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Income Tax Act 2007

Tax credits and other credits - Research and development tax credits

LY 7: Foreign research and development expenditure

You could also call this:

“Rules for including overseas research and development costs in tax credits”

This part of the law talks about how you can include some money spent on research and development (R&D) done overseas in your tax credits. Here’s what you need to know:

You can count some foreign R&D spending if it’s for supporting activities done outside New Zealand, or if you pay a non-resident to do R&D work in New Zealand.

There’s a limit to how much foreign R&D spending you can include. It can’t be more than the smaller of two amounts:

  1. The first amount is calculated by adding up the money you pay foreign contractors for R&D work, minus any of their spending that wouldn’t count as R&D under New Zealand rules, plus any other foreign R&D spending you have.

  2. The second amount is worked out using a special formula: it’s about 11% of your total New Zealand R&D spending.

The law gives specific details on how to calculate these amounts, including what counts as “foreign research and development expenditure” and “eligible research and development expenditure”.

Remember, this is just one part of the rules about R&D tax credits. You’ll need to look at section LY 5 for more information on what counts as eligible R&D spending.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS199249.

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LY 6: Contracted research and development expenditure, or

“Tax credits for money spent on research and development done by others”

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LY 8: Carry forward for remaining research and development tax credits, or

“Unused R&D tax credits can be carried forward to the next year, with special rules for companies”

Part L Tax credits and other credits
Research and development tax credits

LY 7Foreign research and development expenditure

  1. This section applies for a person for the purposes of section LY 5(2)(b) if the person has an amount of expenditure or loss (foreign research and development expenditure) that—

  2. is incurred on a supporting research and development activity performed outside New Zealand:
    1. is a payment of salary or wages to a non-resident person, and the non-resident performs the relevant activity in New Zealand:
      1. is a payment for a service performed by a non-resident person, and the non-resident performs the relevant activity in New Zealand.

        1. For the purposes of section LY 5(2)(b), eligible research and development expenditure includes an amount of foreign research and development expenditure, described in subsection (1), to the extent the amount is less than or equal to the lesser of—

        2. the amount given by the formula in subsection (3):
          1. the amount given by the formula in subsection (5).

            1. For the purposes of subsection (2)(a), the amount is calculated using the formula—

              contract amount − ineligible expenditure + foreign in-house amount.

              Where:

              • In the formula in subsection (3),—

              • contract amount means the amount of foreign research and development expenditure, described in subsection (1)(a) and (c), for another person (a foreign contractor) to perform research and development activities on behalf of the person:
                1. ineligible expenditure means the foreign contractor’s expenditure or loss in relation to performing the research and development activities, to the extent to which the expenditure or loss is not eligible research and development expenditure under section LY 5(1), treating the foreign contractor as the relevant person for the purposes of that section:
                  1. foreign in-house amount means the amount of foreign research and development expenditure, described in subsection (1), under section LY 5(1) but ignoring amounts for a foreign contractor to perform research and development activities for the person.

                    1. For the purposes of subsection (2)(b), the amount is calculated using the formula—

                      0.1 × total NZ R & D expenditure ÷ 0.9.

                      Where:

                      • In the formula in subsection (5), total NZ R & D expenditure means the amount of eligible research and development expenditure under section LY 5, but excluding any amount in relation to foreign research and development expenditure, described in subsection (1).

                      Notes
                      • Section LY 7: inserted, on , by section 10 (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).