Governments all over Europe want to attract innovative business activity. Those are businesses that perform ground-breaking research and development (R&D) activities. European countries, and the EU as a whole, give incentives to these businesses. For example to create a more technologically advanced economy, stimulate job growth or tackle climate-related challenges. Such incentives are offered through direct support through government loans and investments. Another way governments stimulate innovation in their countries, is through tax breaks.
Below we will take a look at the various tax breaks European governments offer businesses for R&D activities.
3 common ways of stimulating R&D
Tax incentives for research and development (R&D) come in three general forms:
First of all, Patent boxes. These ‘boxes’ provide preferential tax rates on income derived from intellectual property, such as patents or trademarks. Roughly half of European countries have some sort of patent box regime. For example: France has a standard corporate tax rate of just over 25%, but qualifying income from innovative activities can apply for a reduced corporate tax rate of only 10%.
Secondly, R&D tax credits. Tax credits that are available for businesses that incur qualifying expenses related to their research activities, such as personnel costs or the purchase of necessary equipment.
Finally, super-deduction for R&D costs. Companies taking advantage of such special deductions for research and development (R&D) expenditure can deduct more than the actual value of their R&D costs when calculating taxable profits.
By taking advantage of these types of tax breaks, businesses can reduce their overall tax liability while also encouraging innovation and growth.
The Netherlands
The Netherlands has a patent box regime called the Innovation Box. This incentive gives a large reduction in corporate tax on qualifying innovative activities.
| Profit | 2025 | 2026 |
|---|---|---|
| SME tariff | 19% (up to €200.000) | 19% (up to €200.000) |
| Standard tariff | 25,8% (profits exceeding €200.000) | 25,8% (profits exceeding €200.000) |
| Innovation Box | 9% on profits derived from qualifying innovative activities | 9% on profits derived from qualifying innovative activities |
You can read our extensive guide on the Dutch patent box here.
Norway
Norway does not have a patent box and no decreased corporate income tax. This means that the standard rate is 22% on all corporate profits. There are other incentives, most importantly the SkatteFUNN scheme. SkatteFUNN is a government incentives program for companies who invest in research and development. It allows them to receive a reduction in taxes on their investments, so that they can reinvest more money into R&D. Companies who use the program are able to benefit from larger tax deductions, as well as access additional funds from the government. The aim of the program is to stimulate the growth of innovation in Norway and encourage companies to invest in new technology.
Ireland
Ireland’s Knowledge Development Box (KDB) provides an attractive incentive for companies to conduct research and development activities. The KDB is a modified corporate tax regime that allows qualifying companies to enjoy effective tax rates of 10% on income from a ‘usable qualifying asset’. Such assets are for example a computer programme, an invention protected by a qualifying patent or UP for small companies certified as patentable but not patented. This rate has gone up to 10% (it used to be 6,25% up til 2023).
The Irish R&D Tax Credit has increased from 30% to 35% (effective for accounting periods starting on or after January 1, 2026). Cash Refund Threshold: The “first-year instalment” (payable as a cash refund) has been increased from €75,000 to €87,500. This allows SMEs to receive a larger portion of their credit upfront without waiting for the three-year instalment cycle. Employee Rule: A new “95% Rule” has been introduced. If an employee spends 95% or more of their time on R&D, the company can claim 100% of their salary as qualifying expenditure (eliminating the need for complex time-tracking of minor admin tasks).
Sweden
Sweden does not have a lower corporate tax rate through a patent box. The standard corporate income tax is therefore always 20,6%. Forskningsavdrag (FoU-avdrag) is a tax credit in Sweden that incentivizes companies to invest in research and development. Companies receive a deduction from their taxable income when they invest in research and development, which allows them to reinvest the savings back into the business. The program is intended to support innovation and increase investment in R&D, as well as help Sweden maintain its position as an innovative hub for technology.
Denmark
Similar to the other Nordic countries, Denmark does not currently have a patent box. The Danish have a deduction of 110% of qualifying R&D expesnes (after abolishing the former 130% super-deduction R&D tax credit). Furthermore, the country has favourable conditions to attract highly-skilled researchers and expats.
Finland
Finland does not currently have a patent box. The corporate tax level is expected to drop even further from 2027, but is for now at a stable and relatively low 20%. Finland has introduced a 250% super-deduction specifically for R&D services subcontracted from universities and research institutes. This is a significant move to compete with the rest of Europe.
UK
The UK’s ‘Patent Box’ offers a 10% corporate income tax rate for profits earned from patented inventions. The regular rate corporate tax rate is currently 25% (19% over small profits, see table below).
