France's Best-Kept Secret
France offers a 30% tax credit on R&D expenses. €6 billion distributed annually. It's Europe's most generous R&D incentive.
Yet most companies—even French ones—don't maximize it.
International companies who understand the system can:
- Reduce R&D costs by 30% vs any other European country
- Structure to capture credit even with minimal French presence
- Receive cash refund (not just tax deduction)
- Combine with other incentives (JEI status = 50%+ total reduction)
How the CIR Works (Crédit d'Impôt Recherche)
The Basics
- Rate: 30% of eligible R&D expenses (no cap)
- Form: Cash refund or tax credit
- Timing: Claim in annual tax return, receive within 12 months
- Eligibility: Any company doing R&D in France (French or foreign)
What Qualifies as R&D?
✅ Eligible Expenses:
- Salaries: Researchers, engineers, technicians working on R&D (biggest component)
- Equipment: Lab equipment, prototyping tools, specialized software
- Patents: Filing costs, IP protection
- Subcontracting: External R&D (universities, labs) up to limits
- Supplies: Materials consumed in R&D process
❌ NOT Eligible:
- Marketing, sales, admin
- Production/manufacturing (unless prototyping)
- Standard IT development (must be innovative)
The Math: Real Example
Scenario: Tech startup with 10 engineers in Paris
| 10 engineers × €80K gross salary | €800K |
| + Employer charges (45%) | €360K |
| Total cost | €1,160K |
| Engineers spend 80% time on R&D | ×0.8 |
| Eligible R&D expenses | €928K |
| CIR at 30% | €278K refund |
Effective R&D cost: €650K (44% discount on engineer salaries!)
The Arbitrage Plays
Play 1: R&D Center in France, Sales Elsewhere
Structure:
- French entity employs R&D team (engineers, researchers)
- UK/US entity handles sales, marketing, customer success
- French entity invoices UK/US entity for R&D services
Benefits:
- 30% CIR on French R&D costs
- French engineers cost 40-50% less than US/UK
- Combined arbitrage: 60-70% R&D cost advantage vs full US operation
Example: SaaS Company
- 15 engineers Paris (R&D)
- 5 sales reps London (GTM)
- R&D cost with CIR: €1M effective (vs €2.5M if in SF)
- Capital efficiency: 2.5x better
Play 2: Acquire French Tech Company for R&D Capacity
Strategy:
- Buy small French tech company (€5-15M)
- Keep French R&D team (eligible for CIR)
- Offshore all R&D from expensive locations to France
- Capture 30% CIR on all French R&D
Math:
- Acquire French company: €10M
- Move 30 engineers from SF to Paris over 24 months
- Salary savings: €3M/year (€180K SF vs €105K Paris all-in)
- CIR benefit: €900K/year (30% of €3M R&D cost)
- Total annual savings: €3.9M
- Acquisition pays for itself in 2.5 years just from arbitrage
Play 3: Structure IP in France
Advanced Strategy:
- R&D in France generates IP
- IP owned by French entity
- French entity licenses IP to foreign entities
- France has favorable IP box regime (reduced tax on IP income)
Triple Arbitrage:
- 30% CIR on R&D creating IP
- Lower cost French engineers doing the work
- Tax-efficient IP licensing structure
Warning: Complex. Requires top-tier tax structuring. But legal and powerful.
Common Mistakes (Even French Companies Make)
Mistake 1: Too Conservative on Eligibility
Problem: Only claiming obvious R&D (PhDs in lab coats). Missing software R&D, process innovation, technical problem-solving.
Solution: If it's novel, uncertain outcome, requires scientific/technical expertise → probably eligible. Track time properly.
Mistake 2: Poor Time Tracking
Problem: No system to track engineer hours on R&D vs production/support.
Solution: Implement time-tracking from Day 1. Even rough estimates okay, but must be documented and justified.
Mistake 3: Not Claiming Subcontracted R&D
Problem: Outsourced R&D to university/lab but didn't claim.
Solution: Subcontracted R&D eligible (with caps). Double CIR rate if done with public research org.
Mistake 4: Missing JEI Status
Problem: Company qualifies for JEI (Jeune Entreprise Innovante) but didn't apply.
Solution: JEI = additional employer charge exemptions on R&D staff. Can combine with CIR for 50%+ total savings.
The JEI Multiplier
JEI (Young Innovative Company) status adds to CIR benefits:
JEI Eligibility
- Company <8 years old
- R&D expenses ≥15% of total expenses
- Independent (not subsidiary of big group)
JEI Benefits
- 100% corporate tax exemption (Year 1)
- 50% corporate tax exemption (Year 2)
- Employer charge exemptions on R&D staff
- Local tax exemptions
Combined CIR + JEI Math
Example: 5-engineer startup, Year 1
| 5 engineers × €70K gross | €350K |
| Normal employer charges (45%) | €157K |
| JEI exemption on charges | -€120K |
| Total cost | €387K |
| CIR refund (30%) | -€116K |
| Effective cost | €271K |
Result: 5 engineers for effective cost of €271K = €54K per engineer
Compare to SF: €180K per engineer
Arbitrage: 3.3x cost advantage
Audit Risk & Mitigation
CIR audits are frequent (20-30% of claims audited). French tax authorities scrutinize because it's €6B/year program.
What Auditors Check
- Time tracking: Can you prove engineers spent X% on R&D?
- Innovation: Is work truly novel/uncertain or routine development?
- Documentation: Project descriptions, technical obstacles, solutions attempted
- Personnel: Are claimed employees actually doing R&D (not sales/support)?
Audit Defense Best Practices
- Document Everything: Technical specs, obstacles encountered, iterations, decisions
- Time Tracking System: Even simple (weekly timesheets) better than nothing
- R&D Log: Monthly summary of R&D projects, objectives, results
- Scientific Advisor: External expert who validates R&D nature (PhD, industry veteran)
- Specialized Accountant: CIR-expert accountant prepares claim (€5-15K cost, worth it)
Audit Outcome Stats:
- Well-documented claims: 5-10% reduction typical (minor adjustments)
- Poorly documented: 30-50% reduction or full rejection
- Fraudulent: 100% rejection + penalties + possible criminal charges
International Company Playbook
Step 1: Assess Eligibility (Month 1)
- Do you have/plan R&D in France?
- Can you justify R&D nature (novel, uncertain, requires expertise)?
- Willing to set up proper tracking/documentation?
Step 2: Structure Setup (Months 2-3)
- Incorporate French entity or use existing
- Hire French R&D team or transfer roles
- Set up time tracking system
- Engage CIR-specialist accountant
Step 3: Documentation System (Ongoing)
- Weekly: Time sheets (R&D vs other)
- Monthly: R&D project summaries
- Quarterly: Review with accountant
- Annually: File CIR claim in tax return
Step 4: Claim & Receive (Year 1+)
- File claim in corporate tax return (May following fiscal year)
- For startups: Immediate refund (no tax owed yet)
- For profitable companies: Credit against corporate tax
- Receive refund: 6-12 months after filing
Maximize Your R&D Tax Benefits
We help international companies structure French R&D operations to maximize CIR benefits while staying compliant.
- Eligibility Assessment: What qualifies for your company
- Structure Optimization: French entity setup for maximum benefit
- Documentation Framework: Audit-proof tracking system
- Accountant Network: Intros to best CIR specialists
- Ongoing Support: Quarterly reviews, claim prep