The Research Tax Credit (Crédit d'Impôt Recherche, CIR) is the main French R&D incentive, allowing eligible companies to deduct 30% of qualifying R&D expenditure (up to €100 million) and 5% above that threshold from their corporate tax liability. For small and innovative companies (jeunes entreprises innovantes), the rate can reach 40–45%. Expenditure qualifying for the CIR includes researchers' wages and social charges, depreciation of R&D equipment, external R&D contracts, intellectual property protection costs and technology watch expenses.

The CIR is a refundable tax credit: if it exceeds the company's tax liability, the excess is refunded immediately for startups, new companies, young innovative companies, and companies in financial difficulty (immediately reclaimable); others must carry it forward for three years before refund. This makes the CIR a significant cash flow item for R&D-intensive companies, reducing their effective cost of R&D investment by up to 30%.

In a business valuation context, the CIR affects the normalized EBIT and free cash flow: the CIR is typically treated as a grant income (above EBITDA line) or a tax credit reducing the effective IS rate. In a financial due diligence, the CIR is scrutinized carefully — it must be documented with precise qualification of eligible expenditure, and has been subject to increased audit by the French tax authority. Overstated CIR claims represent a material contingent liability.

At Hectelion, we analyze the CIR in our due diligences and incorporate it into normalized earnings in our business valuations, particularly for technology and life sciences companies.