Italy
Italy scrapped its patent box in 2021. It replaced it with a super-deduction for R&D.
Lithuania
The only Baltic state with a patent box. A company can apply the reduced CIT rate of 7% if the innovation meets the criteria (up from 5% in prior years). The country already has an advantageous CIT regime where businesses with fewer than 10 employees and gross annual revenue of less than €300,000 are eligible for a reduced corporate income tax (CIT) rate of 0% for the first two years of operation and 7% for subsequent years. To take advantage of this incentive, certain conditions must be met in order to qualify.
Estonia
Estonia does not currently have a reduced corporate income tax through a patent box regime. The country does offers a huge advantage in the postponing of corporate tax until profits are actually distributed to shareholders. Where most countries levy both corporate tax over corporate profits AND a dividend tax to the shareholder when paying out that same profit, Estonia combines the two in one relatively low rate. This gives incentive to reinvest more capital into the business. Read our full comparison on integrated tax rates.
Belgium
Belgian Patent Box also known as Innovation Income Deduction is a tax relief scheme for innovative companies in Belgium. Corporation tax on profits from a company’s own innovations are reduced by up to 85%. The effective corporate income tax over profits from innovative activities can be as low as 3,75%.
Comparing Europe's corporate tax rates and Patent Boxes
Around half of European countries have some sort of patent box regime. All work in a slightly different way. For example, some apply to profit derived from software, some IP and many to both software and IP inventions. Some of the regimes apply to other profits also. If you would like to have more information if you can apply for a tax reduction through a patent box, please contact us.
| Country | Corporate Income Tax Rate | Patent Box Regime (R&D rate) | |
|---|---|---|---|
| Germany | 30% on average. Combination of federal and municipal tax. | - | 15% Federal + 5.5% Surcharge + ~14% Municipal (Trade Tax) |
| United Kingdom | 25% | 10% | 19% "Small Profits" rate applies to firms below £50,000 |
| France | 25-31% | 10% | Large Firms: Exceptional surtax for firms >€1B turnover (eff. rate ~28.4%–31%). |
| Italy | 28% approximately, based on national and regional taxes | - | Incentive Change: Replaced with a 110% Super-Deduction for R&D costs |
| Spain | 25% | 10% | 15% reduced rate for new companies (first 2 years of profit) |
| Portugal | 19% | 2.85% | Dropping from 20% in 2025. PB is an 85% exemption on the 19% rate |
| Ireland | 12.5% | 6.25% | 15% effective rate for firms >€750M revenue (Pillar Two) |
| Netherlands | 19 / 25,8% | 9% | 19% on first €200,000; 25.8% on the excess |
| Belgium | 25% | 3.75% | Effective via Innovation Income Deduction (85% of net IP income) |
| Sweden | 20.6% | - | No change |
| Norway | 22% | - | No change |
| Denmark | 22% | - | No change |
| Finland | 20% | - | Introduction of 250% superdeduction for university collabs. Announced corporate tax drop in 2027 |
| Estonia | 22% | - | Only CIT when profits distributed to shareholders |
| Latvia | 20% | - | Only CIT when profits distributed to shareholders |
| Lithuania | 17% | 6-7% | |
| Poland | 9% / 19% | 5% | 9% for small firms (<€2M turnover) |
Do R&D incentives actually work?
The type of R&D incentive clearly leads to different outcomes. Stimulating R&D spending through tax credits or super-deduction will normally lead to higher R&D spending. On the other hand, a patent box regime could lead to a larger amount of registered innovations and patents. According to the Organisation for Economic Co-operation and Development (OECD), evidence suggests that R&D tax credits (input-based R&D incentives) more effective than patent boxes (output-based incentives). It is hard to prove whether R&D incentives in any form are an effective way of stimulating growth or achieving other specific goals. For example: the Nordic region hardly has government-driven R&D incentives (Finland has none whatsoever!). Yet, the Nordic countries belong to the top tier of R&D-spending nations in Europe.
It is important to remember that while R&D tax incentives can be an attractive option for businesses looking to start up or expand their operations, they are not the only factor that should be taken into account when making this decision. Other important considerations include the country's overall economic stability and growth potential, its infrastructure and access to resources, its labor market and cost of living, its legal system and regulations, as well as its culture and political environment. All of these elements can have a significant impact on a business’s success or failure in a particular country. You can read more about this in our complete guide on the best countries to do business in Europe.
European Innovation Scoreboard ranking 2024
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