BlogAI & Innovation What Chile can learn from Australia, Canada and Ireland on R&D incentives
More than 40 countries offer R&D tax incentives. A University of Chile study (Weber, 2022) compares Chile’s design with those of Australia, Canada and Ireland: the first two because, like Chile, they have large mining sectors, and the third because of a similar growth path. All three invest considerably more in R&D than Chile.
| Country | R&D investment as % of GDP (2019) |
|---|---|
| Australia | 1.8% |
| Canada | 1.7% |
| Ireland | 1.2% |
| Chile | 0.3% |
| OECD average | 2.4% |
1. Higher rates for SMEs
Chile applies the same rate (35%) to every company. Other countries reward smaller ones more:
| Country | Large companies | SMEs |
|---|---|---|
| Canada | 15% | 35% |
| Australia | 38.5% | 43.5% |
| Chile | 35% | 35% |
Rates as reported in the study, with data up to 2022. They may have changed since.
The reason: according to the OECD, for every $1 of tax support, small companies generate $1.40 of additional R&D investment, medium-sized ones $1 and large ones $0.40. SMEs respond far more to the incentive. See SMEs and the R&D Law.
2. Refunds of unused credit
In Chile, if a company owes no tax to use the credit against, the unused amount is carried forward but not refunded. See Unused R&D credit.
Australia, Canada and Ireland allow refunds: Australia excludes only large companies, and Ireland pays refunds in three annual instalments. For young loss-making companies, the difference is huge.
3. Up-front approval or later audits
This may be the deepest difference.
- Chile: Corfo certifies up front (ex ante control), in a process that can take up to 180 days.
- Australia: the company self-assesses and registers its project with AusIndustry, which can review and revoke it but doesn’t need to approve it in advance.
- Canada and Ireland: only the tax agency is involved, reviewing afterwards through audits (ex post control).
According to the same study, more than half of the countries with R&D incentives use only after-the-fact control, and those countries average private R&D investment of 1.34% of GDP, against 0.80% in those that require prior approval.
4. No annual credit cap
None of the three countries caps the tax credit, although some limit eligible spending. Chile has an annual cap of 15,000 UTM.
What the study proposes for Chile
The author’s recommendations, which are policy opinions rather than changes in force, include:
- Raising the credit for SMEs and young companies to 50%.
- Allowing refunds of unused credit to SMEs that aren’t part of a business group.
- Replacing up-front certification with after-the-fact SII audits, backed by clear guidance on what qualifies and deterrent penalties.
- Removing the annual cap, with a mandatory audit above a certain amount.
Our take
Not everything transfers: up-front certification also gives companies certainty before they invest. But the comparison shows Chile’s challenge isn’t how generous the benefit is, but how accessible it is. Until that changes, the best strategy is a well-prepared application. See The R&D Law paradox.
This article is for information only and is not tax advice. Source: Weber (2022), “Incentivo tributario de la Ley I+D en Chile: aspectos críticos de su diseño”, University of Chile, with OECD and EY data.
The R&D Law paradox: a generous incentive almost no one uses
Chile has one of the most generous R&D tax incentives in the OECD, yet only a tiny fraction of companies use it. We look at the data and the likely reasons.