The international evidence is clear: SMEs are the companies that respond most to R&D tax incentives. Yet in Chile they’re a minority among users of the R&D Law. Understanding why helps find the way in.
SMEs respond more to the incentive
A University of Chile study (Weber, 2022) pulls together the evidence:
- SMEs react two to three times more than large companies to changes in the tax incentive.
- 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.
The reason: SMEs find it harder to fund R&D, because they have less collateral, a shorter track record and fewer patents to show investors.
But in Chile, mostly large companies use it
| Size | % of certified companies (2021) |
|---|---|
| Large | 76.2% |
| Small | 11.3% |
| Medium | 7.7% |
According to the same study, 45.8% of certified companies were 26 years old or more.
The barriers
1. The tax requirement. The law requires full accounting and taxation on actual income, which many SMEs don’t have. See Full accounting and actual income.
2. No refund of unused credit. Many SMEs run at a loss in their early years. Since the credit isn’t refunded, the benefit can take years to materialize. See Unused R&D credit.
3. A complex process. SMEs rarely have staff dedicated to applying for benefits. Certification requires a technical write-up, a detailed budget and proof of capabilities.
4. The minimum amount. Over 100 UTM per company isn’t much for a large company, but it can be significant for a small one.
Routes that work today
- A contract with a registered centre. If you don’t have your own R&D team, an extramural contract shifts the capability requirement to the centre.
- A joint project. Teaming up with other companies, for example a large customer, lets you share costs and capabilities. See Joint projects.
- A notice of intent. If you’ve already started, you can claim retroactively within 30 days of the first expense. See Notice of intent.
- Combining with grants. The R&D Law complements public funding, on the part you pay yourself. See Public grants and the R&D Law.
- Specialist support. A strong application lowers the risk of rejection, which is the costliest barrier.
What could change
The 2022 tax reform bill proposed including the Pro Pyme regimes and allowing refunds of unused credit for certain SMEs, and the study also recommended raising their credit to 50%. These are proposals, not changes in force. See Lessons from Australia, Canada and Ireland.
This article is for information only and is not tax advice. Sources: Law 20,241, Corfo’s FAQ and Weber (2022), University of Chile.
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