Recent change in R&D Tax Credit regulations
No exclusion for market-oriented R&D and related expenses
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Abstract
Not long ago, the Federal Ministry of Finance amended the R&D Tax Credit Regulation, among other things provided for a restriction regarding the eligibility of market-oriented R&D. Just recently, the Ministry of Finance is amending the R&D Tax Credit Regulation again focusing on aforementioned market-oriented R&D. Fortunately, the restriction concerning the eligibility of market-oriented R&D is suspended retrospectively as of beginning of 2026. Consequently, the heavily criticized restriction should not apply to any period. On the other hand, the Ministry of Finance introduced a new definition and limitation with regard to "production-integrated R&D", however, providing for important exceptions.
Suspension of the restriction for market-oriented R&D
Within the original amendment to the R&D Tax Credit Regulation, published on 18 December 2025 the Ministry of Finance for the first time defined the term "market-oriented R&D" and introduced a restriction of the eligibility for related expenses. In a separate information letter in January 2026, the Ministry of Finance clarified that with respect to such market-oriented R&D only expenses that are triggered exclusively by R&D and not also (additionally) by marketing manufactured such products should be eligible for the R&D Tax Credit. Accordingly, material and raw material costs that are (also) used for R&D should not be considered for the R&D Tax Credit if resulting in products which are marketed without prior own use by the devloping company.
The additional new amendment to the R&D Tax Credit Regulation, published 1 April 2026, however, fully suspends the restriction in eligibility for market-oriented R&D. The restriction which was just introduced in December 2025 shall not apply to any calendar years as of 2026 onwards. However, since the restriction introduced in December 2025 only provided for being applied as of 2026 the criticized restriction regarding market-oriented R&D should not apply to any open periods.
Limitation regarding production-integrated R&D
In parallel to suspending the restriction on market-oriented R&D, within the new recent amendment of the R&D Tax Credit Regulation the Ministry of Finance defines the term "production-integrated R&D" and implements a specific regulations for the eligibility of such R&D activities. Production-integrated R&D is defined as R&D being carried out on a facility/machinery that is also used for commercial (manufacturing) purposes and if marketable products are manufactured in the course of such R&D works or if R&D works are carried out on marketable products throughout the manufacturing process. In case of production-integrated R&D, the new regulation distinguishes whether the primary aim and purpose is focusing on the generation of new R&D results/knowledge or on the manufacturing of marketable products.
If the primary aim is focusing on gaining new R&D insights/knowledge, the entire associated production expenses shall qualify as eligible expenses for the R&D tax credit as. If, on the other hand, the primary aim is the manufacturing of marketable products with R&D activities only conducted in an accompanying nature, only the increased expenses due to the experimental nature should be considered as eligible for the R&D tax credit.
It is worth noting, that the Ministry of Finance provides an explicit exception of this limitation for pilot plants and prototypes. Thus, if prototypes are manufactured in the course of R&D works or a pilot plant is built for future R&D purposes, the eligible costs should not be limited even if (also) being manufactured on facilities/machinery that are also used for commercial production purposes.
Conclusion
The originally introduced amendment to the R&D Tax Credit Regulation was particularly criticized with respect to the restriction for market-oriented R&D. Consequently, the recent suspension of this restriction is to be considered as a positive signal, especially since initial impact assessments of the originally implemented restriction foresaw significant negative impacts on the R&D Tax Credit as well as the R&D location Austria.
The newly implemented provision on production-integrated R&D fortunately provides for an explicit exception of the limitation for prototypes and pilot plants. Consequently, for these there should not be any negative effects triggered with respect to the R&D Tax Credit. However, seamless and comprehensive documentation in connection with production-integrated R&D activities will be of particular importance in order to sustain R&D tax credit claims in this area. Details on the documentation deemed necessary by the tax authorities are to be expected in the R&D Tax Credit Guidelines, for which there is still just a draft available. Therefore, further development of the framework and associated rules for the Austrian R&D tax credit are to be awaited.
Florian Laure, MSc (WU), LL.B. (WU)
