BlogTax Basics Unused R&D credit: what happens if your company has losses
The R&D Law credit equals 35% of certified spending and is offset against First Category (corporate) Tax. But what happens if the company doesn’t owe enough tax to offset it against? You’re left with unused credit (remanente).
When unused credit arises
According to SII Circular No. 19, there’s unused credit when First Category Tax doesn’t exist or is smaller than the credit. That can happen because:
- The company has a tax loss that year.
- The company is exempt from First Category Tax in that year.
- The tax has already been covered by other credits the law allows to be applied before the R&D credit.
What happens to unused credit
The rule has two parts:
- It isn’t refunded. The SII doesn’t pay you the difference in cash.
- It isn’t lost. It can be applied, duly updated, against First Category Tax in following years until it’s used up.
An example
A company certifies R&D spending of CLP $100,000,000, which generates a credit of $35,000,000.
| Year | First Category Tax | Credit used | Unused credit carried forward |
|---|---|---|---|
| Year 1 | $10,000,000 | $10,000,000 | $25,000,000 |
| Year 2 | $15,000,000 | $15,000,000 | $10,000,000 (updated) |
| Year 3 | $20,000,000 | $10,000,000 | $0 |
The full benefit is recovered, but over time. For a company with tight cash flow, that difference matters.
Illustrative figures, ignoring the inflation update on the carried-forward credit.
Why it mostly affects young companies
The companies that invest most in R&D in their early years are often the ones operating at a loss: tech startups, biotech or new-materials companies. For them, the credit can take years to turn into real savings.
A University of Chile study (Weber, 2022) identifies this rule as one reason the R&D Law mainly benefits large, established companies. By comparison, Australia, Canada and Ireland allow unused credit to be refunded, at least for some companies. The same study recommended allowing refunds for SMEs that aren’t part of a business group, something the 2022 tax reform bill proposed. See Lessons from Australia, Canada and Ireland.
The 65% expense helps too
Remember the benefit has two parts. 65% of spending is deducted as an expense when calculating taxable income. If the company is in a loss, that expense increases the tax loss, which can also be used in future years under the general rules.
What to do
- Forecast your tax for the coming years before setting the project timeline.
- Factor unused credit into your cash flow: the benefit may arrive later than you expect.
- If you’re a young company, consider a joint project in which part of the funding comes from a company that can use the credit straight away on its own contribution. See Joint projects.
This article is for information only and is not tax advice. Sources: Law 20,241, SII Circular No. 19, Corfo’s FAQ and Weber (2022), University of Chile.