Deduction for expenses relating to research and development (the SkatteFUNN scheme)

The SkatteFUNN scheme is state aid, and allocations must therefore be in accordance with the state aid rules. Pursuant to Article 1, point 4, letter C of the Commission Regulation (EU) No 651/2014, SkatteFUNN aid cannot be granted to undertakings that were in difficulty at the time of the SkatteFUNN aid application being approved by the Research Council of Norway. What’s considered an undertaking in difficulty is regulated in Article 2, point 18, letters a to e, of the Regulation.    

Find more information about this in Skatte-ABC 2023, under the topic F-29-2 Hvilke skattytere som omfattes av ordningen (F-29-2 Which taxpayers are encompassed by the scheme, in Norwegian only).  

In order to be eligble to receive a tax deduction under the SkatteFUNN scheme, the enterprise cannot be an «enterprise in difficulty» neither at company nor group level. The term «group» should be understood as it’s used in EEA legislation.   

You must keep specific accounts for the project. The accounts must document calculated costs as well as actual costs, and the project accounts must be kept continually throughout the year. Documentation of personnel costs and indirect costs must be available in the form of time sheets for R&D staff. The time sheets must be sorted by day, the name of the R&D staff member objectives are prepared. The R&D staff member and the project manager must continually sign the time sheets, and at least every quarter.  

The project accounts must be made available to the tax authorities if requested.    

The Research Council of Norway and the Directorate of Taxes have prepared a template that you can use as an aid to the preparation of project accounts. You can find the template at skattefunn.no, specifically prosjektregnskap-skattefunn-2022.xlsx (live.com) (in Norwegian only).  

Expenses that are included in the basis for the deduction must be directly linked to the approved project, and the nature of the costs must be such that they’re deductible under chapter 6 of the Taxation Act. Expenses must additionally be encompassed by Article 25 of the Commission Regulation.  

The expenses are calculated and posted under the following categories: 

• Personnel costs and indirect costs. For your own employees, the total amount of hours is limited to a maximum of 1,850 hours per year per employee, and the hourly rate is limited to 1.2 per thousand of the agreed and real annual salary, at a maximum of NOK 700 per hour. 
• Procurement of R&D services. Maximum hourly rate of NOK 700 per hours also applies to procurement of R&D services from related parties.  

• Procurement of instruments and scientific equipment.  
• Procurement of contract-based research, technical knowledge and patents.    
• Other operating expenses.    

Deductions are only granted for expenses related to purchased R&D services from enterprises domiciled within the EEA and countries that Norway has a tax treaty or an information exchange agreement with. 

Expenses that are refunded or offset do not form part of the project expenses.    

Expenses that the enterprise spends on auditors, etc., in connection with an application for funds for the project and a confirmation from an auditor as an attachment to the tax return do not form part of the project expenses.  

The taxpayer must provide an auditor’s attestation for the expenses, along with a confirmation of the information about state aid (regardless of whether or not the taxpayer is subject to an audit obligation).  

If the taxpayer receives other state aid for the project, the total state aid for the project cannot exceed the total collective allowed aid intensity, see section 16-40-6 (7) of the FSFIN Regulations. The allowed aid intensity is regulated by the General Block Exemption Regulation on certain categories of aid’s compatibility with the internal market in accordance with the Treaty’s Articles 107 and 108, Article 8 on cumulation of aid, see Article 25 on aid to research and development projects. 

When considering whether the project exceeds the limit for total state aid, the full project period is taken into account. The tax deduction will be reduced if the total state aid exceeds the specified limits. The state aid percentage must be checked for each individual project. State aid includes financial assistance for projects from public instruments (Innovation Norway, the Research Council of Norway, municipal/county industrial development funds, etc.), aid for the project from the European Union (including the EU’s framework programmes) and differentiated employer's national insurance contributions. 

When calculating the maximum aid intensity, the following are examples of things that are of importance: whether the SkatteFUNN project is defined as industrial research or experimental development, whether the enterprise is encompassed by the FSFIN’s definition of small and medium businesses, whether the project entails actual cooperation and whether the results have been significantly shared through conferences, publications, etc.     

You can read more about the rules regarding state aid on skattefunn.no (in Norwegian only) and the limitations following other state aid in Skatte-ABC 2023 under the topic F-29-11 Begrensning som følge av annen offentlig støtte (Limitations following other state aid, in Norwegian only).  

The size of the enterprise is of importance, see the definition of small and medium businesses here F-29-10 Små og mellomstore bedrifter – definisjon (Small and medium businesses – definition, in Norwegian only). 

See also the article on state aid.