Innovation tax credit (CII) 2026: vs the R&D credit, expenses and rates

Quick answer. The innovation tax credit (CII) refunds 20% of the cost of designing prototypes or pilot installations of new products, up to €400,000 of expenses per year. Reserved for SMEs under the European definition, it does not stack with the R&D credit (CIR) on the same expense. Extended through 31 December 2027 by the 2025 Finance Law, it can be secured through a tax ruling and remains refundable for SMEs.

The innovation tax credit has changed several times recently. Until the end of 2024 its rate was 30%. From 1 January 2025, the 2025 Finance Law (Law no. 2025-127 of 14 February 2025, articles 55 to 58) reduced it to 20% in exchange for a three-year extension, through 31 December 2027. The cut lowers the refund per euro spent, but it keeps the scheme stable for innovative SMEs.

In 2026, the CII remains an active lever to finance innovation upstream of market launch. Yet many directors still confuse CII and CIR, or are unaware of the exact access conditions. At Hayot Expertise, we regularly see this confusion lead to lost claims or to adjustments during a tax audit.

The CII is aimed at small and medium-sized enterprises (the European definition) that design prototypes or pilot installations of new products. Unlike the CIR, which funds fundamental or applied research, the CII funds the next stage: turning an idea or research result into a tangible, testable product.

The regulatory definition of a "new product"#

A product is "new" when it is new to the market, not merely to the company. That novelty must show in at least one of these ways:

• higher technical performance than existing offerings (speed, precision, efficiency, range);
• eco-design or reduced environmental impact (durable materials, lower energy use, better end of life);
• improved ergonomics or ease of use compared with competing solutions;
• new features, or a combination of functions not yet offered at that stage of the market.

A biomedical-equipment SME recently asked for our help: it had developed a working non-invasive diagnostic sensor that still needed a compact electronic housing and interface software to be used in clinics. The CII funded the design of that integrated prototype and three pilot installations in test clinics. Once clinical validation was obtained, the product moved to production — at which point the CII no longer applied.

The no-stacking rule matters: a single expense cannot be claimed under both the CIR and the CII. That is why documentation must clearly separate the two phases.

The CII funds expenses directly assigned to prototype or pilot-installation design.

Eligible expenses:

1. Salaries and charges of staff (engineers, technicians, designers) assigned to the prototype or pilot installation, in proportion to time spent.
2. Depreciation of specialised equipment and materials acquired for the operation, prorated over its duration.
3. Materials and components built into the prototype or pilot installation.
4. Outsourced design work (CAD, numerical simulation, external testing) entrusted to third parties.
5. Patents and intellectual property rights used in designing the prototype.

Excluded expenses:

• mass-production costs, once the prototype is validated;
• marketing, communications and commercialisation;
• pure research or market studies (assign to the CIR if they qualify as R&D);
• general feasibility studies unrelated to the specific prototype.

The CII applies to eligible expenses up to €400,000 per financial year. Beyond that, no further credit is generated: there is no carry-over or catch-up from one year to the next.

Example: a startup incurs €600,000 of eligible expenses in 2026. Only €400,000 is retained (the cap), for a credit of €400,000 × 20% = €80,000. The €200,000 excess produces no credit.

The enhanced overseas rate#

Expenses incurred in France's overseas departments qualify for an enhanced rate of 40% (instead of 20% in mainland France), according to information published by the tax administration.

Immediate refund for SMEs#

For an SME, the CII is more than a tax credit: it is refundable. If the credit exceeds the tax due for the year, the excess is paid back by the administration — valuable cash for a young, growing company.

Only small and medium-sized enterprises under EU recommendation 2003/361/EC qualify:

A large company is excluded. By contrast, a startup as an SARL or SAS, even with five people, qualifies if it meets the SME definition. An innovative young enterprise may also combine its own regime with the CII.

Before filing, a company can request a tax ruling (rescrit fiscal): a formal, binding position from the administration on the file's eligibility. A sound ruling covers the product's qualification as "new", the split between research and prototype phases, the list of eligible expenses and the proposed calculation.

A ruling is usually processed within two to four months. There are no direct administrative fees, but it requires support to prepare the file. A favourable ruling removes the risk of challenge on the point covered — a prudent investment once the credit exceeds €50,000.

• Software prototypes. A prototype software can qualify if its code is directly assigned to designing a not-yet-marketed new product. Software development that is algorithmic research belongs to the CIR.
• Pilot installations. They cover costs through the first production run, whether physical (a demonstration unit) or validated by numerical simulation.
• Location. The prototype must be designed within the EU or the EEA; work outsourced outside the EEA does not qualify.
• Documentation. Without an activity log or test reports, the administration rejects the file: document as the work happens, not three years later.

1. Assemble the supporting file: innovation log, invoices, payroll with time allocated, test reports, technical description of the new product.
2. Assess a ruling if the file is complex or the amount is large.
3. Declare in the tax return: the CII is reported on the research-and-innovation tax-credit form (2069-A-SD) annexed to the result.
4. Keep the supporting documents for at least the administration's reassessment period.

We see three recurring errors blocking CII refunds. First, confusing the CIR and the CII and claiming expenses under the wrong scheme. Second, underestimating the real cost of a prototype by forgetting salaries, depreciation and mobilised time. Third, the absence of contemporaneous documentation of the work.

Hayot Expertise advice. From the start of a prototype project, open a CII file with an activity log, organised invoices and a technical description of the new product. You will save most of the justification work at filing time. Above €50,000 of credit, consider a ruling: a few months and targeted support secure your rights for the long term.