation of internally generated R&D intangibles remained stable in 2024. The decline in tax rates for R&D assets from 2000 to 2020 was principally driven by the progressive introduction of IBTIs. Over the past two decades, the number of OECD countries offering tax relief for income from R&D and innovation has increased fourfold from five in 2000 to 21 in 2024, and sixfold in the case of EU countries, from 3 in 2000 to 15 in 2024. Tax regime changes to align with the BEPS Action 5 minimum standard introduced in 2015 led to a decrease in the generosity of IBTIs in more recent years. Compared to 2023, EATRs after taking IBTIs into account increased in Ireland in 2024 by 4.4 percentage points (from 3.5% in 2023 to 7.9% in 2024), following an increase in the reduced tax rate applicable under the regime linked to the introduction of the Global Minimum Tax.
In 2023, the magnitude of income-based tax support for R&D and innovation was modest in most jurisdictions and highly concentrated in a few large economies. The latest OECD estimates of the financial cost of income-based tax relief for R&D and innovation to governments (i.e. forgone tax revenue) for 2023 (or latest year) indicate that Cyprusi (0.26%), Israel (0.23%) and the Netherlands (0.21%) provided the highest (relative to GDP) levels of income-based tax relief for R&D and innovation in that year, followed by Belgium (0.19%) and the United States (0.10%). In the OECD area (including countries with no IBTIs in place and excluding Czechia, Türkiye and Switzerland where relevant data are not available), the cost of income-based tax support for R&D and innovation amounted to 0.05% of GDP on average in 2021, and in the EU area (including countries with no IBTIs in place and excluding Czechia where relevant data are not available) this value corresponded to 0.03% in 2022. In half of the OECD and EU countries offering IBTIs in 2023 and for which data are available, this support amounted to less than 0.02% of GDP.
Total income-based tax support is heavily concentrated in a small group of large economies, namely the United States (USD 23.5 billion), the Netherlands (USD 2.9 billion), the United Kingdom (USD 2.9 billion), Italy (USD 1.7 billion), and Belgium (USD 1.5 billion). These five OECD economies account for around 90% of total income-based tax relief for R&D and innovation in the OECD area.
IBTIs are less frequently used by jurisdictions than expenditure-based R&D tax incentives (XBTIs) and represent on average 30% of the combined tax support for R&D and innovation, with significant cross-country variation. While around 80% of OECD (i.e. 33 out of 38 OECD countries) and EU (i.e. 22 out of 27 EU countries) countries had XBTIs in place in 2023, the rate of adoption of IBTIs was less than 60% in the OECD (i.e. 21 out of 38 OECD countries) and EU (i.e. 15 out of 27 EU countries) areas. Combined OECD estimates of income-based tax support with OECD indicators of government tax relief for R&D expenditure indicate that in the OECD area, total (expenditure and income-based) tax support for R&D and innovation amounted on average to 0.18% of GDP in 2021, with IBTIs accounting for close to 30% of total R&D and innovation tax support. In the EU area, where total R&D and innovation tax support corresponded to 0.13% of GDP in 2022, this share was close to 25%.
However, the distribution of total tax support for R&D and innovation by expenditure- and income-based tax support differs notably across the surveyed economies. Among the five OECD countries that provided the most financial support for business R&D through the tax system relative to GDP — Belgium (0.43%), Portugal (0.39%), Iceland (0.38%), United Kingdom (0.35%) and Netherlands (0.34%) — the share of income-based tax support for R&D and innovation ranges from 0% in Iceland and 1% in Portugal, 20% in the United Kingdom, to 45% in Belgium and 60% in the Netherlands.
For further information, journalists are invited to contact Elisabeth Schoeffmann in the OECD Media Office (+33 1 45 24 81 18). For further information on the data, please contact RDTaxStatsContact@oecd.org.
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