IT vs. R&D: Key Differences and Their Impact on Companies

In Spain, the distinction between Research and Development (R&D) and Information Technology (IT) is not just a technical matter but also a fiscal one. Depending on whether a project is classified as R&D or simply IT, companies may access different incentives and tax deductions. However, this classification is not always straightforward, as many technological initiatives combine elements from both fields.

Tax Differences Between R&D and IT Activities in Spain

Activities recognized as Research and Development (R&D) allow companies to apply for the most substantial deductions in Corporate Tax.

Tax Benefits:

• 25% deduction on expenses incurred in R&D activities.

• If R&D spending increases compared to the average of the previous two years, the excess can be deducted at 42%.

• Additional 17% deduction for expenses on researchers dedicated exclusively to R&D tasks.

• Possibility to monetize the deduction (cash back) if the company does not have sufficient tax liability, with a 20% discount.

  
  

Example: If you invest €100,000 in an R&D project, you can deduct between €25,000 and €42,000, plus an additional €17,000 if the research staff is exclusively dedicated to R&D.

In contrast, pure IT activities do not generate deductions (unless classified as technological innovation). IT activities such as server maintenance, ERP implementation, cloud migration, or basic cybersecurity do not qualify as R&D and do not grant direct tax benefits. However, if your project significantly improves existing products or processes using technology, it may be classified as Technological Innovation (Innovative IT)—offering smaller but still useful deductions.

Technological Innovation is like a "younger sibling" of R&D. It does not involve creating new science but does lead to relevant technical improvements.

Tax Benefits:

• 12% deduction on expenses related to substantial improvements to existing products or processes from a technological perspective.

• Only applies if there is a clear technological advancement (mere design, aesthetics, or internal efficiency improvements do not qualify).

Example: If you upgrade your technological platform to support a new AI-based recommendation system, it may be classified as technological innovation, allowing you to deduct 12%.

For this reason, understanding the differences between IT and R&D is crucial—not only from an operational standpoint but also from a strategic and financial perspective.

What is R&D?

Research and Development refers to the process of creating new knowledge or solving complex technical problems. It is not just about applying existing solutions but rather discovering or inventing something that has not been technically demonstrated yet.

Types of R&D:

• Basic Research: Searching for new knowledge without an immediate commercial goal.

• Applied Research: Focused on solving specific problems.

• Experimental Development: Creating prototypes, validations, and testing new products, processes, or services.

Characteristics:

• High technical uncertainty.

• No guaranteed results.

• Based on the scientific method.

• Original and technically complex.

What is Innovation?

Innovation is the successful application of new or improved knowledge or technology to generate market value. It may stem from R&D, but it can also arise from reorganizing processes, introducing incremental improvements, or applying existing technologies in a novel way.

Types of Innovation:

• Product Innovation: Significant improvement in a good or service.

• Process Innovation: Changes in how something is produced or delivered.

• Organizational Innovation: New management methods or business models.

• Marketing Innovation: New forms of promotion, design, or distribution channels.

Characteristics:

• Practical application of an idea.

• Market-oriented results.

• Lower technical uncertainty than R&D.

• May use existing technology.

Quick Comparison: R&D vs. Innovation

Aspect	R&D	Innovation
Objective	Create new knowledge or technology	Apply that knowledge to generate value
Technical Basis	High complexity, requires scientific method	Can use existing technology
Technical Risk	High	Moderate
Outcome	New theories, processes, materials, algorithms	New products, more efficient processes, higher profitability
Focus	Knowledge	Market and practical application
Example	Developing a new genetic treatment	Implementing a platform that personalizes medical treatments

Tax Differences in Spain

Type	Tax Deduction?	%	Notes
R&D	✅ Yes	25%-42%	+17% if there are exclusive R&D researchers.
Technological Innovation	✅ Yes	12%	Only if there is a clear technological improvement.
Non-technological Innovation (marketing, management, etc.)	❌ No	0%	Not eligible for tax deductions.

Conclusion

• R&D generates new knowledge and technologies.

• Innovation applies that knowledge to create market value.

• All R&D can lead to innovation, but not all innovation comes from R&D.

• Both are necessary: Without R&D, there is no disruption; without innovation, there is no market impact.